2022 (4) TMI 1339 - AAR - GST

Supply or not - subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office - levy of GST - HELD THAT - M/s Cadila 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 M/s. Cadila whereas the remaining part is borne by its employees. The said employees portion canteen charges is collected by M/s. Cadila and paid to the Canteen Service Provider. M/s. Cadila 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 M/s Cadila to its employees cannot be accorded to be an activity made in the course or furtherance of business to deem it a Supply by M/s Cadila to its employees - GST, at the hands of the M/s Cadila, is not leviable on the amount representing the employees portion of canteen charges, which is collected by M/s Cadila and paid to the Canteen service provider.

Issues Involved:

1. Whether the subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office would be considered as a supply by the Applicant under Section 7 of the CGST Act, 2017 and GGST Act, 2017.
2. If the answer to the above is yes, whether GST is applicable on the amount deducted from the salaries of its employees.
3. If the answer to the above is no, whether GST is applicable on the amount paid by the Applicant to the Canteen Service Provider or only on the amount recovered from the employees.

Issue-wise Detailed Analysis:

1. Whether the subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office would be considered as a supply by the Applicant under Section 7 of the CGST Act, 2017 and GGST Act, 2017:

M/s. Cadila Healthcare Limited (hereinafter referred to as "M/s Cadila") contends that the provision of canteen facilities to its employees does not constitute a "Supply" under Section 7 of the CGST Act. They argue that the canteen service is provided by a third-party Canteen Service Provider and that M/s. Cadila merely facilitates this service by making payments on behalf of its employees. M/s. Cadila cites several rulings and judgments, including the Gujarat AAAR ruling in the matter of Amneal Pharmaceuticals Pvt. Ltd, which held that no GST is to be levied on third-party canteen charges collected by the employer from the employee. They also reference judgments from various states' Authorities for Advance Rulings and the European Court of Justice, which emphasize the necessity of a legal intention to enter into a contractual relationship for an activity to qualify as a supply.

2. If the answer to the above is yes, whether GST is applicable on the amount deducted from the salaries of its employees:

M/s. Cadila submits that the deduction from employees' salaries for canteen services does not constitute "consideration" as defined in Section 2(31) of the CGST Act, 2017. They argue that the deduction is a mere transaction in money and does not involve enforceable reciprocal obligations. M/s. Cadila also references the Bombay High Court judgment in the case of Bai Mamubai Trust, which held that for GST to be payable, there must be the necessary quality of reciprocity to make it a 'supply'. They further argue that the canteen services are provided as part of the employment relationship and not in the course or furtherance of business, thus falling outside the scope of GST.

3. If the answer to the above is no, whether GST is applicable on the amount paid by the Applicant to the Canteen Service Provider or only on the amount recovered from the employees:

M/s. Cadila argues that the canteen services provided to employees are part of the employer-employee relationship and should be treated as staff welfare expenses. They cite Schedule III of the CGST Act, which specifies that services by an employee to the employer in the course of or in relation to his employment are neither a supply of goods nor a supply of services. They also reference a press release issued by CBIC on July 10, 2017, which clarified that common facilities provided to employees, such as canteen facilities, are not subject to GST.

Findings:

The Authority for Advance Ruling (AAR) finds that M/s. Cadila arranges a canteen for its employees, which is run by a Canteen Service Provider. Part of the canteen charges is borne by M/s. Cadila, and the remaining part is borne by the employees. The employees' portion of the canteen charges is collected by M/s. Cadila and paid to the Canteen Service Provider without any profit margin. The AAR is not inclined to consider this canteen service facility provided by M/s. Cadila to its employees as an activity made in the course or furtherance of business, thereby deeming it a Supply by M/s. Cadila to its employees.

Ruling:

GST, at the hands of M/s. Cadila, is not leviable on the amount representing the employees' portion of canteen charges, which is collected by M/s. Cadila and paid to the Canteen Service Provider.

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