2022 (12) TMI 192 - AAR - GST

Supply or not - subsidized canteen service - subsidized deduction made by the applicant from the employees who are availing food in the factory - GST is applicable on the nominal amount being recovered by the Applicant or not - eligibility for ITC of the GST charged by the Service Provider - HELD THAT - It is an undisputed fact that the applicant is a manufacturer and thus then-activity is covered under Section 2(17)(a) of the CGST Act. Further Section 2(17)(b) stipulates that any activity/transaction in connection with sub-clause (a) i.e. Section 2(17)(a), is included in the business. In the instant case, the applicant is running the canteen in connection with the manufacturing activity. Thus providing canteen facility is incidental to their main activity of manufacture, and therefore covered in the definition of 'business' in terms of Section 2(17)(b) - the activity of provision of canteen facility by the applicant to supply the food amounts to supply in terms of Section 7(1)(a) of the CGST Act 2017. The applicant, quoting entry No.1 of Schedule III to Section 7(2) of the CGST Act 2017 in support of their argument contends that the services by an employee to the employer in the course of or in relation to his employment shall be treated neither as supply of goods nor a supply of services. This provision is not applicable to the instant case as the issue pertains to the services being provided by the employer to the employee and not vice-versa - In the instant case the supplies by employer to employee are not free of charge. The applicant is recovering consideration for supply which is deducted from the salary on a monthly basis, hence the press release will not aide the case of the applicant. Section 15(1) supra deals with the valuation of the taxable supply where the supplier and the recipient are not related and the price is the sole consideration for the supply. In the instant case the supplier and the recipients are related and price is not the sole consideration and thus Section 15(1) of the Act is not relevant to the instant case. Further Section 15(4) of the Act stipulates that in the cases where the value of the supply of goods or services or both cannot be determined under section 15(1), the same shall be determined in such manner as may be prescribed. The applicant has to discharge the GST liability on the impugned services on determination of the value of the said supply in terms of either rule 30 or 31, at the applicant's option - the services of the applicant are covered under services provided in canteen and other establishments and merit classification under SAC 996333. The said services attract GST @ 5%, without ITC in terms of SI. No. of the Notification 11/2017-Central Tax (Rate) dated 28.06.2017, as amended. Thus the applicant is not entitled to ITC of the GST paid on manpower supply services that are used for providing canteen facility.

Summary

Issues Involved:
1. Applicability of GST on subsidized deductions made from employees' salaries for canteen services.
2. Eligibility of Input Tax Credit (ITC) on GST paid for manpower supply services used in the canteen.

Detailed Analysis:

Issue 1: Applicability of GST on Subsidized Deductions

Provision of Canteen Facility as Supply:
The applicant provides canteen facilities to around 3200 employees, including contractual employees, and deducts a nominal amount from their salaries to cover part of the meal costs. The applicant contends that this deduction does not constitute a "supply" under Section 7 of the CGST Act, 2017, as it is a statutory obligation under the Factories Act, 1948, and lacks the legal intention of a contractual relationship.

However, the ruling clarifies that:
- Section 7(1)(a) of the CGST Act: For an activity to qualify as a supply, it must involve a form of supply of goods or services for consideration in the course or furtherance of business. The applicant's provision of canteen services meets these criteria.
- Contractual Relationship: The applicant's deduction of a pre-decided amount from employees' salaries establishes a contractual relationship, fulfilling the first limb of supply.
- Consideration: The nominal amount deducted from salaries qualifies as consideration under Section 2(31) of the CGST Act, which includes any payment made for the supply of goods or services. The adequacy of consideration is irrelevant.
- In the Course or Furtherance of Business: The canteen facility supports the applicant's manufacturing business by ensuring employees remain on-site for meals, thus aiding productivity. This satisfies the third limb of supply.

The ruling concludes that the provision of canteen services by the applicant constitutes a supply under Section 7(1)(a) of the CGST Act, 2017, and is liable to GST.

Valuation of Supply:
- Related Persons: The employer and employees are related persons under Section 15 of the CGST Act.
- Valuation Rules: Since the supplier and recipient are related, the value of supply must be determined under Rule 30 or Rule 31 of the CGST Rules, 2017. The applicant must discharge GST liability based on the value determined using these rules.

Issue 2: Eligibility of Input Tax Credit (ITC)

ITC on Manpower Supply Services:
The applicant argues that ITC should be available for GST paid on manpower supply services used in the canteen, as it is a statutory requirement under the Factories Act, 1948.

However, the ruling states:
- Classification of Services: The services provided in the canteen fall under SAC 996333 and attract GST at 5% without ITC, as per Notification 11/2017-Central Tax (Rate) dated 28.06.2017.
- Ineligibility for ITC: Therefore, the applicant is not entitled to ITC for the GST paid on manpower supply services used for the canteen.

Ruling:
a) The subsidized deduction from employees' salaries for canteen services is considered a supply under Section 7 of the CGST/KGST Act, 2017. GST must be paid on the value determined under Rule 30 or 31 of the CGST Rules, 2017.
b) The applicant is not eligible for ITC on GST paid for manpower supply services used in providing the canteen facility.