2023 (12) TMI 507 - AAR - GST

Levy of GST - supply or not - recovery of subsidised value from employees for providing canteen facility - HELD THAT - In the case at hand establishing a canteen facility in the unit is an activity incident to the running of their business. Factory Act, above mandates establishing canteen, bearing certain mandatory costs in running of the canteen by the employer in as much as the number of workers ordinarily employed (workers contract labourers) are above 250 per unit, which is the case in hand as per their submissions. Accordingly, the applicant has established the canteen in their premises and bears certain running cost while collecting the nominal rate as fixed by the Managing Committee, which is an activity in furtherance of their business - Thus supply made by a taxable person in the course or furtherance of business is an Outward supply . It was also the contention of the Applicant that the amount received from the employees is in the nature of reimbursement of the cost incurred by the Applicant and there is not enforceable reciprocal obligations. However, the running of canteen in the premises of the Applicant is in the course of furtherance of business. It is also clear that in running of such a canteen, the employer, i.e., the Applicant is mandated to bear certain costs. Provision of canteen facility and bearing certain costs in running of canteen are mandated on the part of the employer as per the Factories Act. Accordingly, such canteens are provided. It has been established that the supply of food in the canteens are Supply of Service by the Applicant - 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, by adopting subsidized rates. The supply of the food/beverages, although at subsidized rates, by the Applicant 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. Whether subsidized food is a perquisite to employees forming a part of the wage agreement and HR policy of the Applicant? - HELD THAT - The intention of the Circular no. 172/04/2022-GST dated 06.07.2022 of CBIC is to clarify that tax is not applicable on perquisite which is part of the employee agreement and which may be free of cost for the employees. Accordingly, in case where a recovery is made against a supply, even if it is subsidised, the same will be subjected to tax. We find that the benefit of the non-levy of GST could be extended only to the extent of the consideration being borne by the Applicant out of the total cost for supply of the food/Beverages, but not to the extent of the consideration being collected at the subsidized rates, by the Applicant from their employees. Thus, GST is to be levied on the amount recovered by the Applicant from the employees towards canteen provision.

Summary

Issues Involved:
1. Whether recovery of subsidized value from employees for providing canteen facility amounts to 'supply' under the CGST Act.
2. Whether such recovery attracts GST.

Summary:

Admissibility of Application:
The application falls within the scope of Section 97(2)(e) & (g) of the CGST/TNGST Act, 2017, making it admissible.

Issue 1: Whether Recovery of Subsidized Value from Employees Amounts to 'Supply' under the CGST Act:
The applicant argued that the canteen facility is a statutory obligation under the Factories Act, 1948, and not a business activity. They claimed there is no legal intention or agreement to supply canteen services for consideration, and the amount collected is merely a reimbursement without reciprocal obligations. The applicant also cited various case laws to support their claim that the activity does not qualify as 'supply' under the CGST Act.

However, the Authority found that the canteen facility is an activity in furtherance of business as defined under Section 2(17) of the GST Act. The provision of food in the canteen for a nominal cost is considered an 'Outward Supply' under Section 2(83) of the CGST Act. The running of the canteen is mandated by the Factories Act and is incidental to the business. Therefore, the provision of food in the canteen is a 'Supply' for GST purposes.

Issue 2: Whether Recovery Attracts GST:
The applicant contended that the amount recovered from employees is not 'consideration' but a reimbursement. They argued that subsidized food is a perquisite forming part of the wage agreement and HR policy, which should be excluded from GST as per Circular No. 172/04/2022-GST.

The Authority noted that the term 'Consideration' under Section 2(31) of the CGST Act includes any payment made for the supply of goods or services. Since the applicant supplies food to employees at a nominal cost, this amount is considered 'consideration' for the supply, making it liable for GST. The Authority also clarified that the benefit of non-levy of GST could only be extended to the extent of the cost borne by the applicant, not the subsidized amount recovered from employees.

Ruling:
The recovery of subsidized value from employees for providing canteen facility amounts to 'supply' under the CGST Act, and GST is to be levied on the amount recovered by the applicant from the employees towards the provision of the canteen facility.