TMI Blog2024 (3) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... cant from employees for availing the facility of Canteen at the factory premises? - HELD THAT:- The canteen service provided by the applicant company on its own account to its employees, is a composite supply which gets treated as a supply of service in terms of Entry No. 6 of Schedule II to the CGST Act, 2017 - the amount charged on the employees by the applicant, whether nominal or otherwise, is to be treated as the consideration for such supply of canteen service on its own account to its employees on which taxes under GST is liable to be discharged by the applicant/employer. Whether Input Tax Credit is available on facility of canteen service provided to employees by applicant as statutory obligation under Factories Act - HELD THAT:- GST charged on the inward supplies received, if any, in relation to the provision of food to the employees by the applicant is admissible as ITC to them, provided the number of direct employees in the establishment is more than 250. Further, it is also held that while availing such ITC, the proportionate credit to the extent of cost recovered from such employees is required to be reversed by the applicant/employer. Whether GST is applicable on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Car extended to the employees of the Applicant-Company in the course of employment? - HELD THAT:- In the instant case, the Applicant-Company reportedly pays the lease premium directly to car leasing company, and the overall salary cost of the related employees will get reduced to the extent of cost incurred by Applicant-Company to extend the expense incurred in relation car facility provided to employees for office purpose. However, wo notice that the circumstances relating to the car lease premium differs basically from the other cases discussed above in view of the fact that these types of car facility are normally provided to a few specific employees of the organisation, and that they are not general in nature like the canteen facility, insurance facility or the mass transportation facility - the cars are normally booked under the name of the company/organization, and it remains with them for a specific period, or until the lease period is over. Therefore, when the applicant provides the said service to their employees on their own account, and when the clement of perquisite is absent in the instant case, it is held that under the circumstances of the case, GST is applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mandatorily required to be carried out by the applicant - ITC is available on the input services received by the applicant in the instant case, in relation to gardening activities carried out within the factory premises. - SMT. D. JAYAPRIYA, AND SMT. T INDIRA, 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 applicant. 3. In terms of Section 103(2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed. 4. In terms of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has proposed to provide the facility of car to its employees, under which the applicant will pay the lease premium directly to car leasing company, and deduct the same from the overall Salary cost of the related employees. Facility of car extended to employees is considered as perquisite under Income Tax Act, 1961 and due tax required to be paid by employees on it under the head Income from Salary. During the COVID-19 pandemic, the applicant Company had arranged a vaccination drive for its employees, and that they had also paid the applicable GST on such vaccines that were provided to its employees. The Applicant incurs expenses in relation to maintenance of a garden at the factory premises. In terms of the requirements of Tamil Nadu Pollution Control Board ( TNPCB ), the Applicant is required to maintain a garden at the factory premises and develop a green belt in and around the factory premises. 2.3 The authorities of the Centre and State were addressed to report if there are any pending proceedings against the applicant on the issues raised by the applicant in the ARA application and for comments on the issues raised. 3. The concerned State authority under whose administrative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding the applicability of GST on recovery of nominal amount from employees for using of transportation facility to and from the factory and office premises, it was stated that GST is applicable on recovery of nominal amount from employees for using of transportation facility to and from the factory and office premises provided to the employees in the course of employment. The recovery of nominal amount from employees for using of transportation facility to and from the factory and office premises considered as supply of Services by the applicant under Sec. 7 of GST Act 2017, liable to be paid by the applicant on the value of supply under Rule 30 and 31 of GST Act 2017. e. Regarding the applicability of GST on facility of Car extended to the employees of the Applicant-Company, it was stated that GST is applicable on facility of Car extended to the employees of the Applicant Company in the course of employment. Facility of Car extended to the employees of the Applicant-Company in the course of employment considered as supply of Services by the applicant under Sec. 7 of GST Act 2017, liable to be paid by the applicant on the value of supply under Rule 30 and 31 of GST Act 2017. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of ITC of GST paid on Canteen facility, the applicant states that as per Section 17(5) of the CGST Act, ITC on food and beverages, outdoor catering, etc. is not available. However, it would be available where the same is used in making outward supply (same category of supply or as an element of a taxable composite or mixed supply). Further, the proviso is provided to clarify that the ITC in respect of such goods or services or both would be eligible where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. Further, the CBIC vide Circular No. 172/04/2022-GST dated 06.07.2022 has 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 the section 17(5) of the CGST Act, which means that ITC would be available on all the goods or services provided in section 17(5)(b) of the CGST Act, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. Thus, in light of the above-mentioned Circular, ITC is available on the GST paid in relation to canteen charges, the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, the same is a contractual obligation. Accordingly, in terms with the above-mentioned circular, GST is not exigible on recovery of insurance premium from the employees. In this regard, the Applicant places reliance on the ruling of Maharashtra AAR in RE: Jotun India Private Limited [2019 (29) G.S.T.L. 778 (A.A.R.-GST)], Maharashtra AAR s ruling in RE: POSCO India Pune Processing Centre Private Limited [2019 (21) G.S.T.L. 351 (A.A.R.-GST)], Madhya Pradesh AAR in a ruling in RE: Bharat Oman Refineries Limited [Order No. 02/2021 dated 07.06.2021]. Regarding the GST applicability on recovery of nominal amount from employees for using of transportation facility to and from the factory and office premises, it was stated that as per the term supply as defined under Section 7 of CGST Act, in order to constitute a supply, the same should be in furtherance of business and for a consideration. In the present case, there is no furtherance of business and in fact no consideration is involved, but recovery of partial amount only, which is reimbursement of expenses. Thus, transaction between the company and their employee are not supply of service and not liable to GST. It is reiterated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the ITC on GST paid on medical facilities extended to the employees, the applicant, being one of the leading organization in supply of railway goods, takes utmost precautions of its employees. The Applicant extends various health benefits and medical facilities to its employees. It is submitted that the term health service is not defined under the CGST Act. It is further submitted that the health and medical cover provided by the Applicant will not get covered under definition of Service u/s. 2(102) of the CGST Act as no separate consideration is charged. Accordingly, the ITC for such inward supplies are not. blocked credits u/s. 17(5)(b)(i) of the CGST Act, 2017. It is further submitted that such medicines cannot be considered as goods used for personal consumption since the cost of these medicines are borne by the Applicant as a part of service contract with its employees. It is submitted that, in order to avail ITC of the above supplies, the supplies should be eligible u/s. 16 of the CGST Act and should be not be blocked u/s. 17(5) of the CGST Act. It is further submitted that though there is no outright mention about ITC eligibility on preventive measures in the CGST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of law, where the law mandates the requirement of maintenance of a garden in the factory premises, the ITC thereon, is admissible. It is submitted that in RE: Ordinance Factory, Bhandara [2020 (38) GSTL 530 (AAAR-GST-Mah)], the AAAR had held that where the State Pollution Control Board has mandated the requirement of maintenance of garden inside the factory, the said service would qualify as input service and the ITC thereon would be available. The applicant had also relied on other ruling like RE: ThyssenKrupp Electrical Steel (India) Private Limited vs. Commissioner of C. Ex. [2017 (3) GSTL 176 (Tri.-Mum.)], RE: Orient Bell Limited vs. Commissioner of C. Ex. [2017 (52) STR 56 (Tri.-All.)], RE: Sterlite Industries India Limited vs. Commissioner of C. Ex., Madurai [2016 (41) STR 867 (Tri.-Chennai)], the judgement of the Hon ble Madras HC in RE: Commissioner of C. Ex. vs. Rane TRW Steering Systems Limited [2015 (39) STR 13 (Mad.)] PERSONAL HEARING 6.1 The applicant, after consent, was given an opportunity to be heard in person on 14.11.2023. Mr. Ganesh Kumar, Chartered Accountant, on being authorized by the Applicant, appeared for Personal Hearing. 6.2 He explained in detail the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation facility provided, they relied further on the ruling of Gujarat AAR in RE: TATA Autocomp Systems Limited, the ruling of Gujarat AAR in RE: Brandix Apparel India Private Limited, and the ruling of Gujarat AAR in RE: SRK Limited, mentioned supra. DISCUSSION AND ANALYSIS 7.1 We have carefully considered the submissions made by the applicant in the advance ruling application, the additional submissions made during the personal hearing and the comments furnished by the State Tax Authorities. The applicant filed advance ruling application under Section 97(2) of GST Act. 2017. 7.2 From the submissions made at the time of filing the application, it is seen that the applicant had sought an advance ruling, on the following aspects, viz.,- a. Whether GST is applicable on recovery of nominal amount by the Applicant from employees for availing the facility of Canteen at the factory premises; b. Whether Input Tax Credit is available on facility of canteen service provided to employees by applicant as statutory obligation under Factories Act; c. Whether GST is applicable on the recovery of premium of Medical Insurance Policy from the employees for them and their dependents at actuals under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as supply of goods or services and hence GST is not applicable on services rendered by employer to its employees provided they are in the course of or in relation to employment. 8.1.2 Entry 1 of Schedule III states as follows services by an employee to employer in the course of or in relation to his employment shall be neither supply of goods nor supply of services. It could be seen here that Schedule III basically deals with services by an employee to employer , and not the other way round. Only as a corollary, the services by the employer to the employee , especially when provided in the form of perquisites, has been discussed in the CBIC Circular No. 172/04/2022-GST dated 06.07.2022 in its para 2 of clarification to issue No.5, wherein it has been explained as follows:- 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 employee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited [2022-VIL-231-AAR], the ruling of Maharashtra AAR in RE: Tata Motors Limited in [2021-TIOL-197-AAR-GST], the appellate ruling by Gujarat in AAAR in RE: Amneal Pharmaceuticals Limited [GUJ/GAAAR/APPEAL/2021/07], and the Madhya Pradesh AAR in a ruling in RE: Bharat Oman Refineries Limited [Order No. 02/2021 dated 07.06.2021]. They have quoted some more rulings in the additional submissions made by them during the personal hearing, viz., the ruling of Gujarat AAR in RE: SRF Limited [Advance Ruling No. GUJ/GAAR/R/2022/41], the ruling of Gujarat AAR in RE: Zydus Lifesciences Limited [Advance Ruling No. GUJ/GAAR/R/2022/42], the ruling of Haryana AAR-in RE: Rites Limited [2022-VIL-283-AAR], the ruling of Gujarat AAR in RE: TATA Autocomp Systems Limited [2023-VIL-108-AAR] , the ruling of Gujarat AAR in RE: ALA Engineering Limited [2023-VIL-67-AAR], and the ruling Gujarat AAR in RE: Cadila Pharmaceuticals Limited [2023-VIL-68-AAR]. We would like to place on record that an advance ruling pronounced by the Authority or the Appellate Authority shall be binding only on the applicant who had sought it, and the concerned officer or the jurisdictional officer in respect of the applicant. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its own account to its employees on which taxes under GST is liable to be discharged by the applicant/employer. 8.2.1 Whether Input Tax Credit is available on facility of canteen service provided to employees by applicant as statutory obligation under Factories Act - Regarding the availment of ITC of GST paid on Canteen facility, the applicant states that as per Section 17(5) of the CGST Act, ITC on food and beverages, outdoor catering, etc. is not available. However, it would be available where the same is used in making outward supply (same category of supply or as an element of a taxable composite or mixed supply). It may be seen that a proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is provided to clarify that the ITC in respect of such goods or services or both would be eligible where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. This apart, the CBIC vide Circular No. 172/04/2022-GST dated 06.07.2022 has 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 the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er any law for the time being in force. The provisions of Section 46 of the Factories Act, 1948, which deals with the obligation of providing canteen facilities by the employer to its employees, reads as,- 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; (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 therefor; (d) the constitution 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 prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, we hold that GST charged on the inward supplies received, if any, in relation to the provision of food to the employees by the applicant is admissible as ITC to them, provided the number of direct employees in the establishment is more than 250. Further, we also hold that while availing such ITC, the proportionate credit to the extent of cost recovered from such employees is required to be reversed by the applicant/employer. 8.3.1 Whether GST is applicable on the recovery of premium of Medical Insurance Policy from the employees for them and their dependents at actuals under the HR Policy - As far as the GST applicability on Insurance premium on Insurance services to dependents of the employees of the Applicant-Company is concerned, it was stated by the applicant that in terms of Section 7(1) of CGST Act, an activity constitutes a supply, only when it is made by a person in the course or furtherance of business. The expression business is defined u/s 2(17) of GST Act, but in the course or furtherance of business has not been defined anywhere under GST Act. It is further submitted that the Applicant-Company is recovering premium of Group Medical Insurance Policy at act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion. 8.3.3 Reportedly, the applicant-company is recovering premium of Group Medical Insurance Policy at actuals pertaining to the retired employees and the dependents like parents of the employees, etc., and remitting the same to the insurance company. It has also been reported by them that the Applicant-Company is not an insurance company and that they are not providing any insurance services. Under the facts and circumstances of the instant case, since the Applicant company recovers the premium in actuals from the employees (the service receivers) and remits the same to the insurance companies (the service providers), we observe that the role of the applicant company is restricted to being a facilitator in the transaction involved and that they do not involve themselves in any supply of insurance service to the employees or their dependents. 8.3.4 In terms of Section 7(1) of CGST Act, an activity constitutes a supply, only when any goods/services are supplied by a person for a consideration in the course or furtherance of business. Therefore, to constitute a supply, basically there should be a flow of goods/services, the supply should be made for a consideration, and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant is present in the instant case involving the collection and remitting of insurance premium to the insurance companies, and therefore GST is not liable to be discharged on such cases. 8.4.1 Whether GST is applicable on recovery of nominal amount from employees for using of transportation facility to and from the factory and office premises provided to the employees in the course of employment- Regarding the GST applicability on recovery of nominal amount from employees for using of transportation facility to and from the factory and office premises, it was stated by the applicant that as per the term supply as defined under Section 7 of CGST Act, in order to constitute a supply, the same should be in furtherance of business and for a consideration. In the present case, the applicant avails renting of motor vehicles service , cab services through third party, to provide this facility to the employees. Accordingly, they contended that there is no furtherance of business and in fact no consideration is involved, but recovery of partial amount only, which is reimbursement of expenses. Thus, transaction between the company and their employee are not supply of service and not liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 supra, relating to the issue involving insurance premium, applies to this case of transportation of employees, as well, as it is reportedly carried out in terms of the HR policy of the applicant company. Here again, it is to be noted that the transportation service is not being carried out by the applicant on their own account, and that it is being availed reportedly through 'renting of motor vehicles service , cab services , etc., through a third party. Therefore, it becomes clear that in the instant case, the cab operators are the actual services providers, and that the applicant is not involved in any supply of transportation service to the employees, Further, in the instant case the applicant themselves pay up the actual cost of transportation to the service providers, i.e., the cab operators, but recovers only a nominal portion of the transportation cost from the employees, whereby the remaining portion of the transportation cost is borne as expenditure by the applicant. Further, since the nominal amount recovered from the employees forms part of the total cost reimbursed to the transportation service providers, no consideration actually accrues to the applicant in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 06.07.2022 has clarified 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. In the instant case, as the Applicant-Company is willing to provide the facility of car lease to the employees of the Company in terms of the HR policy, the same is a perquisite for the employees. Accordingly, the applicant contended that in terms of the above-mentioned Circular, recovery from employees in relation to car lease premium will not be exigible to GST. 8.5.2 In the instant case, the Applicant-Company reportedly pays the lease premium directly to car leasing company, and the overall salary cost of the related employees will get reduced to the extent of cost incurred by Applicant-Company to extend the expense incurred in relation car facility provided to employees for office purpose. However, wo notice that the circumstances relating to the car lease premium differs basically from the other cases discussed above in view of the fact that these types of car facility are normally provided to a few specific employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to employment contracts, it may be seen that in order to place any service provided by the employer to employee outside the ambit of GST, the same should be in the form of a perquisite. Though the term perquisite' has not been defined under the provisions of GST, the same is discussed under the Income Tax Act, where it has been stated in Section 17(2) as follows:- perquisite includes (i) the value of rent-free accommodation provided to the assesses by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; (iii)----------- it could be further inferred from the above, that any service rendered free of charge, or, any service rendered on a concessional basis shall qualify as a perquisite. We find that in the instant case, having paid the lease premium directly to car leasing company, the applicant deducts the amount to the extent of cost incurred by Applicant-Company from the Salary of the related employees, as admitted by them. 8.5.7 Once the applicant themselves admit that they do not bear any cost, or any portion of the cost incurred, and when the entire lease premium is recovered from the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir contractual agreements would not be subjected to GST. It had been further clarified that a transaction involving such services, on which GST has been paid to a third party, would not attract further GST when the employer provides it free-of-cost to the employees. In view of the above provisions and judicial precedents, the applicant stated that as the GST discharged on expenses related to medicinal facilities to tire employees, is for the furtherance of business, and the ITC thereto is not blocked u/s. 17(5) of the CGST Act, the ITC on such expenses shall be allowed. 8.6.2 In this case, we notice that the applicant seeks clarification on whether ITC is blocked under section 17(5) of the CGST Act, 2017, in respect of the GST involved on the expenses related to medicinal facilities extended to the employees. The applicant had contended that such medicines cannot be considered as goods used for personal consumption since the cost of these medicines are borne by the Applicant as part of service contract with its employees. They have further contended that a transaction involving such services, on which GST has been paid to a third party, would not attract further GST when the emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng but may also include measure for the preservation of the business. While appreciating the contents and its interpretation, we observe that the said case law is in relation to Income Tax laws, whereby they become absolutely distinguishable from the instant case. Further, we notice that basically, the GST law places a bar on the availment of ITC in respect of the goods or services used for personal consumption, like food and beverages, outdoor catering, beauty treatment, healthy services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, etc., as enumerated under 17(5)(b)(i) of the CGST Act, 2017. In this regard, we find that the only respite available to the applicant in the form second proviso to Section 17(5)(b) of the CGST Act, 2017, also stands exhausted as discussed above, and therefore we hold that Input Tax Credit cannot be availed on the expense incurred for the wellbeing of employees such as vaccination and other health benefits extended to them. 8.7.1 Whether Input Tax Credit is available on GST charged for gardening expenses of the Applicant-Company - As far as the ITC admissibility on Gardening Expenses is concerned, the Applicant states that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Control Board, wherein it has been specified under Sl. No. 11 of the Special Conditions as all. 11. The occupier shall develop adequate width of green belt at the rate of 400 number of trees per Hectare . Likewise, vide another Consent Order No. 2105237138783 dated 12.04.2021, it has been laid out under SI. No. 4 of the Additional Conditions as 4. The unit shall continue to develop more green belt in and around the unit s premises . On perusal of the said consent orders, it is seen that the same were issued under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981, as amended in 1987 (Central Act 14 of 1981), and the rules and orders made thereunder. 8.7.5 It is seen that the definition of Input Service as provided under Section 2(60) of the CGST Act, 2017, means any service used or intended to be used by a supplier by the course or furtherance of business , and it begins with the word any . Likewise, Section 16(1) of the Act, that provides for eligibility and conditions for taking ITC, also encompasses the phrase 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommendations of the 28th GST Council meeting. This apart, the CBIC in its Circular No. 172/04/2022-GST dated 06.07.2022, while providing clarification on various issued of Section 17(5) of the CGST Act, has observed in para 2 to query No. 3 as follows :- 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 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. 8.7.8 Having been mandated by the Tamil Nadu Pollution Control Board under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981, as amended in 1987 (Centred Act 14 of 1981), and the rules and orders made thereunder, as discussed in detail above, it is observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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