2023 (7) TMI 525 - AAAR - GST

Levy of GST - Providing canteen services to employees - recovery of nominal amount from the employees for making payment to the third-party service provider, providing food in canteen as mandated in the factories Act, 1948 - HELD THAT - Section 46 of Factories Act, 1948 although mandates to provide a canteen for use of workers in a factory, wherein more than two hundred and fifty workers were ordinarily employed, it does not provide for any provision for exemption from levy of any taxes. In fact, Tax in this case is leviable in terms of the provisions of the GST law, on the consideration (on the actuals, at subsidized rates) for supply of the food/beverages; and is not covered by any exemption, at all. Further, the said consideration for supply of food/beverages, although at the subsidized rates, is also do not qualify as the perquisite to extend the benefit of non-levy of GST in terms of the above cited Circular dated 06.07.2022, as already narrated above. The appellant relied on the advance ruling given in the case of HAZIRA LNG PVT LTD VERSUS C.S.T. -SERVICE TAX - AHMEDABAD 2022 (11) TMI 437 - CESTAT AHMEDABAD wherein it has been ruled that there would be no tax implications in case of mere cost sharing agreements - In this case, the appellants does not enter into an agreement with employees for providing common service both to the appellants and employees by a third party caterer. But. here the third party caterer provides service to the appellant who in turn provides such service within the factory premises to the employees at the reduced subsidized price and thus, there is no question of sharing of cost between the appellant and employees. In the instant case, the Appellant had established the canteen in their premises and has been bearing a part of the cost for providing the food/beverages to their employees and a part of the cost is being collected from employees, as fixed by the Managing Committee of the Appellant. The supply of the food/beverages, although at subsidized rates, by the Appellant/employer to their employees is certainly an activity amounting to supply of service and attracts levy of GST on that part of the consideration being charged for such supply.

Summary

Issues Involved:
1. Whether recovery of nominal amount from employees for canteen services mandated under the Factories Act, 1948 attracts GST.
2. Whether the subsidized supply of food/beverages by the employer to employees qualifies as a perquisite under GST law.
3. Whether the cost-sharing arrangement between the employer and employees for canteen services is subject to GST.

Summary:

Issue 1: GST on Recovery of Nominal Amount for Canteen Services
The Appellant, engaged in manufacturing activities, provided canteen facilities at their units as mandated by Section 46 of the Factories Act, 1948. They sought clarification on whether the nominal amount recovered from employees for canteen services would attract GST. The Original Authority ruled affirmatively, stating that the supply of food by the employer to employees is a "Supply of service" and the nominal cost recovered is 'consideration' for the supply, thus liable to GST.

Issue 2: Perquisites under GST Law
The Appellant argued that perquisites forming part of the employment contract were excluded from GST as per Circular No. 172/04/2022-GST. However, the Appellate Authority noted that the employment contract did not explicitly mention the canteen facility as a perquisite. The Authority held that even if the canteen facility was considered a perquisite, GST would still be applicable on the subsidized amount charged to employees. The Circular cited by the Appellant did not apply as the canteen facility was not provided in terms of a contractual agreement.

Issue 3: Cost-Sharing Arrangement
The Appellant contended that the recovery from employees was a mere cost-sharing arrangement and not consideration. The Authority found that there were two distinct transactions: one between the caterer and the employer, and another between the employer and employees. The consideration received from employees, although at subsidized rates, was subject to GST. The Authority rejected the argument that the arrangement was merely a pass-through activity, stating that the Appellant had sought an advance ruling under Section 95(a) of the CGST Act, 2017, indicating a separate transaction.

Discussion and Findings:
The Authority reviewed the relevant provisions of the GST law and the Factories Act, 1948. It held that the supply of food/beverages by the employer to employees, even at subsidized rates, amounts to a supply of service and attracts GST. The Authority also distinguished the cited case laws and AAR/AAAR rulings, noting that they were not binding and had different factual matrices.

Ruling:
The Appellate Authority upheld the decision of the Authority for Advance Ruling of Tamil Nadu, ruling that the recovery of nominal amounts from employees for canteen services is liable to GST and rejected the appeal.