TMI Blog2023 (9) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... on made by the applicant from the employees who are availing food in the factory would not be considered as a supply under the provisions of section 7 of the CGST Act, 2017. However, the aforementioned finding is only in respect of employees i.e. permanent employees. Contract worker s portion of canteen charges - HELD THAT:- The contractual worker in the factory is primarily engaged for carrying out the activity which is either directly or indirectly related to manufacturing activity. The contractual worker in the instant case, is under scope of definition of Worker stipulated under Section 2(l) to be read with Section 46 of the Factories Act, 1948 - The applicant has entered into agreement with Contractor to provide them workers in lieu of consideration. The applicant has paid the agreed amount to the contractor and the contractor pays the salary/wages to such contract workers. Therefore, it evident that the instant case does not pass the test of employer-employee relationship as far as the contract workers and the applicant is concerned and therefore does not fall within the ambit of entry 1 of Schedule III of CGST Act, 2017. The applicant has established canteen faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual worker - In the instant case the applicant company and contractual workers, do not fall within the ambit of employer-employee relationship and further, it is not obligatory on the applicant company to provide canteen facility to the contractual worker as per provisions of CLRA Act. Section 17(5) allows ITC on food, beverages outdoor catering only in case it is obligatory under any law for the time being in force. Thus applicant is not eligible of ITC on the food supplied by CSP to contractual worker and it is blocked under Section 17(5) (b) of CGST Act, 2017 - applicant is not eligible to the ITC on food supplied to the contractual worker under Section 17 (5) (b) of CGST Act, 2017. - MILIND KAVATKAR AND AMIT KUMAR MISHRA, MEMBER Present for the Applicant : Ms. Khushboo Kundalia, Shri Ashok Rathod and Shri Nrupesh Machchhar Brief facts: M/s. Eimco Elecon (India) Limited (for short - Applicant ), Anand Sojitra Road, Vallabh Vidyanagar, Gujarat- 388120 is registered with the department and their registration number is 24AAACE4645CIZ5. 2. The Applicant, is engaged in the manufacture supply of mining and construction equipment. They have set up their fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remaining balance of the cost component of canteen services is borne by the applicant. 6. The applicant further states that the amount recovered/collected by them from their employees and contractor/supplier of contract workers, is without any commercial objective i.e., without any profit margin; that they do not charge any other amount from their employees and contractor/supplier of contract workers for providing the facility of food at its canteen facilities in factory; that the recovery/collection of the canteen expenses from the employees and the contractor/supplier of the contract workers is directly netted off from the canteen expenses, booked by the Applicant in its P L account; that the amount recovered/collected by the applicant from the employees contract workers is not booked as income in the P L account 8. On merits, the appellant has further contended as follows: No GST on canteen facility that it is only facilitating the supply of food to the employees and contract workers at its canteen facility in the factory which is a statutory requirement u/s 46 of the Factories Act, 1948, and is recovering only subsidized share from its employees and contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicant merely allows the CSP to use its demarcated area i.e., canteen area for preparing and serving food to the employees and makes payment to the CSP on behalf of the employees for administrative convenience; applicant is merely collecting the employees portion of amount towards canteen charges and pays the consolidated total amount, which includes the applicant s share of the amount, to the CSP toward the food provided to the employees of applicant by the CSP; Therefore, there is no supply from the applicant to its employees. that they wish to rely on the orders of M/s Amneal Pharmaceuticals Pvt Ltd dated 8.3.2021 [Appeal No. GUJ/GAAAR/APPEAL/2021/07]; M/s Tata Motors Ltd dated 30.7.2021 [Advance Ruling No. GUJ/GAAR/R/39/2021]; M/s Emcure Pharmaceuticals Limited dated 4.1.2022 [Advance Ruling No GST-ARA-119/2019-20/B-03]; M/s Musashi Auto Parts India Private Limited dated 31.3.2022 [Appeal No GIAAAR/2020-21/06]; M/s Cadila Healthcare Limited order dated 12.4,2022 [Advance ruling No GUJ/GAAR/R/2022/19]; M/s Astral Limited dated 7.3.2022 [Advance ruling number GUJ/GAAR/R/2022/01]; M/s Intas Pharmaceutical Ltd dated 7.3.2022 [Advance ruling number GUJ/GAAR/R/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anteen or outdoor catering services; that in the present case, there is only one supply i.e., supply from the CSP to contract workers and not from the CSP to the applicant as the foods gets consumed directly and only by the contract workers; that for a transaction to qualify as supply in terms of section 7 of the CGST Act, it should essentially be made in the course or furtherance of business; that in the present case, the applicant is merely collecting the contract workers portion of amount in the canteen charges and pays the consolidated total amount, which includes the applicant s share of the amount also to the CSP towards the canteen services provided to contract workers. The Applicant neither keeps any margin in this activity of collecting contract workers portion of amount nor makes any separate supply to the contract workers. Therefore, there is no supply of canteen services from the Applicant to contract workers. that recovery of subsidized share of canteen charges from the contract workers against supply of canteen services by CSP. cannot be treated as consideration against supply of services by Applicant to contract workers; that consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent between the applicant and the contract workers, it is obligatory for the applicant to provide and maintain canteen facilities for both employees and contract workers; o that since the applicant has an obligation to provide canteen facility to employees and contract workers, ITC of the GST paid on the canteen services provided by the CSP is available to the applicant in terms of section 17(5)(b) of the CGST Act. 9. The applicant vide the aforesaid application, has sought advance ruling against the following questions viz 1. Whether GST is applicable on the amount recovered/collected by the applicant from the employees and contract workers towards canteen services provided by third party CSP at the canteen facility, which is obligatory for the applicant to provide and maintain under section 46 of the Factories Act, 1948. 2. Whether the applicant is eligible to avail ITC of the GST charged by the CSP for providing the canteen services, which is mandatory for the Applicant to provide and maintain under section 46 of the Factories Act, 1948. 10. Personal hearing was held on 23.3.2023 wherein Ms. Khushboo Kundalia, Shri Ashok Rathod and Shri Nrupesh Machchhar ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; [(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. Explanation -For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment. decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;] (b) import of services for a consideration whether or not in the course or furtherance of business; [and] (c) the activities specified in Schedule I, made or agreed to be made without a consideration; [****] (d) ......... (1A) where certain activities or transactions constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase dated 10,7.2017 Another issue is the taxation of perquisites. It is pertinent to point out here 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 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). Circular No. 172/04/2022-GST S.No. Issue Clarification 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyer 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 employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee. Factory 15. The facts having been enumerated supra we do not intent to repeat the same for the sake of brevity. 16. The first issue to be decided is whether the subsidized deduction made by the applicant from its employees, who are availing food in the factory would be considered as a supply under the provisions of section 7 of the CGST Act, 2017. Now, in terms of Section 7 of the CGST Act, 2017, supply means all forms of supply of goods/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. The exception being Schedule I, which includes the activities made or agreed to be made without a consideration and Schedule III, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees and through other manner in case of contract workers. 2.3 The food items are issued to the employees at subsidized rates as below. (a) For Company Workers staff i. Tea : Rs. 03.00 Per Cup ii. Snacks : Rs. 06.00 Per Plate iii. lunch / Dinner : Rs. 19.00 per Dish 2.5 Separate Color shades in the coupon books are maintained for Contract Workers, Company Workers Staff for better accountability and easy identification. In view of the foregoing, we hold that the subsidized deduction made by the applicant from the employees who are availing food in the factory would not be considered as a supply under the provisions of section 7 of the CGST Act, 2017. However, the aforementioned finding is only in respect of employees i.e. permanent employees. Contract worker s portion of canteen charges 18. The applicant has submitted that there are more than 250 employees including contract workers in their factory; that they are providing food at subsidized rate to their c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spector, subject to such conditions as may be prescribed, of the power to make rules under clause (c). 20. The term worker is defined under Section 2(l) 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. The contractual worker in the factory is primarily engaged for carrying out the activity which is either directly or indirectly related to manufacturing activity. The contractual worker in the instant case, is under scope of definition of Worker stipulated under Section 2(l) to be read with Section 46 of the Factories Act, 1948. 22. The term employed is not defined under the GST, therefore, we refer to the dictionary meaning, the Law Lexicon says that the word e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities; From the plain reading of the definition of business , i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovers the cost of food from their contractual worker, there is consideration , as defined in Section 2(31), ibid. To summarize, the applicant has established canteen facilities as mandated under section 46 of the Factories Act, 1948 and supplies food at a subsidized cost through CSP. 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. 29. The applicant, we find has further relying on section 16 of the Contract Labour (Regulation and Abolition) Act, 1970, referred to the definition of appropriate government, contractor, principal employer and establishment as provided u/s 2 of the said Act Rule 42 of the Contract Labour (Regulation and Abolition) (Gujarat) Rules, 1972, which deals with canteen facilities for contract workers to put forth a submission that in case where the contractor fails or does not provide canteen facility to the labourers, the principal employer has to provide and maintain the canteen facilities to the contract workers, Therefore, the principal emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they employ more than 250 employee including contract workers in their factory; that section 17(5)(b) ibid, was amended on 1.2.2019, and is reproduced supra; that the applicant is mandated vide section 46 of the Factories Act, 1948 to provide canteen facility to its employees within the factory premises; that circular no. 172/4/2022-GST clearly clarifies that post substitution, effective from 1.2.2019, based on the recommendation of the GST council in its 28th meeting, the proviso after sub clause (iii) of clause (b) of Section 17(5) of the CGST Act, 2017, is applicable to the whole of clause 17(5)(b), ibid. 32. In view of the foregoing, we hold that ITC will be available to the appellant in respect of food and beverages as canteen facility is obligatorily to be provided under the Factories Act, 1948, read with Gujarat Factories Rules, 1963 as far as provision of canteen service for full time/direct employees working on permanent basis at the factory is concerned. It is further held that the ITC on GST charged by the canteen service provider will be restricted to the extent of cost borne by the appellant only. Our view is substantiated by the Ruling of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide canteen facility to the contractual worker as per provisions of CLRA Act. Section 17(5) allows ITC on food, beverages outdoor catering only in case it is obligatory under any law for the time being in force. Thus applicant is not eligible of ITC on the food supplied by CSP to contractual worker and it is blocked under Section 17(5) (b) of CGST Act, 2017. Thus, we hold that applicant is not eligible to the ITC on food supplied to the contractual worker under Section 17 (5) (b) of CGST Act, 2017. 35. In the light of the foregoing, we rule as under: RULING 1. GST, at the hands of the applicant, is not leviable on the amount representing the employees portion of canteen charges, which is collected by the applicant and paid to the CSP. 2. GST, at the hands of the applicant, is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by the applicant and paid to the CSP. 3. Input Tax Credit (ITC) will be available to the applicant on GST charged by the CSP in respect of canteen facility provided to its direct employees working in their factory and the corporate office, in view of the provisions of Section 17(5)(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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