2025 (3) TMI 360 - AAAR - GST

Applicability of GST on the amount recovered by the company Troikaa Pharmaceuticals Limited from employees or contractual workers when provision of third-party canteen service is obligatory under section 46 of the Factories Act 1948 - Availability of input tax credit of GST paid on food bill of the Canteen Service Provider shall be available since providing this canteen facility is mandatory as per the Section 46 of the Factories Act 1948 - HELD THAT - Relying on sections 20 (2) and 21 (2) it is averred that though statutorily it is the contractor who is required to provide the amenity to the contractual workers in terms of section 16 ibid the onus shifts on the principal employer i.e. the appellant in case the contractor is not providing the same. Two things are therefore clear a that statutorily it is the contractor on whom the CLRA Act has entrusted the task of providing the amenity; and b the responsibility shifts on the principal employer ie appellant in case of the contractor is not providing the same. However one cannot ignore the fact that the section also states that all expenses incurred by the principal employer in providing such amenity may be recovered from the contractor either by deduction from any amount payable under any contract or as a debt payable by the contractor. The appellant in his averments assumes of a situation wherein he is thrusted with the responsibility as a primary employer which would arise only in case the contractor fails in his statutory obligation. The assumption so made is not supported by factual evidence - the contractor has been paid the gross amount which includes salary allowances such as canteen facility provident fund etc. The clarification at serial no. 5 vide circular no. 172/4/2022-GST dated 6.7.2022 relied upon by the appellant to aver that no GST amount is leviable on the amount recovered from contractual workers for canteen services fails since the clarification states that perquisites provided by the employer to its employees in terms of contractual agreement entered into between them will not be subject to GST. Further the clarification at serial no. 3 of the said circular dated 6.7.2022 regarding availment of ITC would also not be applicable since it is available only in respect of the goods supplied to the employees of the appellant in terms of section 46 of the Factories Act 1948 which mandates provision of canteen facilities to the employees. Further in terms of clause 17 of the agreement appellant also indemnifies himself for any payment made on behalf of the contractor. Conclusion - i) GST is not applicable on canteen charges for employees but is applicable for contractual workers. ii) ITC is available for canteen services provided to employees but not for those provided to contractual workers. Appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal questions considered in this judgment are:

• Whether GST is applicable on the amount recovered by the appellant from employees or contractual workers for canteen services, which are obligatory under Section 46 of the Factories Act, 1948.
• Whether the input tax credit (ITC) of GST paid on the food bill of the Canteen Service Provider is available to the appellant, given the mandatory nature of providing canteen facilities under the Factories Act, 1948.

ISSUE-WISE DETAILED ANALYSIS

1. Applicability of GST on Canteen Charges Recovered from Employees and Contractual Workers

• Legal Framework and Precedents: The judgment references the Central Goods and Services Tax Act, 2017 (CGST Act), specifically Section 7(1)(a) and Section 2(31), which define supply and consideration, respectively. It also considers the provisions of the Factories Act, 1948, and the Contract Labour (Regulation & Abolition) Act, 1970 (CLRA).
• Court's Interpretation and Reasoning: The court upheld the ruling that GST is not leviable on canteen charges collected from employees, as these are not considered a supply under the CGST Act. However, for contractual workers, the charges are considered a supply, and thus GST is applicable.
• Key Evidence and Findings: The court noted that the appellant recovers 50% of canteen charges from employees and contractual workers. For employees, this recovery is not considered a supply, but for contractual workers, it is, due to the absence of an employer-employee relationship.
• Application of Law to Facts: The court applied Section 7(1)(a) and Section 2(31) of the CGST Act to determine that the recovery from contractual workers constitutes consideration for supply, thereby attracting GST.
• Treatment of Competing Arguments: The appellant argued that the obligation to provide canteen facilities under the Factories Act should exempt these charges from GST. However, the court found that this obligation does not extend to contractual workers under the CLRA.
• Conclusions: GST is not applicable on charges recovered from employees but is applicable on charges recovered from contractual workers.

2. Availability of Input Tax Credit on Canteen Services

• Legal Framework and Precedents: The court examined Section 17(5)(b) of the CGST Act, which deals with blocked credits, and the circular No. 172/4/2022-GST, which clarifies the applicability of ITC provisions.
• Court's Interpretation and Reasoning: The court held that ITC is available for canteen services provided to employees, as it is obligatory under the Factories Act. However, for contractual workers, ITC is not available, as the obligation to provide canteen facilities does not extend to them under the CLRA.
• Key Evidence and Findings: The court noted that the appellant's contracts with service providers do not establish an employer-employee relationship with contractual workers, thus affecting ITC eligibility.
• Application of Law to Facts: The court applied the provisions of the CGST Act and relevant circulars to conclude that ITC is admissible only for canteen services provided to employees.
• Treatment of Competing Arguments: The appellant contended that as a principal employer, it should be eligible for ITC for services provided to all workers. The court rejected this argument, citing the lack of statutory obligation for contractual workers.
• Conclusions: ITC is available for canteen services provided to employees but not for those provided to contractual workers.

SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment reinforces the principle that GST applicability and ITC eligibility depend on the existence of a statutory obligation and the nature of the relationship between the parties involved.
• Final Determinations on Each Issue: The court upheld the ruling that GST is not applicable on canteen charges for employees but is applicable for contractual workers. ITC is available for canteen services provided to employees but not for those provided to contractual workers.

In conclusion, the appeal by M/s. Troikaa Pharmaceuticals Ltd. was rejected, affirming the original ruling by the Gujarat Authority for Advance Ruling. The court's decision was based on a detailed analysis of the statutory obligations under the Factories Act and the CLRA, as well as the provisions of the CGST Act regarding supply and ITC.