2022 (4) TMI 1337 - AAR - GST

Taxability of supply - outward supply or not - recovery of amount from employee on account of third party canteen service provided by assessee, which is obligatory under section 46 of Factories Act, 1948 - HELD THAT - Cadmach has arranged a canteen for its employees, which is run by a Canteen Service Provider. As per their arrangement, part of the Canteen charges is borne by Cadmach whereas the remaining part is borne by its employees. The said employees portion canteen charges is collected by Cadmach and paid to the Canteen Service Provider. Cadmach submitted that it does not retain with itself any profit margin in this activity of collecting employees portion of canteen charges. This canteen service facility provided by Cadmach to its employees cannot be accorded as an activity made in the course or furtherance of business, to deem it a Supply by Cadmach to its employees. GST, at the hands of the Cadmach, is not leviable on the amount representing the employees portion of canteen charges, which is collected by Cadmach and paid to the Canteen service provider.

Summary

Issues Involved:
1. Whether recovery of amount from employee for third-party canteen service under Factories Act qualifies as 'outward supply' taxable under GST.

Analysis:
The case involved M/s. Cadmach Machinery Co. Pvt. Ltd., engaged in manufacturing pharmaceutical machinery, providing canteen facilities through a third-party service for its employees. The employees' share of canteen charges was deducted from their salary. Cadmach collected and paid the employees' portion to the canteen service provider. The company argued that this activity did not qualify as a supply in the course of business, as it was incidental to the employment contract and not a separate business activity.

The applicant sought an advance ruling on whether the recovery of the amount from employees for the canteen service, as mandated by the Factories Act, should be considered an 'outward supply' taxable under GST. During the hearing, the applicant reiterated their position, while the revenue authority did not provide any comments or attend the hearing.

The Authority for Advance Ruling examined the arrangement where Cadmach bore a part of the canteen charges, with the employees covering the remaining portion. Cadmach collected and paid the employees' share to the canteen service provider without retaining any profit margin. The ruling concluded that the canteen service provided by Cadmach to its employees did not constitute an activity in the course or furtherance of business, and therefore, GST was not applicable on the amount representing the employees' portion of canteen charges collected and paid by Cadmach to the service provider.

In summary, the ruling clarified that the recovery of the amount from employees for the third-party canteen service, as per the Factories Act, did not qualify as an 'outward supply' taxable under GST for Cadmach, as the canteen service provided to employees was deemed incidental to the employment contract and not a separate business activity.