JULY 15, 2019

By Rohini Mukherjee

IT is commonplace for factories to purchase ambulances which are used for transportation of its workers in the event of any medical emergency. This is particularly the case where the factory is located in remote areas. While there is a requirement to maintain an ambulance room in every factory wherein more than five hundred workers are ordinarily employed under Section 45(4) of the Factories Act, 1948, the Factories Rules of certain States [Example: Rule 64(4) of the Andhra Pradesh Factories Rules, 1950] require providing a suitable conveyance (Example: ambulance) for transportation of workers to the hospital unless there is a direct arrangement with the hospital.

In this backdrop, the question is whether the credit of GST paid on the purchase of ambulance is available.

Use in course or furtherance of business

The foremost requirement to be fulfilled under GST law to avail credit is that the subject goods/services are used in the course or furtherance of business. An ambulance is purchased by a factory for use in transportation of its workers to the hospital in case of any medical emergency. This is a sine qua non to ensure that the operations of the factory are not disrupted in the event of any medical emergency. The treatment of sick/injured workers is essential for the smooth functioning of the operations of the factory and, in turn, the business. Basis this, it is a settled that an ambulance is used in the course or furtherance of the business.

Restriction based on seating capacity

Having concluded this, there are certain categories of goods and services on which credit is barred under GST law. One such category of goods under Section 17(5)(a) is:

"motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;"

As is evident from the above, the restriction on availment of credit applies to a motor vehicle having seating capacity up to 13 persons (including the driver).

Whether ambulance is a motor vehicle?

Here, the first question is whether an ambulance can be treated as a 'motor vehicle'. In terms of the definition of "motor vehicle" in terms of Section 2(76) of the CGST Act read with Section 2(28) of the Motor Vehicles Act, 'motor vehicle' includes any vehicle which is adapted for use on roads subject to certain exceptions. As an ambulance fulfils this condition, an ambulance qualifies as a 'motor vehicle'.

Does ambulance have a seating capacity?

There is an express bar on availment of credit on any motor vehicle having seating capacity of up to 13 persons. This brings us to the question, whether an ambulance has any seating capacity. In this context, there are judicial precedents Telco Ltd. [2006 (206) E.L.T. 873 (Tri. - Mumbai)] = 2005-TIOL-1709-CESTAT-MUM, Swaraj Mazda Ltd. [2005 (181) E.L.T. 90 (Tri. - Del.)] = 2004-TIOL-1240-CESTAT-DEL affirmed by the Supreme Court [2005 (187) E.L.T. A68 (S.C.)], Sita Singh and Sons Pvt. Ltd. - 2016-TIOL-2408-CESTAT-CHD affirmed by the Supreme Court at 2016 (342) E.L.T. A229 (S.C.) = 2016-TIOL-251-SC-CX wherein while deciding on the question of classification of ambulance, the seating capacity of ambulance has been determined and accordingly, the classification of ambulance has been arrived at.

This leads to the conclusion that an ambulance has a seating capacity and the restriction on motor vehicle would apply to an ambulance with seating capacity of up to 13 persons. This argument is further fuelled by the absence of exclusion carved out for an ambulance.

Going by this interpretation, the credit of GST paid on purchase of ambulance is available only where the seating capacity is 13 persons or more.

Whether an alternate view is possible?

While this is one view on the subject matter, there are judicial precedents under the erstwhile law on the point that an ambulance is not meant for carrying of passenger for hire or reward and accordingly, hiring of ambulance does not fall within the ambit of 'rent-a-cab' service. Surya Bhan Tripathi [2012 (25) S.T.R. 65 (Tri. - Del.)] = 2011-TIOL-2051-CESTAT-DEL, Mahanagar Gas Ltd. - 2018-TIOL-1089-CESTAT-MUM. On this basis, a view is possible that an ambulance is not meant for carrying passengers but for patients and therefore, does not per se have a seating capacity.

Whether it is the intention of the legislature to bar this credit?

In interpreting any legal provision, the intention of the legislature plays a key role. In this context, it is pertinent to note that the restriction of credit relating to motor vehicle based on seating capacity was brought in vide Central Goods and Services Tax (Amendment) Act, 2018. The draft amendments to the GST Law were released by GST Council for public comments in July 2018. The said draft also contained the rationale behind bringing in the amendments in question. In respect of the amendment in Section 17(5), the draft stated as under:

"It is proposed to expand the scope of ITC availability in case of motor vehicles having approved capacity of not more than 13 persons (including the driver) in case it is used for specified purposes.

The amendment is sought to make it clear that input tax credit would now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles. After the amendment is carried out, input tax credit would be denied only in respect of motor vehicles for transport of persons having approved seating capacity of not more than 13 persons (including the driver), vessels and aircraft when these are used for personal purposes."

Based on the rationale provided in the draft, it appears that the purpose of amending Section 17(5) of the CGST Act was to expand the scope of availability of credit in respect of motor vehicles having seating capacity up to 13 persons and not restrict the same. Vide the amendment, the Government intended to deny credit only on those motor vehicles which are used for transport of persons for personal use. Further, as explicitly mentioned in the draft, the amendment was intended to make it clear that credit shall be available in respect of special purpose motor vehicles. An ambulance having regard to its special nature and purpose is a special purpose motor vehicle. This view is also substantiated by Chapter Heading 8703 of the Customs Tariff Act, 1975 for classification of ambulance. Under the said Heading, ambulance is specifically mentioned at eight-digit level as 'specialised transport vehicle' based on the engine type and its capacity. On this basis, it is possible to argue that the intention behind the restriction is not to bar credit availability on a special purpose vehicle such as an ambulance.

This view is based on the intention of the legislature as is stemming from the above draft. Considering the bare language of the restriction under Section 17(5)(a), there are high chances of the GST authorities disputing this view.

Owing to the varied interpretations possible, an area which is ripe for litigation is born and only the mighty CBIC can, either nip it in its bud or allow it to grow.

(The author is Joint Partner, Lakshmikumaran & Sridharan, New Delhi and the views expressed are strictly personal.)