9911796707
TMI Blog2025 (4) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable on the nominal amount to be deducted from the salaries of employees? b. Whether ITC is available to the Applicant on GST charged by the Canteen Service Providers for providing the catering services? Question 2: a. Whether the services by the way of non-air-conditioned bus transportation facility provided by the Transport Service Providers would be construed as 'supply of service' by the Applicant to its employees under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Maharashtra Goods and Service Tax Act, 2017? b. Whether ITC is available to the Applicant on GST charged by the Transport Service Providers for providing the non-air-conditioned bus transportation services? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 1. FACTS AND C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion facilities to the Applicant's employees. 1.3 It is with respect to the taxability of the amount paid to the vendors and the availability of ITC of the GST paid on such amount paid to the vendors, that the Applicant has filed the instant Application. 1.4 In order determine the taxability of the canteen and transportation facilities, it would be prudent to understand the nature of such facilities provided by the Applicant. The details of the existing arrangement are provided below. Provision of good facility by the applicant to its employees. 1.5 In the course of undertaking the manufacture of tyres, the Applicant, has in its employ about 1074 employees. Being registered under the Factories Act, 1948 (hereinafter referred to as 'Factories Act'), the Applicant is required to comply with all the obligations and responsibilities cast under the provisions of the Factories Act. 1.6 In this regard, we refer to Section 46 of the Factories Act which states that 'in any specified factory wherein more than 250 workers are ordinarily employed, a canteen or canteens, shall be provided and maintained by the 'Occupier' for the use of the workers." We also refer to Section 2 (n) of the Fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the rules. 1.10. Pursuant to the Canteen Policy, where employees avail of the canteen facility provided by the Applicant, 1/3rd cost of the cost of such canteen facilities to the Applicant will be deducted from the employee's salary, on a monthly basis. The balance monthly cost of the facilities is borne by the Applicant. The cost borne by the employee is deducted from the salary on a monthly basis which is also visible in the salary slip. 1.11 It is pertinent to note that the canteen facility provided to the employees at a nominal rate, is in the course of the employment of such persons with the Applicant and in pursuance to the statutory requirements under the Factories Act. Such facility would not be offered to any other person, but for the employer-employee relationship existing between the Applicant and its employees. Provision of bus transportation facility by the applicant to its employees 1.12 The factory of the Applicant is situated at a remote location in Pune, outside the city limits, where public transport is scare. This has a direct impact on continuity of operations of the factory, and the convenience and safety of employees to reach/ leave the factory. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant to its employees, in pursuance of its statutory obligation under Section 46 of the Factories Act would be considered as 'supply of service' under Section 7 of the CGST Act, the Applicant seeks to rely upon the following legal interpretation of the CGST Act. Extension of concessional food facility to the applicant's employees is in the course of employer-employee relationship. 2.1.1 As submitted above, the Applicant offers food facilities to the employees of the Applicant at a pre-agreed nominal amount as per the Canteen Policy. The details of the food consumed and the details of the employee are maintained by the Company. Based on the record of the food consumed, the service provider raises an invoice on the Applicant. After the termination of employment services, the employees would not be allowed to access the canteen facilities of the Applicant. 2.1.2 The Applicant wishes to submit that the deduction of nominal amount for the provision of food facility would be taxable only if such amount qualifies as consideration towards a 'supply' as defined under Section 7 of the CGST Act. In this regard, the Applicant places its reliance upon the interpretation of the following lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7 (2) of the CGST Act specifies that any services 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, any consideration by the employer to the employee, on account of the activities undertaken by the employee under the contract of employment will be out of the scope of levy of GST. 2.1.7 Applying the above to the Applicant's transaction, it emerges that the provision of the facility of canteen would squarely be covered under the ambit of the said Entry to Schedule-III since the canteen facilities are only provided to persons who are employees of the company i.e. in situations where an 'employer-employee' relationship exists. An employee would not be allowed to use the canteen facility once the employment ceases to exist. This makes it evident that an 'employer-employee' relationship is a mandatory, pre-requisite condition to avail the canteen facility. 2.1.8 Reliance in this regard is placed on the ruling issued by this Hon'ble Authority in case of Tata Motors Limited, wherein the taxability of bus transportation facility offered by the Tata Motors Ltd. was being eva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaken in the course of an employment relationship, such activity would be outside the scope of GST and would not be subject to tax. 2.1.10 Further, the Applicant wishes to place reliance on the Circular No 172/04/2022-GST dated 6th July 2022, wherein it has been clarified that any benefit provided to the employees as part of employment contract would not be subjected to tax under GST. The relevant paragraph of the Circular is provided below: Q5. Whether various perquisites provided by the employer to its employees in terms of the contractual agreement entered into between the employer and the employee are liable to 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 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the deeming provision as specified in Schedule I); and - The supply of goods or services or both shall be effected by a person in the course or furtherance of business. We have discussed each of the above-mentioned limbs in the ensuing paragraphs. The provision of canteen facility to the employees is only account of a statutory obligation and there is no legal intention to provide any service. 2.1.15 The Applicant wishes to reiterate the facts that they provide a demarcated space for canteen facility, as mandated under the provisions of the Factories Act, to its employees for consumption of food. To comply with this statutory obligation, the Applicant offers the canteen facility and has appointed the Canteen Service Providers to undertake the preparation of food and regular maintenance of the facility. 2.1.16 We wish to submit that there must be a legal intention to enter in a contractual relationship with its recipient, which casts roles and responsibility on each contractual party, in order to fall under the ambit of supply under 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees and would not attain a character of a 'consideration' in the absence of quid pro quo. 2.1.21 To substantiate this principle, the Applicant places reliance on the judgement of Bombay High Court in the case of Bai Mamubai Trust, Vithaldas Laxmidas Bhatia, Smt. Indu Vithaldas Bhatia vs. Suchitra. In the said case, the defendant was permitted to occupy the premises in question, on payment of royalty. It was contended that the royalty paid is consideration for the use of such premises and hence, should be subject to tax. It was held by the High Court that in order for a supply to subject to tax, it is essential that there is a supply by one person to another. It was further held that the royalty is payment towards damages for the violation of the plaintiff's right in the suit premises. Such payment lacks the essential quality of reciprocity to make it a supply and hence, will not be subject to tax. 2.1.22 In the instant case, the Applicant deducts a nominal amount from the employee's salary towards the cost of services availed by them from the Canteen Service Providers, without any commercial objective. Drawing inference from the above, it can be said that if there is no reciproc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken by the Applicant, it is abundantly clear that the activity under evaluation does not fall within the definition of business from Sr. No. (c) to (i) above. Thus, the various elements of the definition of business as provided in Sr. No. (a) above would need to be analyzed i.e. "any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity". 2.1.26 The Black Law's dictionary provides the below definitions for the activities in Sr no (a): i. Trade - "The business of buying and selling or bartering goods or services; A transaction or swap; A business or industry occupation; a craft or profession." ii. Commerce - "The exchange of goods and services, esp. on a large-scale involving transportation between cities, states, and nations." iii. Manufacture - "A thing that is made or built by a human being (or by a machine), as distinguished from something that is a product of nature. Manufacturers are one of the statutory categories of inventions that can be patented. Examples of manufactures are chairs and tires." iv. Profession - "A vocation requiring advanced education and training. Collectively, the members of such vocation." v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that the Applicant had any intention of undertaking business and earning profit in relation to the provision of canteen facilities, and that the facility was merely provided in the course of a statutory obligation, the provision of such facility cannot be construed to be in the course of or in furtherance of its business operations. Therefore, such transaction cannot be construed as a supply under Section 7 of the CGST Act. 2.1.32 Moreover, it is submitted that various State Authority for Advance Ruling. including this Hon'ble Authority, have held that the provision of canteen facilities is not in course of business, but in the course of a statutory obligation and hence, does not qualify as a supply under Section 7 of the CGST Act: i. In the case of Emcure Pharmaceuticals Ltd., this Hon'ble Authority held that the provision of canteen facilities is not in the course of business and hence, should not be construed as a 'supply' under Section 7 of the CGST Act. Therefore, any recovery on account of the canteen facility should not be subject to tax. The relevant extract is provided below, for ease of reference: "The provision of canteen facility is a welfare measure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees and their parents. Such recovery of 50% premium amounts by the applicant from their employees cannot be supply of services under the GST laws. 2.1.34 It is further stated that a similar ruling has been passed in case of In Re: M/s Jotun India Pvt Ltd by the Authority For Advance Ruling, Maharashtra, wherein it was held that the recovery of 50% of Parental Health Insurance Premium forms employees does not amount to "supply of service" under Section 7 of the CGST Act, as the Assessee was not in the business of providing insurance service. 2.1.35 Given the above submissions, it is submitted that the canteen facility provided to the employees by the Applicant is not in the nature of a supply under Section 7 of the CGST Act, and therefore, is outside the scope of GST and would not be subject to tax, on account of the following: * The canteen facility is provided in pursuance of a statutory obligation under the Factories Act; there is no supply of service being undertaken. * The canteen facility is provided to the employees in the course of their employment with the Applicant. As a result, such activity is excluded from the purview of supply as per Section 7 of the CGST Act re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion: "(b) the following supply of goods or services or both- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; (ii) membership of a club, health and fitness 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." 2.1.39 In this regard, we wish to reiterate the fact that the Applicant is engaged in the business of manufacture a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." 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. As submitted above, the Applicant provides the canteen facility to its employees in furtherance of its obligations under the Factories Act. Therefore, the Applicant wishes to submit that the restriction imposed under Section 17 (5) of the CGST Act, 2017 is not applicable in the instance case, since the canteen facility is extended to its employees as a part of its statutory obligations under the provisions of Factories Act. 2.1.41 Additionally, we refer to the ruling of the Appellate Authority of Advance Ruling Madhya Pradesh in the case M/s Bharat Oman Refineries wherein it was held that ITC of GST paid to canteen service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransport Service Providers would be construed as 'supply of service" by the Applicant to its employees under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Maharashtra Goods and Service Tax Act, 2017? b. Whether ITC is available to the Applicant on GST charged by the Transport Service Providers for providing the non-air-conditioned bus transportation services? To analyse whether arranging the transportation facility would be considered as a 'supply of service' by the Applicant to the employees, we have relied on the following legal interpretation of the CGST Act. Provision of transport facility through transport service providers would not tantamount to 'supply' under section 7 of the CGST act. 2.2.1 In the light of the above facts, it is pertinent to determine the GST implications on the provision of transport facility by the Transport Service Providers to its employees. In this regard, the Applicant has completely placed its reliance upon the following interpretation of the legal provisions. 2.2.2 The Applicant has made submission regarding the legislative framework in relation to the concept of 'supply' in para 2.3 to 2.6 above, which will also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Motors Ltd. was being evaluated. In this regard, it was held that since the Applicant (i.e. Tata Motors) had not been supplying any services to its employees, in view of the provisions of Schedule-III, GST was not applicable on the nominal amounts recovered by the said Applicant from its employees for providing transportation facilities (with the same being applicable to canteen facility). It was further observed that the Applicant, in its capacity of being the employer was the recipient of the service and employees were the users of such services. This Hon'ble AAR held that by virtue of Clause 1 of Schedule-III to CGST Act 2017, GST was not applicable to the nominal amount recovered by the applicants from their employees. The relevant paragraph from the said Ruling is reproduced below for ease of reference: '5.3.2 In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. The applicant's contentions that they are eligible for exemption from GST under Sl. No. 15 (b) of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 in respect of nominal amounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant's main business activity in accordance with the definition of business as provided in Section 2 (17) of the CGST Act. 2.2.10 In this regard, it is submitted that the provision of transportation facility is not in the nature of or in the course of business. In this regard, we refer to the submissions made in paragraphs 2.23 to 2.30 above. 2.2.11 In the instant case, the Applicant does not collect any amount from the employees towards the provision of transportation of services. 2.2.12 Based on the above, it could be inferred the Applicant is not supplying any services to its employees but is merely making a facility available to its employees in the course of their employment with the Applicant. Further, it is submitted that unless there is evidence of the fact that the Applicant had any intention of undertaking business and earning profit in relation to the provision of transportation facilities, the provision of such facility cannot be construed to be in the course of or in furtherance of its business operations. Therefore, such transaction cannot be construed as a supply under Section 7 of the CGST Act. 2.2.13 We also refer to another ruling of this Hon'ble Authority, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person. 2.2.17 Based on a plain reading of the CGST Act, credit of input tax charged on supply of services would only be allowed when such goods or services or both are used or intended to be used in the course or furtherance of business. In this regard, the Applicant wishes to submit that the Transport Service Provider provides the services to the Applicant in the transportation of employees to and from the premises of the Applicant. Such services are provided in pursuance of the Applicant's obligation to provide such facilities to its employees, in the course of its employment. 2.2.18 It is also crucial to refer to the provisions of Section 17 (5) (a) of the CGST Act, which provides for ITC which will not be available to an assessee. We have reproduced below the relevant portion of the provision: "(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely: - (A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicles' 2.2.19 Given the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity for Advance Ruling Uttar Pradesh in case of Dr Willmar Schwabe (I) Private Limited wherein it was held that the applicant was specifically using motor vehicles having approved seating capacity of more than thirteen persons (including the driver) would be eligible for Input tax after 01.02.2019. The relevant portion of the said ruling is reproduced below: In the subject case, since the applicant has specifically submitted that they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the applicant shall be eligible for Input Tax Credit. In this case, however we would like to make it very clear that if the motor vehicle hired by them does not have an approved seating capacity of more than thirteen persons (including the driver), then in that case the applicant will not be eligible for Input Tax Credit. As per clause 1 of the said Schedule-III, services by an employee to the employer in the course of or in relation to his employment shall be treated neither as a supply of goods nor a supply of services. Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, it is hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. Further, clause (b) of Sec 2 (17) widens the scope by covering any activity which is incidental or ancillary to business is also business. On these footings we may say that 'Canteen Facility's provided by employer to its employee can be covered in the definition of business. 2. Test-2 Whether Such services qualify to be supply under CGST Act, 2017? Analysis: Now it is important to determine whether the same qualify the definition of Supply under Section 7 of the CGST Act 2017 read with schedules. There could be two scenarios i.e. these 'Canteen Facility" can be provided with or without consideration: 2.1 If such services provider for a consideration: Analysis of Definition of Supply: Supply as defined under Section 7 of the CGST Act 2017 has a very wide ambit covering almost everything through its inclusive definition. As per Section 7 (1) (a) of CGST Act, 2017 sale, transfer, barter exchange etc. all are covered under the definition of supply if it for business purpose and involving consideration. Thus, it is very clear that if the employer provide 'Canteen Facility's to its employees for a consideration which may be at concessional rate or otherwise the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anteen service by the applicant under the provision s of Section 7 of the CGST/KGST Act 2017. GST is liable to be paid by the applicant on the value of the said supply to be determined under Rule 30 or 31 of the CGST Act 2017." a. In case answer to above is yes, whether GST is applicable on the nominal amount to be deducted from the salaries of employees? Comment: The canteen services provided by the employer to their employees, as per the contractual agreement, are considered perks concerning employment. Therefore, these perks offered by the employer to the employee will not attract GST. However, if the employer charges consideration for providing canteen services as a taxable supply for business purposes, GST will be applicable as per the provisions of the CGST/TGST Act 2017. b. Whether ITC is available to the Applicant on GST charged by the Canteen Service Providers for providing the catering services? Comment Section 16 of the CGST Act, 2017 enables the registered person to avail ITC on goods or/and services which are used or intended to be used in the course or furtherance of business. Further, Section 17 (5) of the CGST Act prescribes a list of few goods and services o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the same shall be determined as prescribed and the same has been prescribed in CGST Rules 2017. C) As per Rule 28 of CGST Rules 2017, value in relation to transactions between related person shall be, either a) Open Market Value or b) Value of like kind & quality goods or c) as determined under Rule 30 or 31. However value can not be determined under Rule 28 in the instant case in view of second proviso to said Rule. The said proviso excludes the instant case from Rule 28 since recipient (i.e. Employee) is not eligible for full ITC as declared on invoice of outward supply (ie Conveyance/Rent-a-Cab services") D) Therefore Rule 30 is squarely applicable because value of inward supply i.e Cost of acquisition is available. Therefore, value of Conveyance/Rent-a-Cab services shall be One hundred and ten percent of cost of acquisition of services. In view of the above the taxpayer, is liable to pay GST on value which is one hundred and ten percent of the cost of inward supply. Since the supply is intra-state, the GST liability is worked out as under: 1. Clause 1 of the Schedule- III says "services by an employee to the employer in the course of or in relation to his em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e kind & quality goods or c) as determined under Rule 30 or 31. However value cannot be determined under Rule 28 in the instant case in view of second proviso to said Rule. The said proviso excludes the instant case from Rule 28 since recipient (i.e. Employee) is not eligible for full ITC as declared on invoice of outward supply (i.e Conveyance/Rent-a-Cab services") F) Therefore Rule 30 is squarely applicable because value of inward supply i.e Cost of acquisition is available. Therefore, value of Conveyance/Rent-a-Cab services shall be One hundred and ten percent of cost of acquisition of services. Karnataka AAR in the case of M/s Federal Mogul Goetze India Ltd dtd 29.11.2022. the gist of the judgment is reproduce below :- "The subsidized deduction made by the applicant from the employees who are availing food in the factory, would be considered towards "Supply" of canteen service by the applicant under the provisions of Section 7 of the CGST/KGST Act 2017. GST is liable to be paid by the applicant on the value of the said supply to be determined under Rule 30 or 31 of the CGST Act 2017," b. Whether ITC is available to the Applicant on GST charged by the Transport Service Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y provided by the Applicant, All the employees are eligible for canteen facility at subsidized rates. The Applicant makes payment to the Canteen Service Provider for the supply of such food to its employees. Employees bear 1/3rd cost of the amount on all items whereas 2/3rd cost of the amount is borne by the company. (4) Applicant has contended that the canteen facility is provided in terms of the contractual agreement entered into between the employer and employee. The contractual agreement specifically provides for availment of benefits and allowances as per the Company's policy which apart from other benefits also provides for canteen services to the employees. In view of this, Applicant contends that the said transaction should not be treated as a supply as per Section 7 of the CGST Act read with Schedule III and thus GST is not be leviable on the recovery of nominal amount from the employees. (5) Various grounds raised by the Applicant to contend that the recovery of nominal amounts from the employees for providing canteen services are discussed as below. 5.1.2 Whether supply of canteen services is in the course or furtherance of business. (1) We observe that the Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y - the happening as part of something more important. Cambridge Dictionary - less important than the thing something is connected with or part of Dictionary.com - happening or likely to happen in an unplanned or subordinate conjunction with something else. Similarly word 'ancillary' has been defined as under: Oxford Dictionary - provide necessary support to the main work or activities of an organisation. - In addition to something else but not as important. Cambridge Dictionary: providing support or help. Dictionary.com - supporting, secondary, subsidiary The reading of all above definitions clarify that any activity, which supports the main activity or necessary to carry out the principal activity, is an activity or transaction in connection with or incidental to or ancillary to the principal activity. The activity of providing food in canteen to its workers who are pivotal to his principal activity can definitely be said to be in connection with or incidental or ancillary to his main activity of manufacture and supply of tyres. (3) Further, in terms of Section 2 (17) (c), as mentioned in para (1) above, the volume of transaction is immaterial for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teen service provider invoices the appellant for the entire canteen services. He charges the consideration along with GST thereon. There is no privity of contract between the canteen service provider and the employees. It is the Appellant (employer) which is providing canteen services to the employees. Applicant deducts certain amount from salary of the employees against this supply. Applicant makes only part of the recovery and balance cost is borne him. Hence, the criteria of 'business', consideration' are met in the transaction of supply of canteen services by Applicant to the employees. Thus, there is supply of canteen services from the Applicant to the employees, u/s. 7 (1) of CGST Act, 2017. 5.1.4 Taxability of Supply of Canteen services to the employees (1) Another contention of the Applicant was 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it or facility given by the employer to his employees. The collection from the employees of whatever value, is not covered under 'perquisite'. It could be inferred from the above, that any service rendered free of charge, or, any service rendered on a concessional basis shall qualify as a perquisite. But, it is to be noted that only the value/portion to the extent of concession offered by the employer is to be treated as a perquisite and not the remaining portion/value that has been charged by the employer. Applying the said analogy to the instant case, in respect of the canteen services provided by the applicant to its employees, it becomes clear that the exemption provided in Entry 1 of Schedule III to the CGST Act, 2017 applies only to the concession part extended to the employees and not on the value charged to the employees. Thus, the recoveries made from the employees are liable to levy of tax. 5.1.5 The Applicant has presented following arguments in support of his stand (1) The applicant submits that the provision of canteen facility to the employees is only on account of a statutory obligation and there is no legal intention to provide any service. We observe that Factori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the definition of supply. Hon'ble court observed that defendant's occupation pursuant to an order of the Court cannot be said to be contract involving a supply for consideration. In the applicant's case, Applicant is providing canteen services and in turn is receiving consideration though at subsidized rates. (3) Applicant has referred to decision of Cinemax India Ltd v/s. Union of India of Hon'ble Gujarat High Court. The facts of the case are different than the current case. This case pertains to validity of section 65(105) under erstwhile Service Tax Act. How the definition of 'business' under GST Act covers canteen services provided by applicant is discussed in para 5.1.2 Applicant has further quoted judgements in case of M/s Raipur Mfg Co. Vs State of Gujarat & IIT Kanpur V/s. State of UP. However, the facts in these cases and the provisions of law involved are completely different. (4) In this regard, we notice that the applicant has further placed reliance on the ruling of Gujarat AAR in RE: Emcure Pharmaceuticals Limited [2022-VIL-231-AAR], the ruling of Maharashtra AAR in RE: Tata Motors Limited in [2021-TIOL-197-AAR-GST-2020-VIL-257-AAR], the appellate ruling by Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees. 5.2 Whether ITC of tax paid to caterer for Canteen Services is available 5.2.1 Now, coming to the other issue which is to be decided here is, whether input tax credit (ITC) is available to the Applicant on GST charged by the service provider on the canteen facility provided to employees working in the factory. 5.2.2 Before deliberating on this issue, it would be prudent to refer to the Section 17 (5) (b) of CGST Act, 2017, which pertains to blocking of ITC: 'Section 17 (5): Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely: - (b) the following supply of goods or services or both- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 "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." 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&nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also recipient of service when viewed in terms of definition of recipient of service, as defined in Section 2 (93) (a) of the CGST Act, 2017, which is reproduced below: - "(93) "recipient" of supply of goods or services or both, means - (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;" 5.2.8 So in the instant case, the flow of the transaction is that the Canteen Contractor is providing service to the Applicant, which is classifiable as Restaurant Service and the Applicant himself is also providing same service to its employees as mandated in the Factories Act, 1948 i.e. he is also providing Restaurant Service to its employees. As already mentioned in para 5.2.6, the Restaurant Service compulsorily attracts rate of 5% without ITC in a non-specified premises and the Applicant's premises are not 'specified premises' in terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. Therefore, though the Section 17 (5) (b) of the CGST Act, 2017 does not block availment of ITC, however, in the present case availment of ITC is barred in terms of provisions of Notification No. 11/2017-Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of a contractual agreement between the employer and employee are to be kept outside the ambit of GST. From the appointment letter given to the employees, it is seen that the Company promises 'other benefits' as per the company policy. As per the HR policy of the company, company offers free transportation facility to its employees. Thus, free bus transportation facility is given to the employees as part of their contractual agreement. 5.3.4 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 assessee 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)-------------- -------------------" As per Income Tax Act, 1961, perquisite is defined to be the value of benefit given to the employees. This is the value of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. Further, Explanation to Section 15 reads as below. Explanation. - For the purposes of this Act, -- (a) persons shall be deemed to be -related persons if -- (i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; .... As per a(iii), employer and employee are deemed to be related persons for the purposes of this Act. This means any transaction between employer and employee will not come out of 'supply' for the reason of not having consideration. The respite has come through Schedule 3. Section 7 (2)(a) states that, notwithstanding anything in sub-section (1), activities or transactions specified in Schedule III shall be treated neither as a supply of goods nor a supply of services. Serial Number 1 of Schedule III is as below. "1. Services by an employee to the employer in the course of or in relation to his employment." This entry includes only the services by an employee to the emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice for personal use or consumption of its employees. The substantial question of law involved in the said judgement is: 1. Whether the services provided by a Manufacturer of transportation of its employees, from their designated pick up points to their workplace, by Bus, would amount to a service for personal use or consumption of any of the employees?" 2. Whether the activity of providing bus transport services to its employees, at the cost of the Manufacturer, to reach factory in time and the expenses incurred by the Manufacturer in providing such service, (which amount is taken into consideration, while determining the final price of the product) can be said to be a component leading to the manufacturing activity, so as to entitle the Manufacturer, the benefit of Cenvat Credit? The view held by Hon'ble High court is produced below: "The transportation of employees from distance of about 40 kms for reaching factory is not an activity which could be said to be a part of manufacturing activity. It is merely for personal convenience of the employees to enable them to reach the premises of the factory so as to thereafter participate in the manufacturing activity. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence to factory or office premises has been used for personal consumption or comfort of employees. The applicant is not under any statutory obligation to provide these services to his employees and the services provided comes under category of personal consumption which makes the applicant ineligible to avail input tax credit on the invoices issued to him by the transporter for transportation of employees as per Section 17 (5) (g) of CGST/MGST Act 2017. 6. In view of the extensive deliberations as held hereinabove, we pass an order as follows ORDER (Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) For reasons as discussed in the body of the order, the questions are answered thus - Question 1: Whether the deduction of a nominal amount by the Applicant from the salary of the Employees who are availing the facility of food provided in the factory premises would be considered as a "Supply of Service" by the Applicant under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Maharashtra Goods and Service Tax Act, 2017? a. In case answer to above is yes, whether GST is applicable on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
