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2023 (6) TMI 1297 - AAR - GSTScope of Supply - providing food to the employees at subsidized price as per terms and conditions of the employment contract - subsidized deduction made from the salary of employees who are availing facility of food in the factory - consideration of supply of service or not - aplicability of GST on the amount deducted from the salaries of employees - input tax credit on the GST charged by third party contractor for canteen services availed by it for its employees. HELD THAT - M/s Shriram Pistons and Rings Limited has arranged a canteen facility for its employees, which is run by a Canteen Contractor M/s P.J. Banan. As per their arrangement, part of the Canteen charges is borne by M/s Shriram Pistons and Rings Limited whereas the remaining part is borne by its employees. The said employees portion of canteen charges is collected by M/s Shriram Pistons and Rings Limited and paid to the Canteen Service provider. M/s Shriram Pistons and Rings Limited submitted that it does not retain with itself any profit margin in this activity of collecting employees portion of canteen charges. M/s Shriram Pistons and Rings Limited vide letter dated 15-11-2022 has submitted that more than 2000 employees are working in its factory. The applicant is not liable to pay GST on the amount deducted/ recovered from the employees. Further the applicant is recipient of canteen service to facilitate the employees and Canteen Service Provider raises the Bill of canteen charges inclusive of GST as per the contract. The applicant collects/ recoveres the partial amount from the employees and is required to pay the gross amount inclusive of GST to the canteen service by adding residual amount in the employees portion and is required to pay gross amount of Bill inclusive of GST to the Canteen Service Provider. ITC on canteen charges on the food supplied to employees of the applicant company - HELD THAT - The proviso of Section 17 (5)(b) stipulates that ITC shall be available on the GST paid where it is obligatory to provide a benefit for an employer to its employees in terms of any law for the time being in force - in view of the above clarification ITC of the GST paid on canteen charges is available to the applicant on the food supplied to the employees of the applicant company as under Section 46 of the Factories Act, it is mandatory to provide canteen facility to the employees.
Issues Involved:
1. Whether providing food to employees at subsidized prices falls outside the scope of "supply" under Para 1, Schedule III of the CGST Act, 2017. 2. Whether the subsidized deduction from employees' salaries for food can be considered as consideration for 'supply of service' by the Applicant to its employees in furtherance of business under Section 7 r/w Schedule I of the CGST Act, 2017. 3. Whether GST is applicable on the amount deducted from employees' salaries for food. 4. Whether the Applicant is eligible to take input tax credit (ITC) on the GST charged by third-party contractors for canteen services availed for its employees. Issue-wise Analysis: 1. Scope of "Supply" for Providing Food at Subsidized Prices: The applicant argued that providing food to employees at subsidized prices is part of the employment contract and should not be considered "supply" under GST. The applicant cited Section 7(2) and Schedule III of the CGST Act, which exclude services by an employee to the employer in the course of or in relation to employment from the definition of "supply." The applicant emphasized that the food facility is a statutory obligation under the Factories Act, 1948, and is similar to other facilities provided to employees, such as workspace and equipment. The ruling agreed with this interpretation, stating that the provision of food at subsidized prices falls outside the scope of "supply" under Section 7 (Para 1, Schedule III) of the CGST Act, 2017. 2. Consideration for 'Supply of Service': The applicant contended that the subsidized deduction from employees' salaries for food does not constitute a supply of service in furtherance of business. The term "business" under Section 2(17) of the CGST Act includes activities related to trade, commerce, manufacture, etc., but providing canteen facilities does not fall within this scope. The ruling supported this view, stating that the activity of providing food at subsidized rates is not in the course or furtherance of business and thus does not constitute a supply of service. 3. Applicability of GST on Salary Deductions: Given the conclusion that providing food at subsidized prices is not a supply of service, the question of GST applicability on the amount deducted from employees' salaries becomes moot. The ruling confirmed that GST is not applicable on these deductions. 4. Eligibility for Input Tax Credit (ITC): The applicant sought clarity on whether ITC is available for GST paid on canteen services provided by third-party contractors. Section 17(5)(b) of the CGST Act restricts ITC on food and beverages, but the proviso allows ITC if the provision of such services is obligatory under any law. The Factories Act mandates the provision of canteen facilities in factories with more than 250 workers. The ruling cited Circular No. 172/04/2022-GST, which clarified that the proviso applies to the entire Section 17(5)(b). Therefore, the applicant is eligible to claim ITC on GST paid for canteen services, provided the cost of GST is not passed on to the employees. Conclusion: - Providing food to employees at subsidized prices is not considered a "supply" under the CGST Act, 2017. - The subsidized deduction from employees' salaries for food does not constitute a supply of service. - GST is not applicable on the amount deducted from employees' salaries for food. - The applicant is eligible to claim ITC on GST paid for canteen services, subject to the condition that the GST burden is not passed on to the employees.
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