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2023 (11) TMI 949 - AAAR - GSTSupply or not - subsidized deduction made by the Appellant from the Employees who are availing food in the factory - GST on nominal amount deducted from the salaries of its employees - GST on the nominal amount deducted from the Manpower supply contractor in case of contractual employees - Section 7 of Central Goods and Service Tax Act, 2047 and Himachal Pradesh Goods and Service Tax Act, 2017 - Input Tax Credit (ITC), on the GST charged by the Canteen Service Provider. HELD THAT - Any activity, which supports the main activity or necessary to carry out the principle activity, is an activity or transaction in connection with or incidental to or ancillary to the principle activity. The Appellants has pleaded that he is providing food in compliance to the provisions of the Factories Act, 1948 and therefore, even going by his own pleading, supply of food is in connection with and ancillary to his main activity of manufacture and supply of automotive components - Further, in terms of Section 2(17) (c), the volume of transaction is immaterial for the purpose of coverage under Business , therefore, even if supply of food is quite insignificant activity in terms of volume of transaction, still in terms of clause (c) of the aforesaid section ibid, the activity of supply of food, is a supply within the meaning of supply under Section 7 of the CGST Act. 2017. In other words, clause (b) and (c) of definition of business covers the activity of supply of foods, within the definition of business . Employment Agreement lists out the compensation which is agreed to be granted by the employer to the employees towards their services. If any perk is mentioned in the employment contract, then it becomes binding for the employer to provide the same to the employees, otherwise such an employer can be sued in the court of law for the breach of condition of employment contract. Therefore, anything provided beyond the employment contract, is a part of sweet will or largesse on the part of employer and cannot be insisted upon by an employee. Viewed from this angle, a perk, which is not specified in the employee contract, is not in lieu of services, supplied by the employer to the employee but the largesse or matter of good will on part of such employer. Therefore, absence of mention about supply of subsidised food, in employment contract, cannot be equated with perk mentioned in the employment contract as talked about in Circular No. 172/04/2022-GST dated 06.07.2022 of CBIC. From the reading of provisions of Section 46 of the Factories Act, 1948. it is clear that in a factory where more than 250 workers are ordinarily employed, there provisions for canteen is a must, however, it does not provide for any provision for exemption from levy of any taxes. In fact tax in the case of supply of food-leverages is leviable in terms of the provisions of the GST Iaw; and is not covered by any exemption, at all - the supply of food even at subsidised cost, is a supply within the meaning of Section 7 of the CGST Act, 2017 value of such supplies to be determined under Section 15 of the CGST Act, 2017 read with provisions of Chapter IV of the CGST Rules, 2017 and do not qualify as perk as considered in terms above Circular dated 06.07.2022 ibid. The Appellant has relied upon the Circular dated 06.07.2022 and, to strengthen his claim, has also further stressed that it is settled law that circulars issued by CBIC arc binding on and to be followed by revenue. But, the fact of the matter is that, since the Appellant had no explicit contractual agreement with regard to the canteen facility, the same cannot be equated to perquisites mentioned in the said Circular. Hence, even as per the Circular ibid, and cited by the Appellant, the canteen facility goes out of the purview of perquisites as the canteen facility was not provided in terms of contract between the employer and employee. Whether input tax credit (ITC) is available to the Appellant on GST charged by the service provider on the canteen facility provided to employees working in the factory or otherwise? - HELD THAT - The provisions of blocked credit under Section 17(5)(b), inter-alia on food and beverages, do not apply only where, it is obligatory for an employer to provide goods and services or both to the employee under any law for the time being in force. Since, the proviso carves out an exception to the Rules/ Provisions, a strict interpretation is required to be adopted for examining its applicability. Since the contract workers are not employees of the Appellant, therefore, the benefit of the above proviso will not be applicable in respect of contract workers but will be limited only with respect to the employees. As second proviso to Section 17(5)(b) inserted vide CGST Amendment Act, 2018, effective from 1.2.2019, is applicable to the whole of clause (b) of sub-section (5) of Section 17 of the CGST Act, 2017, therefore, Input Tax Credit will be available to the Appellant in respect of food beverages as canteen facility, is obligatorily to be provided under the Factories Act, 1948, to its employees working in the factory . Input Tax Credit will be available in respect of such services provided by canteen facility to its direct employees but not in respect of other type of workers including contract employees/Workers, visitors etc. From the facts of the case, it is clear that Canteen Contractor is providing Restaurant Service to the Appellant which is chargeable to GST @5% rate in terms of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended, without availment of ITC. Under explanation to the aforesaid entry, it has been clarified that the concessional rate is mandatory rate and availing the normal rate of tax will not apply and that is the reason the amended Notification No. 20/2019-C.T. (Rate) dated 30.09.2019 has been issued exercising power under Section 16(1) and Section 148 of the CGST Act, 2017, so as to come out of the provisions of permitting availment of ITC. In other words, a Taxpayer providing Restaurant Service has no option of taking ITC and providing Restaurant Service at normal rate. Though the Section 17(5) of the CGST Act. 2017 does not debar availment of ITC in entirety, however, in the present case availment of ITC is debarred in terms of provisions of Notification No. 11/2017- Central lax (Rate) dated 28.06.2017 as amended vide Notification No. 20/2019-C.T. (Rate) dated 30.09.2019. Thus, to conclude, i) Supply of food to the employees and contract workers is a supply under the provisions of Section 7 of the CGST Act, 2017 and the Himachal Pradesh Factories Rules, 1950 and accordingly, it is leviable to the GST. ii) Input Tax Credit will not be available to the Appellant on GST charged by the canteen service provider, in terms of provisions of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 20/2019-C.T. (Rate) dated 30.09.2019.
Issues Involved:
1. Whether the subsidized deduction made by the Appellant from the employees availing food in the factory is considered a "supply" under the GST Act. 2. Applicability of GST on the nominal amount deducted from the salaries of employees. 3. Applicability of GST on the nominal amount deducted from the manpower supply contractor for contractual employees. 4. Eligibility of Input Tax Credit (ITC) on GST charged by the Canteen Service Provider. Summary: Issue 1: Subsidized Deduction as "Supply" The Appellant, involved in the manufacturing of automotive components, provides a canteen facility to its employees as mandated by the Factories Act, 1948. The question was whether the subsidized deduction from employees for canteen food qualifies as a "supply" under Section 7 of the CGST Act. The court ruled that the supply of food at a subsidized rate constitutes a "supply" under Section 7 of the CGST Act, 2017, as there is a clear element of consideration, even if nominal, and the activity is in furtherance of business. Issue 2: GST on Nominal Amount Deducted from Salaries The Appellant argued that the nominal amount deducted from employees' salaries for canteen food should not attract GST. However, the court held that since there is a direct connection between the supply of food and the amount recovered, the transaction involves consideration. Thus, GST is applicable on the nominal amount deducted from employees' salaries. Issue 3: GST on Nominal Amount Deducted from Manpower Supply Contractor Similarly, the court ruled that GST is applicable on the nominal amount deducted from the manpower supply contractor for contractual employees. The recovery of costs from the contractor is considered a transaction involving consideration, making it liable to GST. Issue 4: Eligibility for Input Tax Credit (ITC) The court examined whether the Appellant could claim ITC on the GST charged by the canteen service provider. Section 17(5)(b) of the CGST Act restricts ITC on food and beverages unless it is obligatory for the employer to provide the same under any law. Although the Factories Act mandates the provision of a canteen, the court noted that the canteen service provided by a third party is classified as "Restaurant Service" under GST law, attracting a 5% GST rate without ITC. Consequently, the Appellant is not eligible to claim ITC on the GST paid to the canteen service provider. Conclusion: The court upheld the decision of the Authority for Advance Ruling, ruling that the subsidized food provided to employees and contractual workers is a supply under GST law and is subject to GST. Additionally, the Appellant is not eligible to claim ITC on the GST charged by the canteen service provider.
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