TMI Blog2023 (12) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. Abiding by the above provisions, since the number of workers and contract labourers, ordinarily employed exceeds 250 in number, the Applicant has established a canteen - In the case at hand establishing a canteen facility in the unit 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 applicant has established the canteen in their premises and bears certain running cost while collecting the nominal rate as fixed by the Managing Committee, which is an activity in furtherance of their business. 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 supply of the food/beve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the employees have not authorised the Applicant to act as their agent. Hence this contention of the Applicant is totally not tenable. The recovery of subsidised value from employees for providing canteen facility will amount to 'supply' under the CGST Act and GST is to be levied on the amount recovered by the Applicant from the employees towards provision of canteen facility. - SMT. D. JAYAPRIYA, AND SMT. N. USHA, MEMBER, 1. Any appeal against this Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Rulings, Chennai under Sub-section (1) of Section 100 of Central Goods and Service Tax Act / Tamil Nadu Goods and Service Tax Act 2017 ( the Act in short) within 30 days from the date on which the ruling sought to be appealed against is communicated. 2. In terms of Section 103(1) of the Act, this Advance ruling pronounced by the Authority under Chapter XVII of the Act shall be binding only- (a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling; (b) on the concerned officer or the jurisdictional officer in respect of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Padi 929 674 161 1764 Oragadam 269 349 196 814 Hosur 221 243 60 524 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 The State Government of Tamil Nadu has provided for mandatory provision of canteen facility under the Tamil Nadu Factories Rules, 1950, which states that- 65(2) The occupier of every factory notified by the State Government and wherein more than two hundred and fifty workers are ordinarily employed shall provide in or near the factory an adequate canteen according to the standards prescribed in these rules . Further 'worker' is defined under Section 2(1) of the Factories Act as, a person employed, directly by or through any agency (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Supply of goods or services (b) Such supply is made or agreed to be made for a consideration; and (c) Such supply should be for furtherance of business. The first requirement is that there should be a legal intention and agreement between the parties to supply and receive goods or services or both. The absence of such intention would not amount to 'supply' within its meaning under the CGST Act and in this regard reliance was placed on judgement of European Court of Justice in the case of R.J. Tolsma V Inspecteur Omzetbelasting Leewarden in the case C-16/93. There is no legal intention between them and the workers to provide canteen services for a consideration, but it is only a statutory obligation under the Factories Act; There is no actual agreement between them and the workers with a positive act for consideration; The mention of provision of canteen facility in the HR policy and the Wage Agreement with employees cannot be called an agreement entered into by the parties to provide/avail canteen facility; The HR policy and the Wage Agreement merely specifies the facilities that are available to the workers, which are common to all and hence cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T dated 06.07.2022, wherein it was clarified that perquisites provided by the employer to its employees in terms of contractual agreement will not be subjected GST. Reliance is placed on Maharashtra Advance Ruling Authority's order in the case of Tata Motors Limited [GST-ARA-23/2019-20/B-46 dated 25.08.2020]. In case GST is applicable on the recovery of canteen charges, the same should be restricted to the value of charges actually collected from workers. A combined reading of the Circular cited supra and meaning of the term 'perquisite' as per Section 17(2) of the Income Tax Act, 1961, it emerges that the intention of the Circular is to clarify that GST is not applicable on a perquisite which is part of the employment agreement and which may be free of cost for the employees; Consequently, in case where a recovery is made against a supply, the same may be subject to GST; Regarding recoveries from workers other than employees, it is an unrelated party transaction and therefore GST can apply on the transaction value only. In this regard, reliance is placed on TNAAR ruling in the case of M/s Kothari Sugar and Chemicals Limited [No. 20/AAR/2022 dated 31.05.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished and the facility is provided as per the provisions of Section 46 of the Factories Act, 1948. This activity is an incident to the running of business. As per the term 'Business', defined under Section 2(17) of the GST Act, supply of food by the Applicant to its workers would fall under the clause (b) of the said section, as transaction incidental or ancillary to the main business. They collect a nominal fixed amount as employee cost in respect of food consumed by their employees and bears certain running cost which is an activity in furtherance of business. The supply made by a taxable person in the course of furtherance of business is an outward supply as per Section 2(83) of CGST Act, 2017. As per clause 6 of Schedule II of CGST Act, 2017, also supply of food for cash, deferred payment or other valuable consideration is declared as supply of service; Thus there is supply as provided in Section 7(1)(a) of the CGST Act, 2017, and the Applicant would fall under the definition of supplier as provided under sub-section (105) of Section 2 of the CGST Act, 2017; The applicant and workers are related persons as per Explanation (a)(iii) to Section 15 of CGS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t engaged in the business of provision of canteen services. The amount received from 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 the hands of the Applicant. Subsidised food is a perquisite to employees(excluding contractors) forming a part of the wage agreement and HR policy of the Agreement; As per Schedule III of the CGST Act, services by an employee to the employer in course or in relation to his employment shall be treated neither as a supply of goods nor a supply of services. In Model II, the Applicant mediate with SACL and employees as a pure Agent and they are not providing any goods or services on his account; Therefore, merely the act of recovery and reimbursement will not attract GST as per Rule 33 of the CGST Rules, 2017. 6.1. The Applicant has stated that the total number of employees (including trainees contractors) in Padi factory is 1764, in Oragadam 814 and in Hour 524. The employees and trainees are in their payroll and contract labourers are in the payroll of a third party contractor. They have deployed employees for preparatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he state Government may make rules requiring that in any specified factory wherein more that 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; (b) the standards in respect of construction, accommodation, furniture and other equipment of the canteen; (c) the foodstuffs to be served therein and the charges which may be made therefore; (d) the construction of a managing committee for the canteen and representation of the workers in the management of the canteen; (dd) the items of expenditure in the running of the canteen which are not to be taken into account in fixing the cost of foodstuffs and which shall be borne by the employer; (e) the delegation to the chief inspector, subject to such conditions as may be prescribed, of the power to make rules under clause (c). From the above provision, it is seen that the Act mandates establishing a canteen when more than two hundred and fifty workers are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount received from the employees is in the nature of reimbursement of the cost incurred by the Applicant and there is not enforceable reciprocal obligations. However, we find that as stated supra, the running of canteen in the premises of the Applicant is in the course of furtherance of business. It is also clear that in running of such a canteen, the employer, i.e., the Applicant is mandated to bear certain costs. 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 Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the case in hand. The other case law viz. Panacea Biotech Ltd V Commissioner of Trade Others [2012(12) TMI 826 (Delhi High Court)], which the Applicant has relied, wherein the facts of the case are entirely different from the facts of the case in hand. 7.7 The next contention of the Applicant is that subsidized food is a perquisite to employees forming a part of the wage agreement and HR policy of the Applicant. The Applicant stated that the perquisites forming part of employment contract were excluded from GST as per the Circular no. 172/04/2022-GST dated 06.07.2022 of CBIC. The relevant extract of the said circular is reproduced hereunder for ease of reference: S.No Issue Clarification 5. Whether various perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are liable for GST? 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the subsidized rates, by the Applicant from their employees. Thus, we hold that GST is to be levied on the amount recovered by the Applicant from the employees towards canteen provision. 7.11 Further, it was the contention of the Applicant that in respect of Model II, where canteen facility is provided through a third party i.e. SACL, the Applicant's role is limited to collecting the amount from the workers for onward payment to SACL and thereby they act as a pure agent. We find that this contention of the Applicant is not acceptable as the third party i.e. SACL is providing the canteen service to the Applicant and not to the employees. The Applicant in turn is providing the canteen facility to the employees. This fact is stated by the Applicant themselves in their application. Moreover, the first condition to act as a pure agent is that the service recipient should enter into a contractual agreement to authorize a person to act a pure agent for them. Whereas, in the present case, the employees have not authorised the Applicant to act as their agent. Hence this contention of the Applicant is totally not tenable. 8. The Applicant has referred to the rulings of various ..... X X X X Extracts X X X X X X X X Extracts X X X X
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