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TMI Blog2022 (9) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... al number of the food plates consumed) by charging 5% GST. A copy of the invoice and the agreement entered with the food supplier vendor is attached herewith as a reference as per Exhibit - A. 3. M/s Troikaa provides the canteen facility at a subsidized rate of 50% (i.e. @ Rs.30 per plate amount as the amount charged by the food supplier vendor is Rs.60) to its employees and contractual workers. The food supplier raises the invoice for the full amount on the company against food supplied to the employees. The Company bears 50% of food amount and recovers the balance 50% of the food amount from the company employee's salary pay out. The Company pays full invoice value raised to the food supplier. In case of the security service contractor workers, the food supplier vendor raises the bill for the 50% amount (i.e. @ Rs.30 per plate) + GST 5% only as the balance 50% of food amount (i.e. @ Rs.30 per plate) is being directly paid by the individual worker to the vendor. 4. M/s. Troikaa has referred Section 7(1) of CGST Act, which specify supply. From the definition of 'Supply' it is clear that the levy under CGST Act, 2017 is on "supply" of goods or services or both. The wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, for a transaction to qualify as supply in terms of Section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act), it should essentially be made in the course or furtherance of business. (iv) Section 2(17)(a) and (b) of the CGST Act: Section 2 (17) defined "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; As per clause (b) of Section 2 (17), business also includes any activity which is in connection with or incidental or ancillary to the activities covered under clause (a) of Section 2 (17) of the CGST Act. (v) The expression "in the course or furtherance of has not been defined or elucidated under the GST Act, 2017. In the absence of clarification on the expression recourse may be taken to the general principles of interpretation for understanding of the same. Based on the plain reading of the expression it is generally construed that any activities undertaken by a person in connection with or having a proximate and close nexus to its business is in the course or furtherance of business. (vi) Further, view is taken that Section 2(17) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility were not provided, the pharmaceutical business of the Applicant would still be continuing. Thus, providing canteen facilities to its employees is not the business of the Applicant and the same cannot qualify as supply under section 7 of CGST Act, 2017. (x) Applicant has place reliance on the following decisions : (i) Base Repair Organisation (Now Naval Dockyard), Vishakhapatnam Vs. State of A.P. reported in 1993 53 STC 223 (ii) State of Gujarat vs. Raipur Manufacturing Co. Ltd. (Civil Appeal No. 603 of 1966) (iii) Deputy Commissioner of Commercial Taxes vs. Thirumagal Mills Ltd. [1967 (20) STC 287 Mad], (iv) Morarji Bros. (I&E) Pvt. Ltd v. State of Maharashtra 1995 (99) STC 117 (v) Panacea Biotech Limited vs. Commissioner of Trade and Taxes [(2013) 59 VST 524 (Del.)] (vi) Bombay High Court [State of Bombay v. Ahmedabad Education Society (1956) 7 STC 497 (Bom.)] (vii) In the Press Release dated July 13, 2017, CBIC have clarified that the sale of old gold by an individual to a jeweller does not attract GST as it is not in the course or furtherance of his business. From the above clarification, it seems that the intention of the government is not to treat all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technocrats, 2018 (10) GSTL 401 (SC) and it was observed that since service tax is with reference to the value of service, as a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 7.2 Further applicant has submitted that what follows from the aforesaid decisions of the Supreme Court in Bhayana Builders and Intercontinental Consultants, and the decision of the Larger Bench of the Tribunal in Bhayana Builders is that "consideration" must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Finance Act. Any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable. The same principle of law also applicable under the GST Laws which may be called "contractual reciprocity and there must be direct and immediate link / nexus between supply made and consideration received ". 7.3 The appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to treat it as consideration received by Applicant against any supply which is liable to GST. 8. The applicant submits that without prejudice to the above, the canteen facility provided by them is excluded from the scope of supply in terms of Clause (a) of Section 7 (2) of the CGST Act. 8.1 It is submitted that 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 to Section 7 of CGST Act, 2017 covers services provided by employee to its employer in the course of employment or in relation to employment. As per clause I of schedule III of GST Act 2017, services by an employee to the employer in the course of or in relation to his employment' shall not be treated as supply and hence such services are out of the purview of GST. 8.2. It has been further submitted that Central Board of Indirect Taxes and Customs in its press release on dated 10th July 2017 clarified as follows : xxxxxx. Another issue is the taxation of perquisites. It is perti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and Appellate Authority of Advance Ruling under GST Laws in the context where it is held that recovery / collection of employee portion of canteen charges / food provided by canteen service provider is not a supply and liable to GST. (i) Tata Motors Ltd. [2021] 129 taxmann.com 277 (AAR - GUJARAT) (ii) Amneal Pharmaceuticals Pvt. Ltd. (GST AAAR Gujarat), Appeal Number: Advance Ruling Appeal No. GUJ / GAAAR / APEEAL/2021/07, Date of Judgement/Order : 08/03/2021 (iii) Emcure Pharmaceuticals Limited (GST AAR Maharashtra), Advance Ruling No. GST-ARA-119/2019-20/B-03, dated.4th January 2022 (iv) Jotun India Pvt. Ltd. 2019 (29) G.S.T.L. 778 (A.A.R. - GST) Order No. GST-ARA-19/2019-20/B-108- Mumbai, dated 4-10-2019 (v) POSCO India Pune Processing Centre Pvt. Ltd, 2019 (21) G.S.T.L. 351(AAR-GST) (vi) Tata Motors Limited (GST AAR Maharashtra) Advance Ruling No. GST-ARA-23/2019-20/B-46 - Date of Judgement / Order: 25/08/2020 (v) North Shore Technologies Private Limited (GST AAR Uttar Pradesh) Appeal Number: Order No. 59-Date of Judgement/Order : 29/06/2020 (vi) Integrated Decisions and Systems India Pvt Ltd (GST AAR Maharashtra) -Appeal Number: Advance Ruling No. GST-ARA- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity done in the course of or in furtherance of such business as it is not integrally connected to the business in such a way that without this the business will not function. Hence, not liable to levy of Goods and Service Tax. 11. The applicant submits that the availability of the input tax credit on food bill, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948. As per Section 16(1) of the CCST Act, 2017, every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. 11.1 Section 17(5)(b) of CGST Act, 2017 reads as follows: - "(b) the following supply of goods or services or both- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceuticals Limited, from employees or contractual workers, when provision of third-party canteen service is obligatory under section 46 of the Factories Act, 1948 is not liable to GST and eligible for availability of the input tax credit on food bill, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948. 15. Question on which Advance Ruling sought: 1. Whether GST shall be applicable on the amount recovered by the company, Troikaa Pharmaceuticals Limited, from employees or contractual workers, when provision of third-party canteen service is obligatory under section 46 of the Factories Act, 1948? 2. Whether input tax credit of GST paid on food bill of the Canteen Service Provider shall be available, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act. 1948? Personal Hearing: 16. Personal hearing granted on 5-5-22 and 2-8-22 was attended by Shri Chintan Shah, M.D and Shri Sandip Gupta, CA and they reiterated the submission. On being specifically asked Shri Chintan Shah stated that in the company more than 250 employees are on pay rolls, therefore it is mandatory to provide the canteen facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the issue of admissibility of ITC under the clause (b) of sub-section 5 of Section 17 of the CGST Act, in its circular No. 1.72/04/2022-GST dated 6-7-2022. Clarification is as under: Issue: Whether the proviso at the end of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the entire clause (b) or the said proviso is applicable only to sub-clause (iii) of clause (b)? Clarification: 1. Vide the Central Goods and Service Tax (Amendment Act) 2018, clause(b) of sub-section (5) of section] 7of the CGST Act was substituted with effect from 01.02.2019. After the said substitution, the proviso after sub clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act provides as under: "Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. 2. The said amendment in sub-section (5) of section 17 of the CGST Act was made based on the recommendations of GST Council in its 28th meeting. The intent of the said amendment in sub-section (5) of section17, as recommended by the GST Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted vide Annexure-1. All the employees are working in Applicant Company in terms of contractual agreement entered into between employer and the employee. 20.2 We find that CBIC vide Circular No. 172/04/2022-GST dated 6-7-22 has issued following clarification on the issue whether GST is leviable on the benefit provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee : Clarification 1. Schedule III to the CGST Act provides that "services by employee to the employer in the course of or in relation to his employment" will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment. 2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that perquisites provided by the employer to the employee in terms of contractual agreement entered into between the employer and the emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of the Factories Act, 1948 is reproduced as under: 46. Canteens.-(1) The State Government may make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers.] (2) Without prejudice to the generality of the foregoing power, such rules may provide for- (a) the date by which such canteen shall be provided; 21.2 The term 'worker' is defined under Section 2(I) of Factories Act 1948 which is reproduced as under : "worker" means a person employed, directly or by or through any agency (including a contractor) with or without the knowledge of the principal employer, whether for remuneration or not], in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with, the manufacturing process, or the subject of the manufacturing process but does not include any member of the armed forces of the Union]; 21.3 The contractual worker in the factory are for carrying out the activity which are either directly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actor to provide the worker i.e. Security Personal in lieu of some consideration. M/s Troika paid agreed amount to the contractor and contractor pays the salary/wages to the Security Personal. Therefore, it evident that the instant case does not pass the test of employer-employee relationship and is therefore does not fall under the ambit of entry I of Schedule III of CGST Act. 22. We find that the term, 'outward supply', has been defined in Section 2(83) of the CGST Act, 2017, as below: "'Outward Supply' in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business". 23. The term "business" is defined in Section 2(17) of the CGST Act, which reads like this: "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);.... From the plane reading of the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant has established canteen facilities as mandated under Section 46 of the Factories Act, 1948 and supplies food at a subsidized cost through third-party-vendor. The supply of food by the applicant is 'Supply of Service' by the applicant to their contractual worker/s. The cost, which is recovered from the salary of contractual worker, as deferred payment is 'consideration' for the supply and GST is liable to be paid. 28. In view of the above, we hold that recovery of amount from contractual worker on account of third party canteen services provided by M/s Troika would come under the definition of 'outward supply' as defined in Section 2(83) of the CGST Act, 2017 and therefore, liable to tax as a supply under GST. 29. We now detail our findings on admissibility of ITC of GST paid on canteen charges to the canteen service provider. ITC on canteen charges on the food supplied to employees of the applicant company: 30. To decide the issue of eligibility of ITC on GST paid on Canteen Service on the food supplied to employees of the applicant company, we refer to Section 17(5)( b) of CGST Act, 2017, reads as follows:- Section 17(5) (b) "(b) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (5) of section 17, as recommended by the GST Council in its 28th meeting, was made known to the trade and industry through the Press Note on Recommendations made during the 28th meeting of the GST Council, dated 21.07.2018. It had been clarified "that scope of input tax credit is being widened, and it would now be made available in respect of Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force." 3. Accordingly, it is clarified that the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section l7of the CGST Act is applicable to the whole of said clause (b) of sub-section (5) of section 17 of the CGST Act. 30.2 We find that in view of the above clarification ITC of the GST paid on canteen charges is available to the applicant on the food supplied to the employees of the applicant company as such under Section 46 of the Factories Act, it is mandatory to provide canteen facility to the employees. ITC on canteen charges on the food supplied to contractual worker 31. We in the para 21.7 have already discuss that contractual worker do not cover under the category of employer-employee rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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