TMI Blog2022 (1) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicant is a receiver of such services - Since the provision of canteen facility by the applicant to its employees is not a transaction made in the course or furtherance of business, and since in terms of Section 7 of the CGST Act, 2017, for a transaction to qualify as supply, it should essentially be made in the course or furtherance of business, it is found that the canteen services provided by the applicant to its employees cannot be considered as a supply under the relevant provisions of the CGST Act, 2017 and therefore the applicant is not liable to pay GST on the recoveries made from the employees towards providing canteen facility at subsidized rates. Whether the GST would be payable on the recoveries made from the employees towards providing bus transportation facility? If yes, whether the Applicant is exempted under Notification No. 12/2017 Central Tax (Rate)? - HELD THAT:- The applicant, arranging bus transportation facility for their employees is definitely not an activity which is incidental or ancillary to the activity of developing, manufacturing and marketing of pharmaceutical products, nor can it be called an activity done in the course of or in furthera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT: 2.1 M/s Emcure Pharmaceuticals Limited, the Applicant, a pharmaceutical company with registered office at Emcure House, T-184, M.I.D.C. Bhosari, Pune 411026, Maharashtra, engaged in developing, manufacturing and marketing of pharmaceutical products, provides canteen and bus transportation facility to its employees as a part and parcel of the employment arrangement vide letter of employment ( Employment Agreement ) to employees, which contains the terms conditions of employment as per its HR Policy. Canteen Bus Transportation 2.2 The Applicant makes recoveries at subsidized rates for providing canteen and bus transportation facility to its employees and has engaged third party service providers to provide the said facilities and the service providers raise invoices with applicable GST. The Applicant recovers a certain portion of the consideration paid to such third-party service providers from its employees. Notice Pay Recovery 2.3 There are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, in the case of Panacea Biotech Limited vs. Commissioner of Trade and Taxes [(2013) 59 VST 524 (Del.)] wherein the Hon'ble Court held that, selling of used cars cannot by any stretch of the imagination be characterized as ancillary or incidental to the business of a pharmaceutical company. 2.10 Without prejudice to the above, the canteen facility provided by Applicant is excluded from the scope of supply in terms of Clause (a) of Section 7 (2) of the CGST Act. 2.11 The canteen facility provided by the Applicant is specifically excluded from the coverage of 'supply' under GST as per Clause (a) of Section 7 (2) of the CGST Act which begins with a non-obstante clause and overrides Section 7 (1) of the CGST Act. Entry (1) of Schedule-III covers services provided by employee to its employer in the course of employment or in relation to employment. Any activity or transaction, in this case, canteen services, which is undertaken in the course of employment or in connection with employment has been specifically excluded from the ambit of supply. By virtue of Section 7 (2) read with Entry (1) of Schedule III, the canteen facility does not amount to supply. Also, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.30 Applicant's Interpretation with respect to the applicability of exemption from G5T in respect of provision of Non-AC bus transportation facility to its employees. 2.30.1 Transportation of employees by the Applicant through usage of Non-AC buses would merit classification under the Tariff 9964 as Passenger Transportation Services . It is submitted that the Annexure for Scheme of classification of services appended to Notification 11/2017-CTR provides the manner for classification of services. Local transportation services of passengers through buses are covered under Tariff 996411. Further, the Explanatory Notes issued by the CBIC also provides that the services provided by bus within city limits would be very well classified under Tariff 996411. The Explanatory Notes also provides that the renter defines the travel routes in case of passenger transportation services. In the given case, the said conditions are satisfied. Hence, without prejudice to above submission, in case the bus employee recovery qualifies as supply of service, the said service would be classified under Tariff 9964 only. 2.3 Therefore, without prejudice to the above submissions, even in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Limited [2020 (1) TMI 1096], the Hon'ble Madras High Court held that the notice pay recovery will not attract service tax as it a part of the employees' salary. 2.31.6 Further, the Hon'ble Tribunal in the case of HCL Learning Ltd. [2019 (12) TMI 558] has also held that notice pay recovery is not liable to service tax. 2.317 In the above case laws notice pay recovery has been held as a part of the salary only and not as any separate transaction and should be treated as a deduction in the course of employment services only. Since, services provided by the employee is not liable to GST, therefore, tax cannot be applied on notice pay recovery which is deducted in the course of employment services. Reliance is placed on the Tribunal's decision in the case of Uniparts India Ltd V/s. Commissioner (Appeals), C.Ex.Meerut, [2020 (33) G.S.T.L. 233 (Tri - All.) 2.31.8 The applicant also relies on the decision of the Hon'ble Supreme Court in Sundaram Finance Limited v State of Kerala [AIR 1966 SC 1178], as well in the case of Ishikawajima-Harima Heavy Industries v CIT in 2007, 288 ITR 408, 440 (SC), wherein the Hon'ble Supreme Court laid the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to supply as per Section 7 (1) (a) of the CGST Act and hence, no GST would be payable by the Applicant on this transaction. 2.33 Notice pay collected by the Applicant from its employees are in the nature of compensation for damages for breach of contract. 2.33.1 The Applicant submits that upon breach of contract, the aggrieved party is entitled to claim compensation for the breach of contract. Such compensation is a legal and statutory right provided under Section 73 and 74 of the Indian Contract Act, 1872, and even without any specific clause in the contract for the damages or compensation payable upon the breach of contract, the party suffering such breach has the statutory right to claim damages or compensation from the party who has broken the contract. 2.33.2 Notice pay recovered by the Applicant can at best be treated as compensation towards the loss of the Applicant for the breach of the contract by the employee. In the present case, the penalty imposed by the employer on its employee is a part of the contract which is a legal document and is binding on both the parties. The nature of notice pay recovery is the compensation for the loss incurred by the employer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on Notice Pay Recoveries made by the Applicant. Further, reliance is placed on the decision In the case of K.N. Foods Industries Pvt. Ltd. [2020 (1) TMI 6 - CESTAT ALLAHABAD] wherein the revenue authorities alleged that the receipt of ex-gratia payment is towards 'obligation to tolerate an act'. The Hon'ble Allahabad CESTAT held that the amount received as compensation towards recovery of loss from unintended events cannot be treated as 'obligation to tolerate an act' and said amount cannot be said as payment towards any service. 2.36.2 Reliance is also placed in the decision in the case of South Eastern Coalfields Ltd. [2020 (12) TMI 912), wherein the Tribunal held that the recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se. 2.36.3 In this regard, the following cases can also be relied upon: Lemon Tree Hotel [2019 (7) TMI 767 - CESTAT NEW DELHI) Amit Metaliks Ltd. [2019 (11) TMI 183 - CESTAT KOLKATA] Monnet Ispat Energy Ltd. [2018 (9) TMI 1514 - CESTAT NEW DELHI) 03. CONTENTION - AS PER THE CONCERNED OFFICER: OFFICER SUBMISSION DATED 30.11.2021 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled between them. In our view, therefore, this transaction of the employer agreeing to the obligation of tolerating an act (quitting without any advance notice) on the part of the employee, for payment of a sum (notice pay), will be covered under Clause 5(e) to Sch. II to CGST Act 2017, as a declared service. 4. The above contention is also endorsed by Hon Gujarat authority for advance ruling in case of M/s. Amneal Pharmaceuticals Pvt. Ltd. Advance ruling No. GUJ/GAAR/R/51/2020 DATED 30/07/2020. Hence, GST is leviable on notice pay recovery. 04. HEARING 4.1 Preliminary e-hearing in the matter was held on 02.06.2021. Authorized Representatives of the applicant, Shri. Rinku Panbude (C.A), Shri. Pranav Mundra (Advocate) and Shri. Narendra Adwadkar were present. Jurisdictional officer Shri. Santosh Uttarwar, Deputy Commissioner, PUN-VAT-E-621, PUNE-LTU-002, Pune was also present. The Authorized Representatives made oral submissions with respect to admission of their application. 4.2 The application was admitted and called for final e-hearing on 23.11.2021. The Authorized representative of the applicant, Shri. Rinku Panbude Learned C.A, Shri. Pranav Mundra learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out its business of output supply mentioned above, the Applicant is providing canteen facility to its employees. The provision of canteen facility to the employees is a welfare measure, also mandated by the Factories Act and is not at all connected to the functioning of their business of developing, manufacturing and marketing pharmaceutical products. Further, the said activity is not a factor which will take the applicant's business activity forward. 5.3.4 We also find that the applicant is not supplying any canteen service to its employees in the instant case. Further, the said canteen facility services are also not the output service of the applicant since it is not in the business of providing canteen service. Rather, we find that, this canteen facility is provided to employees by the third party vendors and not by the applicant. Therefore, in the subject case, the applicant is not providing any canteen facility to its employees, in fact the applicant is a receiver of such services. 5.3.5 We observe that the GST is discharged on the gross value of bills raised on the applicant by the third party vendors, providing canteen facility. We also observe that the partial amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity is provided to employees by the third party vendors and not by the applicant. Therefore, in the subject case, the applicant is not providing bus transportation facility to its employees, in fact the applicant is a receiver of such services. 5.4.4 We observe that the GST is discharged on the gross value of bills raised on the applicant by the third party vendors. We also observe that the partial amounts recovered by the applicant from its employees in respect of use of such bus transportation facility are a part of the amount paid to the third party vendors which has already suffered GST. 5.4.5 In the case of an application filed by M/s Tata Motors Limited, a similar question was raised as to whether GST was applicable on nominal amounts recovered by Applicants from employees for usage of employee bus transportation facility. This authority vide Order No. GST-ARA-23/2019-20/13-46 dated 25 August, 2020 has held that, GST is not applicable on such nominal amounts recovered from its employees. 5.4.6 Further reference is also made to the decision of the Uttar Pradesh Advance Ruling Authority in respect of the advance ruling application filed by M/s North Shore Technolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod as specified in the Employment Letter entered into, by both, the Applicant as well as the concerned employees. 5.5.2 The applicant has submitted that, at the time of appointing any employee, they enter into an Employment Agreement' wherein it is mentioned that, either parties shall serve a certain time period's mandatory notice to terminate the said Agreement. As per the relevant clauses of the Employment Agreement (submitted on a sample basis), the Employee shall have a right to resign by serving prior written notice of 30/90 days applicable to the Employee's grade, as company policy or upon payment of money compensation in lieu of notice period as mentioned in the company policy as per Employee's Grade at the time of separation. Thus, one to three months notice is mandatory for all employees/employer. In case, if any employee doesn't serve the notice period after tendering the resignation, then as per contract (Appointment Letter) condition, company is entitled to recover the notice pay from the agreed portion of salary to compensate the loss to company. Thus, Employees who resign from their job are expected to serve notice period as mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation it was clarified that premature termination was treatable as amounts paid in relation to services provided by the employer in the course of employment. As regards the present situation where the employee had paid the employer for waiver of notice period, the matter had come up before the Hon'ble Madras High Court in W.P. Nos 35728 to 35734 of 2016 in the case of GE T D India Ltd Vs Deputy Commr of Central Excise, LTU, Chennai - 2020-VIL-39-MAD-ST. The Hon'ble high court applying the CBEC's clarification observed that the employer cannot be said to have rendered any service per se much less a taxable service and has merely facilitated the exit of the employee upon imposition of a cost upon him for the sudden exit . The Hon'ble Court further held that 'the definition in clause (e) of Section 66E is not attracted to the scenario before me as, in my considered view, the employer has not 'tolerated' any act of the employee but has permitted a sudden exit upon being compensated by the 'employee in this regard. Though normally, a contract of employment qua an employer and employee has to be read as a whole, there are situations within a contract t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made or agreed to be made without a consideration; (d) Omitted vide Notification No. 02/2019-CT dated 29.01.19 1 (A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. (amended retrospective effect from 1.7.2017) 2. Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. 3. xxxxxxx SCHEDULE III of Section 7 - Activities or transactions which shall be treated as neither supply of goods nor supply of services. 1. Services by an employee to the employer in the course of or in relation to his employment. 2. xxxx From the above, it is clear that the levy under CGST Act, 2017 is on supply of goods or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n act or situation, against consideration. Section 2 (31) (b) of CGST Act 2017 defines consideration in relation to supply of goods and services or both and includes the monetary value of any act or forbearance. The word Service defined under Section 2(104) of the CGST Act, 2017 means anything other than goods, money and securities. It is pertinent to understand before levy ; (i) whether the receipt or deduction of salary in lieu of notice period by an employee can be said to be consideration for an act of forbearance and (ii) whether the act of accepting the resignation without contractual period of notice from an employee can be said to be an act of toleration. The employee opting to resign by paying amount equivalent to month of salary in lieu of notice, has acted in accordance with the contract and that being the case no question of any forbearance or tolerance does arise. Further, as per the agreement, the resignation by the employee is not subject to any acceptance or approval and employee is free to tender his resignation, make payment of notice period salary to leave. Hence, there is neither any activity nor any passive role played by the employer. It mu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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