TMI Blog2022 (6) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... at large. With the above facts, the question sought on the liability to pay GST on the amount collected by the employees is taken up. The contention that the activity of supply of food for a nominal charge by them is neither a supply of goods nor a supply of service is not legally tenable. The next contention of the applicant is that there is no supply between the Applicant and the employees and the Applicant is not engaged in the business of provision of canteen services but has established the canteen as required under the Factories Act - From the provisions of Section 46 of Factories Act 1948, it is seen that the Act mandates establishing a canteen when more than two hundred and fifty workers are ordinarily employed in a factory and as per sub- clause (2)(dd) above, certain expenditure are to be borne by the employer - In the case at hand, in both the units, abiding by the above provisions, since the number of workers and contract labourers ordinarily employes exceeds 250 in number, the applicant has established the canteen. Managing committee for the canteen are present in the units as seen from the agreement entered into with the third party vendor and the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration for the supply and GST is liable to be paid. - TN/20/ARA/2022 - - - Dated:- 31-5-2022 - SHRI T.G. VENKATESH, I.R.S., AND TMT K. LATHA., M.SC., (AGRI), MEMBER, Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act. M/s. Kothari Sugars and Chemicals Limited, 115-117, Kothari Buildings, Mahathma Gandhi Road, Nungambakkam, Chennai, Tamil Nadu, 600 034 (hereinafter called the Applicant ) is registered under the GST Vide GSTIN 33AABCK2495F1ZP. They have sought Advance Ruling on the following q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees is in the nature of recovery and not consideration. The recovered amount is directly paid to the third-party vendor without any profit element in their hands. The provision of canteen facility is as per the employment contract and therefore covered under Entry 1 of Schedule III of the CGST Act, 2017 Further, Section 46(1) of the Factories Act, 1948 mandates every factory establishment to maintain canteen facility for the use of the workers in the factory. In order to comply with the above-stated statutory obligation, they have established a canteen facility for the benefit of the workers in the factory. They have outsourced the operation of canteen to a third-party vendor and are not engaged in the provision of canteen services. The same is provided to the workers since there is a mandate in the statue and it is an obligation bestowed on them by the Government. In the absence of such obligation, they would not provide such canteen facility to their employees working in the factory. 2.3 For any transaction to be taxed under GST, the same should fall within the scope of supply as envisaged in Section 7 of the CGST Act, 2017. As per Section 7(1) of the CGST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icted to the Applicant and the Jurisdictional Authority vide Section 103 of the CGST Act, 2017, the same has persuasive value even though it does not have precedential value and therefore, the Applicant had referred the rulings of the Advance Ruling Authority above. 2.4 The applicant has further stated that in the instant case, they have engaged a third-party vendor for provision of canteen facility as mandated under Section 46 of the Factories Act, 1948 and the recoveries made from the employees is paid to the third-party vendor and the balance portion is borne by them as part of their employee cost. They do not retain any profit margin in this activity of collecting employee s portion of canteen charges. This activity carried out by them is mere recovery and does not amount to consideration. They are merely facilitating the provision of canteen facility by engaging a third-party vendor and merely recovers the amount from the employees and pays the same to the third-party vendor who actually provides the canteen services. Thus, the amount received by the Applicant is merely in the nature of recovery and does not amount to consideration. They have placed reliance in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icipate in the hearing in Digital mode and the applicant tendered their willingness. The hearing was held in digital mode on 16.03.2022. Shri. Vikram Kataria, Authorised representative (AR) appeared for the hearing virtually and reiterated the submissions. He stated that the company under CTC basis provided the canteen facility as a part of contractual obligation and as per Factories Act, 1948. He emphasized that the amount collected from the employees is a recovery over and above the salary cost as per their book of accounts and is not a consideration. He referred to the Additional Submissions made by them and the said submission was taken on record. The AR stated that coupon book will be given to the employees and on the basis of redemption of the coupon the charges are recovered. He was asked to furnish the following documents: i) The process of issuance of token and costing for recovery; ii) Contract of employment(sample); and Salary slip. 3.2 In the additional submissions dated 15.03.2022, the applicant referred to the following decisions of various Advance Ruling Authorities who have held that GST would not be applicable on the nominal amount recovered from emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice letter dated 05.05.2022 1. Copy of agreement with the third party vendor in respect of Kattur Unit, invoices raised by the service provider, pricing and the recovery made from the employees at Kattur unit along with the employee contract and pay slip of employees of the Kattur unit. 2. Details of number of employees employed at each unit (Sathamangalam unit and Kattur Unit separately) during crushing season and off season along with substantiating documents. 3. Clarification regarding whether canteen services are extended throughout the year in both of their units. 3.5 The applicant vide their letter dated 13.05.2022, submitted the following details in response to the above notice: In their Kattur unit they have not engaged any third-party vendor for provision of canteen services and instead have deployed employees/contract labourers for preparation of food. Therefore, there is no agreement or invoice issued by third-party vendors for operation of canteen facility in our Kattur unit. The sample copies of recoveries made from the employees at Kattur unit along with employee contract and payslip attached. In respect of pricing adopted for recovery fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings of the applicant or case is pending in this office. 5. The Centre Jurisdictional authority has submitted that the Press Release issued dated 10.07.2017 makes it clear that any benefit provided to the employees as part of employment contract would not be subjected to tax under GST. In the instant case, the Applicant is facilitating the provision of canteen facility for the benefit of the employees. Hence, it is felt that as per sl.no. (1) of Schedule III attached to CGST Act, 2017 only services by an employee to the employer in the course of or in relation to his employment are neither a supply of goods nor a supply of services. But in this case services are provided by the employer to the employees and a nominal amount is recovered from the employees for making payment to the third party service provider for providing food in canteen as mandated in the Factories Act, 1948. In view of the above, GST has to be discharged by the employer for the recovered amount. 6. We have carefully considered all the submissions made by the Applicant and that furnished by the Jurisdictional authorities, both State Center. The applicant is engaged in the business of manufacture of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em as cost to the employer. From the deduction check list for the month of August 2021, it is seen that 52 employees had partaken food and the deductibles have been arrived at. The applicant has stated that since the canteen is run by them and there is no involvement of a third party vendor, there is no agreement or the invoice copy in respect of Kattur unit. The employment contract in respect of the employees at Kattur unit and the pay slips have been furnished. On perusal of the employee appointment order furnished in respect of S/Shri P.K. Gunasekaran, Y.Anandaraj, P. Sekahar R.Arokiyasamy, it is seen that the Starting Basic Pay is mentioned and it is also stated that they will be eligible for only those benefits as applicable to others of the cadre. From the pay slips it is seen that there are deductions on account of Canteen . 7.3 The applicant has stated that at the Sathamangalam Unit, the number of workers is 166 and there are 235 contract labourers during off season the approximate strength of employees and Contract workers would be 100 and 60 respectively. In this Unit, they have engaged a third party for the purpose of supply of food to the workers. The applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at large. With the above facts, the question sought on the liability to pay GST on the amount collected by the employees is taken up 8.1 The applicant contends that the provision of food in canteen is as per the employment contract and the same is on account of the mandate prescribed in the Factories Act, 1948 therefore the same would be covered under Entry 1 in Schedule III of the CGST Act, 2017. As per SI.No (1) of Schedule III attached to the CGST Act, 2017 only services by an employee to the employer in the course of or in relation to his employment are neither a supply of goods nor a supply of service. But in this case supplies are provided by the employer to the employees for a consideration, though nominal. Further CBIC vide the Press Release issued dated 10.07.2017 having description GST on gifts , has clarified that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods nor supply of services). It follows that supply by the employer to the employee in terms of contractual agreement of employment (part of salary/CTC) is not subject to GST. The above press release makes it clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the applicant has established the canteen. Managing committee for the canteen are present in the units as seen from the agreement entered into with the third party vendor and the submissions of the applicant and the menu along with the cost are decided by the said committee. The cost to be borne by the applicant as per the above provisions are borne by the applicant and the employee cost are arrived. The term business is defined in Section 2(17) of the GST Act 2017 as: business includes: (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit: (b) any activity or transaction in connection with or incidents or ancillary to sub-clause (a);. In the case at hand establishing a canteen facility in the units is an activity incident to the running of their business. Factory Act, above mandates establishing canteen, bearing certain mandatory costs in running of the canteen by the employer in as much as the number of workers ordinarily employed (workers contract labourers) are above 250 per unit, which is the case in hand as per their submissions. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covery is not acceptable. Provision of canteen facility and bearing certain costs in running of canteen are mandated on the part of the employer as per the Factories Act. Accordingly, such canteens are provided. It has been established that the supply of food in the canteens are Supply of Service by the applicant. Consideration is defined in Section 2(31) of the CGST Act 2017 as: Consideration in relation to the supply of goods or services or both includes,- a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government In the case at hand, the applicant supplies food to their employees at a nominal cost, and the same is the consideration for such supply made by the applicant on which GST is liable to be paid. The recovery of cost from the salary as deferred payment do not alter the fact of the service provided and the person providing the said supply. The third party vendor has entered into agreement with the applicant for runnin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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