2021 (1) TMI 432 - AAR - GST

Levy of GST - amount recovered from employee on account of third party canteen services which is obligatory under Section 46 of the Factories Act, provided by company - HELD THAT - The applicant is a 100% EOU. More than 500 employees are working in the factory. They are providing canteen services through third party exclusively for their employees in the factory. They offered food to their employees on subsidized rate whereby the employee s share of the cost is being deducted from their salary. The applicant has further submitted that the canteen service provided to the employees is not being carried out as a business activity. It is according to the provisions of the Factories Act, 1948 - From the plane reading of the definition of business , it can be safely concluded that the supply of food by the applicant to its employees would definitely come under clause (b) of Section 2(17) as a transaction incidental or ancillary to the main business. Even though, there is no profit as claimed by the applicant on the supply of food to its employees, there is a supply , as provided in Section 7(1)(a) of the CGST Act, 2017. The applicant would definitely come under the definition of Supplier , as provided in sub-section (105) of Section 2 of the CGST Act, 2017 - Since the applicant recovers the cost of food from its employees, there is consideration , as defined in Section 2(31) of the CGST Act, 2017. Thus, recovery of amount from employee on account of third party canteen services provided by the Company, which is obligatory under Section 46 of the Factories Act, 1948 would come under the definition of 'outward supply' as defined in Section 2(83) of the CGST Act, 2017 and therefore, taxable as a supply under GST.

Summary

Issues:
- Applicability of GST on amount recovered from employees for third-party canteen services under Factories Act.

Analysis:
1. The applicant, a 100% EOU, provides canteen services through a third party to over 500 employees, deducting the cost from employees' salaries. They argue it's not a profit-making activity but a statutory obligation under the Factories Act, 1948.

2. The key question is whether this activity constitutes an 'outward supply' as per CGST Act, 2017. The definition of 'business' under Section 2(17) includes activities incidental to the main business, suggesting the food supply to employees falls under this definition.

3. Schedule II of the CGST Act, 2017 deems the supply of goods or services, including food, as a composite supply. Even though no profit is made, the provision of food to employees qualifies as a 'supply' under Section 7(1)(a) of the Act.

4. The concept of 'consideration' under Section 2(31) of the CGST Act includes any payment made for the supply of goods or services. As the applicant recovers the food cost from employees, it constitutes 'consideration' under the Act.

5. The ruling states that the recovery of amounts from employees for third-party canteen services, as mandated by the Factories Act, falls within the definition of 'outward supply' under the CGST Act, making it taxable under GST.

6. Therefore, the Authority rules that GST is applicable on the amount recovered from employees for third-party canteen services under the Factories Act. The ruling is affirmative based on the interpretation of relevant provisions and definitions under the CGST Act, 2017.