2025 (4) TMI 802 - AAR - GST

Taxation of recovery of canteen services and transportation services made from employees - Taxability of Supply of Canteen services and transportation services to the employees - Whether the Applicant would be exempted under the S1. No. 15 of Notification No. 12/2017-Central Tax (Rate)? - Whether ITC of tax paid to Canteen Service Provider for Canteen Services is available? - Whether ITC is available to the Applicant on GST charged by the Transport Service Providers for providing the non-air-conditioned bus transportation services? - Value in respect of which canteen and transportation services are taxable. Taxation of recovery of canteen services and transportation services made from employees - HELD THAT - There is no privity of contract between these service providers and the employees. It is the Appellant (employer) which is providing these services to the employees. Applicant deducts certain amount from salary of the employees against this supply. Applicant makes only part of the recovery and balance cost is borne by him. Hence the criteria of business consideration are met in the transaction of supply of these services by Applicant the employees. Thus there is supply of canteen services and transportation services from the Applicant to the employees u/s. 7 (1) of CGST Act 2017. Taxability of Supply of Canteen services and transportation services to the employees - HELD THAT - If incidental of ancillary supply of goods or services such as canteen or transportation services by the employer to employee were to not fall under business it would not be necessary to provide respite to supplies by employer to employees given as perquisite from falling under supply by taking recourse to schedule III. That is if a transaction or activity is not a supply u/s 7 (1) of CGST Act then there would not be necessity to place such a transaction u/s 7 (2) (a) for deeming it to be neither supply of goods nor supply of services - the recoveries made from the employees are liable to levy of tax as it is consideration against canteen services and transportation services provided by the Applicant to the employees. Whether the Applicant would be exempted under the S1. No. 15 of Notification No. 12/2017-Central Tax (Rate)? - HELD THAT - The contract carriage permit holder is responsible for the operation of vehicles as per the conditions imposed in section 74 of the Motor vehicles Act 1988. In this case the applicant is not the contract carriage permit holder and thus not bound by the conditions mentioned in the section 74 of the Motor Vehicles Act 1988 - M/s. Supreme Facility Management Ltd. is charging his services of providing transport buses for carrying the employees @12%. These invoices are raised to M/s. Lear Automotive India Pvt. Ltd. These services are in the nature of renting of services of transport vehicles with operators. Here the transport service provider provides buses to M/s. Lear Automotive India Pvt. Ltd. and charges them on monthly basis fixed amount plus 12% GST under SAC 9966. Cost of fuel is included in these charges and the buses provided are along with the drivers. It is for M/s. Lear Automotive India Pvt. Ltd. to decide as to how these buses are to be used. Thus these services squarely fall under SAC 9966 as rented services of transport vehicles. Further the hire or charter services are excluded from the said entry 15(b) of Notification No. 12/2017 CT(R) dated 28.06.2017. In view of aforesaid discussion the transportation services provided by the Applicant to its employees are not covered by entry 15(b) of the Notification No. 12/2017 CT(R) dated 28.06.2027. The services provided by M/s. Lear Automotive India Pvt. Ltd. squarely fall under transport of passengers under SAC 9964 and taxable at 5% without ITC or 12% with ITC (If ITC is not blocked by other provisions) under entry No. 8 (vi) of Not. No. 11/2017 CT(R) dated 28.06.2017 as amended from time to time. Whether ITC of tax paid to Canteen Service Provider for Canteen Services is available? - HELD THAT - 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 workers as mandated in the Factories Act 1948 i.e. he is also providing Restaurant Service to its workers. As already mentioned in para 5.3.6 the Restaurant Service compulsorily attracts rate of 5% without ITC in a non-specified premise and the Applicant s premises is not 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 block availment of ITC however in the present case availment of ITC is barred in terms of provisions of 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. Whether ITC is available to the Applicant on GST charged by the Transport Service Providers for providing the non-air-conditioned bus transportation services? - HELD THAT - Hired motor vehicles would be used by the applicant for provision of service of transportation of employees from residence to factory or office premises. The services of leased or hired motor vehicles are consumed for discharging obligation towards employees - Section 17 (5) (g) of CGST/MGST Act 2017 states that input tax credit shall not be available in respect of goods or services or both used for personal consumption. Provision of service of transportation of employees from residence to factory or office premises has been used for personal consumption or comfort of employees. The applicant is not under any statutory obligation to provide these services to his employees and the services provided comes under category of personal consumption which makes the applicant ineligible to avail input tax credit on the invoices issued to him by the transporter for transportation of employees as per Section 17 (5) (g) of CGST/MGST Act 2017. Value in respect of which canteen and transportation services are taxable - HELD THAT - The value of the outward supply of canteen and transportation service can be considered as having two parts. First part is the amount of recovery that is made from the employees and second part is balance value of the services provided by the employer as perquisite which is in the lieu of the services provided by employees to the employer. The entire balance value of the services for which no amount is charged is the perquisite provided by the employer to the employees. As this part is in lieu of services of the employees to the employer which fall under schedule 3 the perquisite part is not taxable as a corollary deeming it to be falling in the said entry of schedule 3. Hence though the employer and employee are related parties the value on which tax is a liable to be paid is only the recovered amount from the employee as the remaining part of the value is the perquisite provided by the employer which is not liable to tax. Conclusion - i) The recoveries made by the Applicant from employees for canteen and bus transport facilities are taxable under GST as they are incidental to the Applicant s business activities. ii) The Applicant is not eligible for exemption under Notification No. 12/2017-Central Tax (Rate) for bus transportation services as the services do not qualify as contract carriage. iii) Input tax credit is not available for the canteen and transportation services as per Section 17(5) of the CGST Act and relevant notifications. iv) GST is payable only on the value of the recoveries made from employees not on the full value of the services provided.

Summary

The core legal questions considered by the Authority for Advance Ruling (AAR) pertain to the applicability of Goods and Services Tax (GST) on recoveries made by an employer from its employees for providing canteen and bus transportation facilities. Specifically, the issues are:

1. Whether recoveries made by the Applicant from employees for providing canteen facilities are taxable under GST laws.

2. Whether recoveries made by the Applicant from employees for providing bus transportation facilities are taxable under the CGST Act.

3. If GST is applicable on bus transportation recoveries, whether the Applicant is exempt under Sl. No. 15 of Notification No. 12/2017-Central Tax (Rate).

4. Whether input tax credit (ITC) is eligible on bus transport and canteen services procured from third-party suppliers to the extent the cost is borne by the Applicant.

5. If GST is payable on employee recoveries, the value on which GST is payable.

Issue-Wise Detailed Analysis

Issue 1 & 2: Taxability of Recoveries for Canteen and Bus Transportation Facilities

Legal Framework and Precedents: Section 7(1) of the CGST Act defines "supply" as all forms of supply of goods or services made for consideration in the course or furtherance of business. Section 2(17) defines "business" broadly to include trade, commerce, manufacture, profession, vocation, or any activity incidental or ancillary thereto, whether or not for pecuniary benefit. Schedule III, Entry 1 excludes "services by an employee to the employer in the course of or in relation to his employment" from supply. Circular No. 172/04/2022-GST clarifies that perquisites provided by the employer to employees under contractual agreement are not subject to GST.

Court's Interpretation and Reasoning: The Applicant argued that providing canteen and transportation facilities is not a business activity but a support function integral to employment, mandated by law (Factories Act, 1948) for canteen. The Applicant contended that such facilities are provided at subsidized rates without profit motive and are not in the course or furtherance of business. Reliance was placed on several rulings (e.g., Jotun India Pvt. Ltd., POSCO India, Tata Motors Ltd.) holding that employee recoveries for such facilities do not constitute supply under GST.

The Department contended that the recoveries constitute supply under Section 7(1)(a) as the Applicant supplies these services to employees for consideration, even if subsidized. It argued that employer-employee transactions are treated as supply between related persons under Section 7(1)(c) and Explanation to Section 15. The Department also invoked Schedule I, Sr. No. 5(e) (tolerating an act) to argue that the contractual agreement creates a supply.

The AAR observed that the activities of providing canteen and transportation services are incidental or ancillary to the Applicant's principal business of manufacturing automobile seats, thus falling within the definition of business under Section 2(17). The Applicant pays GST to third-party service providers and recovers a portion from employees. Hence, two transactions exist: (i) third party to Applicant (taxable supply), and (ii) Applicant to employees (also supply under Section 7(1)).

However, the AAR noted that Schedule III excludes services by employees to employer, and CBIC Circular clarifies that perquisites provided by employer under contractual agreement are not subject to GST. The AAR interpreted this to mean the concessional or free portion of the facility is a perquisite (not taxable), but the amount recovered from employees is consideration and taxable.

Key Evidence and Findings: The Applicant's employment agreements, canteen and transportation policies, salary slips showing recoveries, third-party invoices with GST, and the nature of buses (Non-AC, contract carriage permit) were considered. The absence of profit motive and the statutory obligation to provide canteen were emphasized.

Application of Law to Facts: The AAR concluded that recoveries made by the Applicant from employees are supplies under GST since they are for consideration in the course or furtherance of business. The facilities are ancillary to the principal business and not excluded under Schedule III. However, the perquisite portion (subsidy borne by the employer) is outside GST scope.

Treatment of Competing Arguments: The Applicant's reliance on precedents and the nature of employment contracts was acknowledged, but the AAR held that the legal provisions and definitions under GST prevail. The Department's argument that employer-employee transactions are supply between related persons was accepted.

Conclusion: Recoveries from employees for canteen and bus transportation facilities are taxable under GST.

Issue 3: Applicability of Exemption under Notification No. 12/2017-Central Tax (Rate) for Bus Transportation

Legal Framework: Sl. No. 15(b) of Notification No. 12/2017 exempts "non-airconditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire."

Analysis: The Applicant submitted that the buses used are Non-AC contract carriages with permits, thus qualifying for exemption. However, the AAR noted that the Applicant is not the contract carriage permit holder, nor does it have privity of contract with employees as passengers. The buses are hired from a third party who charges GST under SAC 9966 (renting of motor vehicles). The Applicant controls usage but does not provide contract carriage service directly to employees.

Conclusion: The exemption under Sl. No. 15(b) is not available to the Applicant for recoveries from employees as the Applicant is not providing contract carriage service directly. Hence, the exemption is denied.

Issue 4: Eligibility of Input Tax Credit (ITC) on Canteen and Bus Transport Services

Legal Framework: Section 16 allows ITC on goods/services used in the course or furtherance of business. Section 17(5)(b) blocks ITC on food and beverages, outdoor catering, leasing or hiring of motor vehicles, except where obligatory under law. Section 17(5)(a) blocks ITC on motor vehicles with seating capacity not exceeding thirteen persons, except for specified uses.

Analysis: The Applicant argued ITC is available on GST paid to third-party canteen and transport service providers as these services are obligatory under the Factories Act (canteen) and used in furtherance of business (transport). The AAR acknowledged the statutory obligation for canteen and allowed ITC subject to the proviso in Section 17(5)(b). However, the canteen service provider charges GST at a concessional 5% rate without ITC, per Notification No. 11/2017, so the Applicant cannot claim ITC on canteen services.

Regarding transport, as the buses have seating capacity exceeding thirteen persons, ITC on GST paid to the transport service provider is available under Section 17(5)(a). However, since the Applicant is not providing transport service to employees as a business but merely facilitating, ITC is restricted to the cost borne by the Applicant.

Conclusion: ITC is not available on canteen services due to concessional rate and blocking provisions but is available on bus transport services to the extent cost is borne by the Applicant and seating capacity exceeds thirteen persons.

Issue 5: Value on Which GST is Payable

Legal Framework: Section 15 of the CGST Act and related rules govern valuation for GST purposes. CBIC Circular No. 172/04/2022 clarifies that perquisites provided under contractual agreement are not taxable, but recoveries made are consideration and taxable.

Analysis: The AAR observed that the total value of canteen and transportation services consists of two parts: (i) amount recovered from employees, and (ii) balance amount borne by employer as perquisite. Only the recovered amount is taxable; the perquisite portion is not subject to GST.

Conclusion: GST is payable only on the value of recoveries made from employees, not on the entire cost of the service.

Significant Holdings

"The activity of supply of canteen services and transportation services provided to the employees falls under the definition of 'business' as these activities are in connection with or incidental or ancillary to the principal activity of the taxpayer."

"There is supply of canteen services and transportation services from the Applicant to the employees, u/s. 7 (1) of CGST Act, 2017."

"Perquisites provided by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST."

"The exemption under Sl. No. 15(b) of Notification No. 12/2017-Central Tax (Rate) is not available to the Applicant as the Applicant is not the contract carriage permit holder and does not provide contract carriage service directly to employees."

"Input tax credit on canteen services is not available due to concessional rate and blocking provisions; however, ITC on bus transportation services is available to the extent the cost is borne by the Applicant and seating capacity exceeds thirteen persons."

"GST is payable only on the recoveries made from employees and not on the entire cost of the canteen or transportation services."

Final Determinations on Each Issue

1. Recoveries made by the Applicant from employees for providing canteen facilities are taxable under GST.

2. Recoveries made by the Applicant from employees for providing bus transportation facilities are taxable under GST.

3. The Applicant is not entitled to exemption under Sl. No. 15 of Notification No. 12/2017-Central Tax (Rate) for bus transportation recoveries.

4. Input tax credit is not available on canteen services but is available on bus transportation services to the extent cost is borne by the Applicant and seating capacity criteria are met.

5. GST is payable on the value of recoveries made from employees only, not on the full cost of services.