TMI Blog2022 (12) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7(2) of the CGST Act 2017 in support of their argument contends that the services by an employee to the employer in the course of or in relation to his employment shall be treated neither as supply of goods nor a supply of services. This provision is not applicable to the instant case as the issue pertains to the services being provided by the employer to the employee and not vice-versa - In the instant case the supplies by employer to employee are not free of charge. The applicant is recovering consideration for supply which is deducted from the salary on a monthly basis, hence the press release will not aide the case of the applicant. Section 15(1) supra deals with the valuation of the taxable supply where the supplier and the recipient are not related and the price is the sole consideration for the supply. In the instant case the supplier and the recipients are related and price is not the sole consideration and thus Section 15(1) of the Act is not relevant to the instant case. Further Section 15(4) of the Act stipulates that in the cases where the value of the supply of goods or services or both cannot be determined under section 15(1), the same shall be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as a supply by the Applicant under the provisions of Section 7 of the CGST/KGST Act 2017. a. In case answer to above is yes, Whether GST is applicable on the nominal amount being recovered by the Applicant? b. Whether Input Tax Credit ( ITC ) of the GST charged by the Service Provider would be eligible for availment to the Applicant? 4.1 Admissibility of the application : The questions raised by the applicant are in respect of (i) determination of the liability to pay tax on any goods or services or both; (ii) admissibility of input tax credit of tax paid or deemed to have been paid, which are covered under Section 97(2)(e) and 97(2) (d) respectively and hence the application is admissible under Sections 97(2)(e) 97(2)(d) of the CGST Act 2017. 5. BRIEF FACTS OF THE CASE: The applicant furnishes the following facts relevant to the issue and having a bearing on the question/s raised: 5.1 The Applicant employed about 3200 employees in their factory, governed and is registered under the provisions of the Factories Act, 1948 and thus is required to comply with all the obligations and responsibilities cast under the provisions of the Factories Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers are ordinarily employed and also as per Section 2(n) 2(i) respectively of the Factories Act, wherein the terms 'occupier' and 'worker' have been defined respectively, is undoubtedly obligated and mandated to provide canteen facility to its employees. The contract employees, who are employed through a manpower supplier are also considered as 'workers' and hence the applicant is obligated to extend the canteen facility to the contractual employees as well. 5.8 The applicant provided the canteen facility to the employees as the factory premises is located away from the local city limits and also on considering the time and efforts required for arranging the food on daily basis to comply with the statutory requirement laid down under the Factories Act. The canteen facility has been set up in a demarcated area within factory premises wherein tables, chairs, utensils, washrooms, wash basins, storage rooms for keeping the cooked food, washing the utensils etc., and maintained the ultimate control over the factory lies with the applicant. The canteen facility is set up by the applicant out of the mandate laid down under the Factories Act. 6. Applicant&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er GST; unless there is an intention to provide a service, the same shall not be treated as Supply within the meaning of Section 7 of the CGST Act and contends that they are merely providing demarcated space for canteen facility, as mandated under the provisions of the Factories Act, 1948 to their employees for eating the food during the specified time; the ultimate responsibility for deduction of statutory levies (provident fund/employees state insurance etc.,) is on the applicant and there is no 'Supply' by them in the form of provision of canteen facility to their employees. 6.3 The applicant, with regard to the second limb of the Supply i.e. 'Consideration.' contends that an activity could be considered as a Supply only if it is made or agreed to be made for a consideration. The applicant, quoting the definition of 'Consideration' in terms of Section 2(31) of the CGST Act 2017, contends that a supply must involve enforceable reciprocal obligations . If something has been used, but there was no agreement for its supply between the relevant parties, any payment subsequently received by the aggrieved party is not consideration for supply. The receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward business, promotion of business, advancement of business or progress of business . The applicant also furnished the Australian Concise Oxford Dictionary (1997) definition of the phrase 'in the course of as during and the word 'furtherance' as to mean furthering or being furthered; the advancement of a scheme etc., The applicant also stated that in the case of Indian Institute of Technology Vs State of Uttar Pradesh Ors. [1976(38) STC 428 (AIL)] it was held that (a) the statutory obligation of maintenance of a hostel which involved and supply and sale of food was an integral part of the objects of the Institute; and (b) the running of the said hostel could not be treated as the principal activity of the Institute. Consequently, the Institute was held to not be doing business. The applicant, in the light of the above, contends that the canteen facility provided to the employees is in accordance with the mandate laid down under the Factories Act and the applicant is not in the business of providing canteen facility. Therefore, since the said activity is not in the course of the business and it can't be regarded as Supply under GST la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility at the factory, which is undertaken on account of the legal obligation casted upon the applicant for their employees only and hence the same must be considered as a part of employment contract. d) Schedule III to Section 7(2) of the CGST Act 2017 specifies that any service provided by an employee to the employer in the course of or in relation to his employment shall be neither a supply of goods nor supply of services. In short, the consideration paid by the employer to the employee under the contract of employment shall be out of the scope of GST. e) The canteen facility is provided due to the existing 'Employer-Employee' relationship and hence an employee is not allowed to use the canteen facility once the 'Employer-Employee' relationship ceases i.e. when the employment is terminated. This makes it evident that 'Employer-Employee' relationship is a pre-requisite to avail the canteen facility. f) The applicant placed reliance on the ruling issued by AAR, Maharashtra in the case of M/s Tata Motors Limited [GST-ARA-23-2019-20/B-46 dated 25.08.2020] wherein it was held that GST was not applicable to the nominal amount recovered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; the ITC of GST paid towards availing manpower supply services, which are used for the purpose of providing such canteen facility should be allowed as credit as the same is not restricted under Section 17(5) of the CGST Act, 2017. Further the said ITC can't be restricted since the outward service is not a 'Supply' at the first place; consequently, there is no restriction on availment or any requirement of reversal of said ITC. PERSONAL HEARING PROCEEDINGS HELD ON 22.06.2022 7. Ms. Neethu James, Advocate Authorised Representative of the applicant appeared for personal hearing proceedings, reiterated the facts narrated in their application and filed a memo praying this authority not to answer question (b) of the questions raised, due to commercial reasons. The Authorised Representative also furnished the written synopsis of their arguments. FINDINGS DISCUSSION 8. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matters and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; It could be inferred from Section 7(1)(a) of the CGST Act 2017, that for any activity to qualify as supply under the said Act it should satisfy three limbs/parts i.e. (i) the activity must be a form of supply of goods or services or both, made or agreed to be made; (ii) for a consideration by a person (iii) in the course or furtherance of business. Now we proceed to examine whether the impugned activity satisfies the aforesaid three limbs. 13.1 The applicant, with regard to the first limb of the supply contends that there is no legal intention to enter into any contractual relationship by the applicant and the provision of canteen facility to the employees is only due to mandatory statutory obligation; they merely provide demarcated space for canteen facility, as mandated under the provisions of the Factories Act, 1948 to their employees for eating the food during the specified time; the ultimate responsibility for deduction of statutory levies (provident fund/employees state insurance etc.,) is on the applicant and there is no 'Supply' by them in the form of provision of canteen facility to their employees. 13.2 The applicant also quoted a judgement of Europe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at https:/ /eur-lex.europa.eu /legal-content/HR/TXT/?uri=CELEX:61993CJ0016 wherein consideration received for musical performance on the public highway giving rise to payments on a voluntary basis of money in an unquantified amount was sought to be excluded from the value of supply as there was no legal relationship between the provider of the service and the recipient. It is evident that the facts and the underlying jurisprudence are different to the case of the applicant wherein obligations and considerations are clearly defined for provision of canteen facility to employees. 13.5 The applicant, with regard to the second limb of supply i.e. consideration, quoting the definition of consideration, under Section 2(31) of the CGST Act 2017, contends that a supply must involve enforceable reciprocal obligations and in the instant case the receipt of payment is not on the enforcement of reciprocal obligations and thus the salary deduction would constitute a mere transaction in money. Further the applicant also contended that only a nominal amount was recovered from the employees without any commercial objective. 13.6 In this regard, we invite reference to the relevant portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded in the business. In the instant case, the applicant is running the canteen in connection with the manufacturing activity. Thus providing canteen facility is incidental to their main activity of manufacture, and therefore covered in the definition of 'business' in terms of Section 2(17)(b). 13.10 Now we proceed to examine whether the provision of canteen facility is in the course or furtherance of the applicant's business. The applicant in their submissions held that the factory premises is located away from the local city limits and also considering the time and efforts required for arranging food on daily basis, they have provided canteen facilities. In other words, if the canteen facility is not provided, the quantity of the output products get affected as the employees will have to move out of the factory for the food, which is time consuming. Thus the canteen facility is in the course of the applicant's business. Further the term 'furtherance of business' has been pointed out as an act of furthering business, helping forward business, promotion of business, advancement of business or progress of business in the case of Cinemax India Limited vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C). In the instant case the supplies by employer to employee are not free of charge. The applicant is recovering consideration for supply which is deducted from the salary on a monthly basis, hence the press release will not aide the case of the applicant. 16. The applicant referred to the rulings of various advance ruling authorities and appellate authorities, wherein the canteen facilities we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term person also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related 17.2 It could be seen from the above that the employer and employee are related persons in terms of explanation (a)(iii) to Section 15 of the CGST Act 2017. In the instant case the supplier of the service i.e. the applicant is the employer and the recipients of the said services are employees and thus they are related persons. 17.3 Section 15(1) supra deals with the valuation of the taxable supply where the supplier and the recipient are not related and the price is the sole consideration for the supply. In the instant case the supplier and the recipients are related and price is not the sole consideration and thus Section 15(1) of the Act is not relevant to the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or both is not determinable by any of the preceding rules of this chapter (i.e. rules 27,28 29), the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of the acquisition of such goods or the cost of provision of such services. Rule 31 : Residual method for determination of value of supply of goods or services or both - where the value of supply of goods or services or both cannot be determined under rules 27 to 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of Section 15 and the provisions of this Chapter: Provided that in the case of supply of services, the supplier may opt for this rule, ignoring rule 30. In view of the above, the applicant has to discharge the GST liability on the impugned services on determination of the value of the said supply in terms of either rule 30 or 31, at the applicant's option. 19. Now we proceed to examine and discuss the second question i.e. eligibility to avail the JTC of the GST paid on the manpower service utilized for running the canteen facility. In this regard the applicant contended that the canteen facili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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