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GST Exemption for Notice Pay Deduction and Limited ITC for Canteen Facilities to the extend of cost borne by the assessee |
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GST Exemption for Notice Pay Deduction and Limited ITC for Canteen Facilities to the extend of cost borne by the assessee |
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The AAR, Gujarat, in the case of IN RE: M/S. TATA AUTOCOMP SYSTEMS LTD - 2023 (7) TMI 142 - AUTHORITY FOR ADVANCE RULING, GUJARAT held that deductions from employees' salaries for availing canteen facilities, transportation services provided to the employees and notice pay are not considered taxable under GST, and Input Tax Credit (“ITC”) can be claimed on GST charged by service providers, with restrictions based on the cost borne by the employer. Facts: M/s. Tata AutoComp Systems Ltd (“the Petitioner") is engaged in manufacturing, selling, and trading automotive parts, serving Indian and global automotive OEMs and Tier-I suppliers. The Petitioner has engaged canteen service providers (CSP) and transport service providers (TSP) to provide food and transportation services to their employees. The Petitioner provides a canteen facility to its employees in compliance with the Factories Act. To provide this facility, the Petitioner deducts Rs. 500 per month from their employees' salaries, except for contract employees. The Petitioner also provides transportation facilities to its employees between the factory premises & the residence in non-air-conditioned buses having a capacity of more than 13 people. The Petitioner contended that the canteen facilities provided to employees are not a taxable supply under Section 7 of the Central Goods and Service Act, 2017 (“the CGST Act”), as it is a statutory obligation under the Factories Act. It is provided in the course of employment, not for business purposes, and there is no quid pro quo. Further, The Petitioner also seeks ITC on the GST charged by the CSP for catering services. The Petitioner further contended that the transportation service is not a taxable supply under Section 7 of the CGST Act. It is provided for employee convenience and safety, following pre-approved routes. The Petitioner asserts that there is a legal obligation to provide this service to employees, and it should not be considered a supply in the course of or in furtherance of business. The Petitioner relies on various rulings of IN RE: M/S TATA MOTORS LIMITED - 2022 (12) TMI 1363 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT , IN RE : ION TRADING INDIA PRIVATE LIMITED- 2020 (1) TMI 1124 - AUTHORITY FOR ADVANCE RULING - UTTAR PRADESH and Circular No. 172/04/2022-GST dated July 06, 2022. The Petitioner has a policy of deducting an amount from employees' full and final settlements if they leave the company without serving the specified notice period. This deduction is a compensation for breach of employment terms and is not collected separately from employees. The Petitioner argues that there is no GST on notice pay as this deduction is not a consideration for tolerating an act or situation. Issues:
Held: The AAR, Gujarat in IN RE: M/S. TATA AUTOCOMP SYSTEMS LTD - 2023 (7) TMI 142 - AUTHORITY FOR ADVANCE RULING, GUJARAT ruled as under:
Our Comment: This advance ruling is applaudable for categorizing canteen services provided to the employees as supply and allowing ITC till the cost borne by the assessee. However, contrary rulings were pronounced in the past. Under AAR, Maharashtra in IN RE: M/S. EMCURE PHARMACEUTICALS LIMITED - 2022 (1) TMI 186 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA , canteen facilities provided by the employer to its employees through third-party vendors are not a transaction made in the course or furtherance of business, and hence, cannot be considered as a “Supply” under the provisions of the CGST Act and therefore the employer is not liable to pay GST on the recoveries made from the employees towards providing canteen facility at subsidized rates. Relevant Provision: Scope of supply- (1) For the purposes of this Act, the expression supply includes–– (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (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; [(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.] (2) Notwithstanding anything contained in sub-section (1),–– (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of [sub-sections (1), (1A) and (2) the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as— (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. Author can be reached at [email protected])
By: CA Bimal Jain - October 14, 2023
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