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2024 (1) TMI 953 - AAR - GSTSupply or not - nominal amount of recoveries made by the Applicant from the employees who are provided food in the factory canteen - levy of GST on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the Applicant to the Canteen Service Provider - input tax credit (ITC) is available on the GST charged by the Canteen Service Providers for providing the catering services at the factory where it is obligatory for the Applicant to provide the same to its employees as mandated under the Factories Act, 1948 - input tax credit (ITC) can be availed on GST charged by the Canteen service providers. HELD THAT - Supply made by a taxable person in the course or furtherance of business is an Outward supply'. It has been brought out above, that establishing canteen is in the furtherance of business of the applicant and supply of food to the employees when the same is not contractually agreed, is not an allowance as a part of the employment. Thus, the provision of food in the canteen for a nominal cost is a 'Supply' for the purposes of GST. Schedule II to the CGST Act, 2017 describes the activities to be treated as supply of goods or supply of services - the supply of food is a 'Supply of Service'. Whether the amount received from the employees is in the nature of recovery and not consideration? - HELD THAT - The applicant has chosen to run the canteen through a third party vendor in the course of furtherance of business. It is also clear that in running of such canteen, the employer is mandated to bear certain costs. The contention that the applicant only collects the employee cost and pays the third party vendor that such employee cost is only a recovery is not tenable. 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. The applicant has established canteen facilities as mandated under Factories Act, 1948 and supplies food at a cost through third-party-vendor and that the supply of food by applicant is 'Supply of Service' to their employees, as the same is not a part of the employment contract and the canteen facility is provided as mandated under Factories Act. The cost although nominal is recovered from the salary as deferred payment is 'consideration' for the supply and GST is liable to be paid. The Kerala Authority of Advance Ruling, Kerala in the case of Caltech Polymers Pvt. Ltd. 2018 (4) TMI 582 - AUTHORITY FOR ADVANCE RULING - KERALA , held that if the company's canteen services are covered under outward supply under Section 2(83) of the Central Goods and Services Act, 2017, GST will be payable on food expenses collected from employees. Whether input tax credit (ITC) is available to the applicant on GST charged by the service provider on the canteen facility provided to employees working in the factory or otherwise? - HELD THAT - Since the contract workers are not employees of the applicant, 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. It is observed that the above Section 17(5) (b) was amended on 01.02.2019. The Press Note issued on the recommendations of the 28th meeting of the GST Council meeting stated that the scope of input tax credit is being widened and it would now be available in respect of goods or services which are obligatory for an employer to provide to its employees under any law for the time being in force. As per the provisions of the Factories Act, 1948 as extracted in Para 11.4, the applicant has the legal responsibilities to provide maintain the canteen. The applicant has accordingly, instead of maintaining the canteen himself, has engaged another person (hereinafter called as Canteen Contractor), who is providing canteen services to the workers of the applicant on behalf of the said applicant. The service so provided is righty classifiable as Restaurant Service as already clarified under Circular No. 164/20/2021/GST dated 06.10.2021 where-under, vide Point No. 3 4, it has been clarified that cooking supply of food will only be covered under Restaurant Service and in case there is no cooking but only supply of food then GST rate as applicable on supply of Goods would be attracted. In other words, if the cooking of food supply of the same food is made as a single transaction, then the said transaction is the Restaurant Service and is liable to 5% of GST in terms of entry no. 7 (ii) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 which was amended by the Notification No. 20/2019-C.T. (Rate) dated 30.09.2019, effective from 01.10.2019. The flow of the transaction is that the Canteen Contractor is providing service to the applicant, which is classifiable as Restaurant Service and the applicant himself is also providing same service to its worker, as mandated in the Factories Act, 1948 i.e. he is also providing a Restaurant Service to its worker. As already brought out above, the Restaurant Service, compulsorily attracts GST rate of 5% without ITC, in a non-specified premises and the applicant's premises is not a specified premises in terms of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017. Therefore, though the Section 17(5) of the CGST Act, 2017, does not debar availment of ITC in entirety, but 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. Input Tax Credit will not be available to the applicant 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 nominal amount of recoveries made by the applicant from the employees who are provided food in the factory canteen would be considered as a "Supply" under Section 7 of CGST Act, 2017. 2. Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the applicant to the Canteen Service Provider. 3. Whether input tax credit (ITC) is available on the GST charged by the Canteen Service Providers for providing the catering services at the factory where it is obligatory for the applicant to provide the same to its employees as mandated under the Factories Act, 1948. 4. Whether input tax credit (ITC) can be availed on GST charged by the Canteen service providers if the answer to the previous question is "Yes". Summary: Issue 1: Supply Consideration The Authority ruled that the nominal amount of recoveries made by the applicant from the employees who are provided food in the factory canteen would be considered as a "Supply" by the applicant under the provisions of Section 7 of the Central Goods and Service Tax Act, 2017. The applicant's contention that the supply of food in the canteen is part of the employment contract and thus outside the scope of supply was not accepted. The supply of food for a nominal charge by the employer to the employees is deemed a supply of services. Issue 2: Applicability of GST The Authority determined that GST is applicable on both the amount recovered from the employees for the food provided in the factory canteen and the amount paid by the applicant to the Canteen Service Provider. The recovery of cost from the salary as deferred payment does not alter the fact of the service provided and the person providing the said supply. Issue 3: Availability of ITC The Authority ruled that input tax credit (ITC) is not available on the GST charged by the Canteen Service Providers for providing the catering services at the factory, even if it is obligatory for the applicant to provide the same to its employees as mandated under the Factories Act, 1948. The ruling cited the provisions of Section 17(5)(b) of the CGST Act, 2017, which blocks ITC on food and beverages except when used for making an outward taxable supply of the same category of goods or services. Issue 4: ITC on GST Charged by Canteen Service Providers The Authority confirmed that ITC cannot be availed on GST charged by the Canteen service providers. The ruling emphasized that the applicant is providing a restaurant service to its workers, and as per the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended, the service attracts GST at a reduced rate of 5% without ITC. Conclusion: The ruling concluded that the nominal recoveries from employees for food provided in the factory canteen are considered a supply and subject to GST. ITC on GST charged by the canteen service providers is not available to the applicant.
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