TMI Blog2023 (6) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... on of canteen charges. M/s Shriram Pistons and Rings Limited vide letter dated 15-11-2022 has submitted that more than 2000 employees are working in its factory. The applicant is not liable to pay GST on the amount deducted/ recovered from the employees. Further the applicant is recipient of canteen service to facilitate the employees and Canteen Service Provider raises the Bill of canteen charges inclusive of GST as per the contract. The applicant collects/ recoveres the partial amount from the employees and is required to pay the gross amount inclusive of GST to the canteen service by adding residual amount in the employees portion and is required to pay gross amount of Bill inclusive of GST to the Canteen Service Provider. ITC on canteen charges on the food supplied to employees of the applicant company - HELD THAT:- The proviso of Section 17 (5)(b) stipulates that ITC shall be available on the GST paid where it is obligatory to provide a benefit for an employer to its employees in terms of any law for the time being in force - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /1 2, B 9 10, Industrial Area III, Meerut Road, Ghaziabad- 201 003 (U.P.) 3.2 The Applicant is a company incorporated under the Companies Act, 1956. The Applicant has its various manufacturing, research and development Centers and branch offices located in different states and accordingly the Applicant has obtained GST registration in the respective locations. The Applicant with GSTIN 09AAACS0229G1ZN is registered with the Goods and Services Tax department in the state of Uttar Pradesh and falls within the jurisdiction of Central Goods and Services Tax Commissionerate, Ghaziabad. 3.3 The employees are vital resources to carry out the day-to-day affairs of the factory. The Applicant has more than 2000 employees working in its factory and copy of the supporting document viz. Form no. 22 i.e. Half Yearly returns filed by the Applicant for the period of June 2022, in compliance to Uttar Pradesh Factories Rule. 3.4 As per Section 46 of the Factories Act, 1948 (hereinafter referred to as Factories Act ) read with Rule 68 of the Uttar Pradesh Factories Rules, 1950 (in short, referred as UP Factories Rules ), the Applicant is under statutory obligation to provide canteen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5.1 The Applicant submits that the food facility provided by it to its employees, is excluded from the purview of supply in terms of Clause (a) to Section 7 (2) of the CGST Act, the provision whereof is reproduced below:- SECTION 7. Scope of supply.- (1) For the purposes of this Act, the expression supply includes,- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; ........................... (1A) 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the said food facility cannot be said to be an independent service/supply provided/made by the employer to the employees. Rather, it is provided as condition of the contract. 5.7 It is further submitted that the nominal amount recovered from the employees is only towards recovery of part of the cost of food facility extended by Applicant. Bearing of part of cost by the employees will not alter the nature of transaction. It is all part of one facility extended by the employer, where the cost is partly borne by the Applicant and partly by the employees. Therefore, in absence of any supply by the Applicant, no GST is payable on the recoveries made by Applicant from its employees. 5.8 Also, the Press release issued by CBIC on 10.7.2017 clarified the aspect with respect to taxability of perquisites supplied by the companies to their employees. In the last paragraph of the said press release, it was clarified that where free housing or membership of club, health centre etc. is provided to the employees free of cost under the contract of employment and cost of such services forms part of the CTC of the employees, then no GST will be payable on such services provided by the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided in terms of the contract between the employer and employee. 5.10 In view of the above, it is submitted that the food facility provided by the Applicant to its employees would not amount to supply under GST and accordingly GST is not payable on the amount recovered/representing the employees portion of canteen charges which is collected by the Applicant and paid to the canteen service provider. 5.11 It is abundantly clear that any services provided by the employer to the employees in terms of the contractual agreement entered into between the employer and employee will not be subjected to GST. As submitted above, the Applicant in the present case is providing canteen facility to its employees as per the contract. Further, the amount charged by the Applicant is fully paid to the third-party contractor and no profit or pecuniary benefit is involved in this activity. Hence, the provision of canteen facility is excluded from the purview of supply. 5.12 Therefore, the Applicant humbly submits that the canteen facility provided by the Applicant to its employees cannot be treated as supply and therefore, GST is not payable. 6 Without prejudice to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the canteen business and the Applicant is only a facilitator in the transaction between the employee and the third-party canteen service provider. The Applicant is only paying the part value of the canteen invoice raised by the canteen service provider on its own and the remaining amount after collecting the same from the employees. Thus, the Applicant has only collected the amount and passed the same to contractor. The amount collected is not for any supply, it is only a pass through. This fact is evident from the invoice issued by the canteen contractor on the applicant which shows that Rs. 34 per plate has been charged as a consideration along with GST whereas, the Applicant only deducted Rs. 34 from the salary of the employees. Hence, nothing has been retained by the Applicant. Copy of the invoice issued by Canteen contractor and salary slip of an employee, is already enclosed as Exhibit- C and Exhibit- D respectively. Hence, the provision of food facility by the Applicant to its employees through the third-party service providers cannot be said to be canteen services provided by the Applicant. 6.5 In light of the afore-cited rulings, the Applicant submits that it is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness 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 incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) services provided by a race club by way of totalisator or a licence to book maker in such club; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rules, every factory is mandatorily required to provide and maintain canteen in the factory in which more than 250 workers are employed. Therefore, in order to comply with the said mandatory condition, the Applicant is providing and maintaining the canteen at the factory. The Applicant is not engaged in the business of providing canteen facility to its employees. 7.11 Further, the objective of providing canteen facility in its factory is to provide a healthy and workable environment to the employees. The canteen facility is being provided in order to increase the working efficiency of the employees and not to undertake any business activity. The Applicant is also known in the Indian industry as well as international trade and industry as a manufacturer of automotive components. 7.12 As mentioned above, the Applicant is involved in the business of the manufacturing and selling of automotive components and providing canteen facilities to its employees is not the business of the Applicant. The canteen facility is provided by a third-party canteen service provider for which the third party is raising an invoice on the Applicant with GST. Therefore, the canteen services are be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees. The Applicant is only a facilitator in the said transaction. 7.16 Further, according to Regulation 2.1 of Food Safety and Standards (Licensing and Registration of Food Businesses), Regulations 2011, all the food business operators in the country will have to be registered. Since, the Applicant is not a food business operator, the Applicant is under no obligation to obtain registration and to cany out compliance of the FSSAI Act and Rules. This also supports the above contention of the Applicant that the Applicant is not engaged in the business of canteen services. 7.17 In view of the above, the Applicant s business is neither a food business nor the Applicant qualifies as a food service operator . Therefore, the Applicant cannot be said to be engaged in the business of providing canteen services. 7.18 The Applicant also submits that the meaning of the term business should be restricted to cover only commercial activities. Any activity which is towards providing any support or service such as helping, aiding or assisting own employees cannot be treated at par with business. In the given case in hand, the provision of canteen facility is merely a support fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is purchased by the Company for the purpose of lighting its furnaces and heating boilers. A part of the coal purchased was sold. The Tribunal merely stated in respect of all the items of goods sold that looking to the volume and frequency of their sale, the Company should be regarded as a dealer in respect of those goods. Unless there is evidence to show that there was an intention to carry on business of selling coal, the mere fact that coal of the value exceeding Rs. 16,000/-was sold will not by itself make the Company a dealer carrying on business in coal. We have no evidence on the record as to what the total quantity of the coal purchased by the Company was, and what percentage thereof was sold. No investigation has been made as to the circumstances in which the coal came to be sold. Mere sale of a commodity which a Company requires for the purpose of its business and which has been purchased for use in that business will not justify an inference that a business of selling that commodity was intended, unless there are circumstances existing at the time when the commodity was purchased or which have come into existence later which establish such an intention. It may be pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reference is to any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern. Unless the transaction is connected with trade, that is to say, it has something to do with trade or has the incidence or elements of trade or commerce, it will not be within the definition. The words in connection with or incidental or ancillary to in the second part of the definition of business , in our opinion, still preserve or retain the requisite that the transaction should be in the course of business understood in a commercial sense. The intention of Madras Act 15 of 1964 does not appear to be to bring into the tax net a transaction of sale or purchase which is not of a commercial character. 5. In this case it is difficult to say that the assessee has been carrying on business in fair price shop. We have looked into its articles of association and nowhere is there any reference to the carrying on of business in fair price shop. What appears to be probable is that the assessee in order to provide amenity to its workmen has opened the fair price shop so that commodities may be made available to them at fair price. It may be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Applicant. Therefore, one of the essential ingredient i.e. business is missing to constitute supply under GST. Thus, it is submitted that the said canteen facility cannot be taxed under GST as Supply. 8. INPUT TAX CREDIT OF GST PAID BY CANTEEN SERVICE PROVIDER IS AVAILABLE TO THE APPLICANT. Service provided by the canteen service provider is in course or furtherance of Applicant s business. 8.1 Section 16(1) of the CGST Act provides that every registered person shall 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 and the said amount shall be credited to the electronic credit ledger of such person. 8.2 Further, the term business is defined in Section 2(17) of the CGST Act which reads as under:- (17) 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 incidental or ancillary to sub-clause (a); ........................ 8.3 It is submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess centre; and (iii) travel benefits extended to employees on vacation such as leave or home travel concession: 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. 8.5 On a perusal of the above provision, it can be seen that ITC with respect to food and beverages (which will also include canteen services) is restricted under GST Law subject to two provisos mentioned in the provision. As per the second proviso (highlighted above in bold and italics), ITC in respect of canteen services 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. 8.6 It is pertinent to note that the proviso clearly mentions that in a case where it is obligatory for an employer to provide any of the goods or services or both as listed in Section 17 (5)(b) to its employees under any law for the time being in force, ITC in respect of such goods or services or both shall be available to the employer. 8.7 Therefore, in case of canteen service, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the region concerned, the plans and site plan of the building to be constructed or adopted, for use as a canteen to the Chief Inspector of Factories for his approval. (3) The canteen building or buildings shall be situated not less than fifty feet from any latrine/urinal, boiler house, coal stacks, ash dumps and any other source of dust, smoke or obnoxious fumes : (4) The canteen building or buildings shall accommodate a dining hall, kitchen, store room, pantry and washing places, separately for workers and for utensils. (5) In a canteen the floor shall be made of smooth and impervious material, the remaining portion of the inside walls shall be made smooth by cement plaster or in any other manner approved by the Chief Inspector. ..................................................... .................................................... (20) The Manager shall appoint a Canteen Managing Committee which shall be consulted from time to time as to- (a) The quality and quantity of foodstuff to be served in the canteen; (b) the arrangements of the menus; (c) times of meals in the canteen; and (d) any other matter as may be directed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 17 of the CGST Act is applicable to the whole of clause (b) of sub-section (5) of section 17 of the CGST Act. 8.12 In view of the aforesaid, the second proviso is applicable to the entire Section 17(5)(b) of the CGST Act. In the instant case, it is obligatory for the Applicant to have canteen in its factory in terms of Section 46 of the Factories Act due to more than 250 workers. Therefore, the Applicant has engaged canteen service provider to provide canteen service to fulfill its obligation under the Factories Act. Accordingly, the Applicant is eligible to avail ITC of GST paid against the invoice raised by the canteen service provider and such credit is not subject to the rigor of Section 17(5)(b)(i) of the CGST Act. 8.13 In support of the aforesaid submissions, reliance is placed in Re: Bharat Oman Refineries Limited, 2021 (12) TMI 999 - Appellate Authority For Advance Ruling, Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation report on the question raised in the Advance Ruling Application as under: - As per section 7 read with schedule I of CGST, Act 2017 and SGST Act 2017 the activity of providing food at subsidized rate to employees doesn t appear supply of service by the applicant to his employees. No, in view of the provision of Section 17(5)(b)(i) the party is not eligible to take Input tax Credit of GST charged by the contractor for canteen services. 11. The applicant was granted a personal hearing on 15.11.2022 which was attended by Shri Sanjay Kumar And Shri Atul Gupta, the authorized representative of the applicant during which they reiterated the submissions made in the application of advance ruling. DISCUSSION AND FINDING 12. At the outset, we would like to make it clear that the provisions of both the CGST Act and the UPGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the UPGST Act. Further for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act I UPGST Act wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 there from that perquisites provided 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 when the same are provided in terms of the contract between the employer and employee. 17. We are not inclined to accord these activities provided by M/s Shriram Pistons and Rings Limited to its employees to be an activity made in the course or furtherance of business to deem it a Supply by M/s Shriram Pistons and Rings Limited to its employees in view of the above clarification and therefore amount collected by M/s Shriram Pistons and Rings Limited from employees towards canteen charges in terms of the contractual agreement in lieu of providing canteen service i.e. food is not liable to GST. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 17 of 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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