2022 (11) TMI 1265 - AAR - GST

Levy of GST - Supply or not - nominal amount of recoveries made by the Applicant from the employees who are provided food in the factory canteen - eligibility for input tax credit on GST charged by the Canteen Service Providers for providing the catering services of 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 on GST charged by the Canteen service providers. Supply or not - HELD THAT - The 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 as the recovered amount is directly paid to the third-party vendor without any profit element in the hands of the Applicant? - HELD THAT - The running of canteen in the factory of the applicant is in the course of furtherance of business. The applicant has chosen to run the canteen through a third party vendor in the factory. It is also clear that in running of such 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 - the third party vendor has entered into agreement with the applicant for running of canteen in their unit and is paid service charges which is a supply made by the third-party-vendor to the applicant. The supply of food by the employer, i.e. the applicant to their employees is composite supply of food held as 'Supply of service' as per Schedule-II of the GST Act and the amount collected by the applicant is a 'Consideration' on which GST is liable to be paid. Eligibility of ITC on the GST paid by the applicant on the services of canteen services by the canteen service provider - HELD THAT - The Input Tax Credit on Goods and Services Tax paid on Canteen Facility is barred credit u/s 17(5)(b)(i) of the Central Goods and Services Act, 2017 and hence inadmissible. The two clauses in Section 17(5)(b)(i) and 17(5)(b)(iii) of the CGST Act, which governs the supply of goods and services, are not related by the punctuation used at the end of the provisions. Colons and semicolons are two types of punctuation, according to the concept, and Semicolons are used to unite two independent clauses/sub clauses, or two complete thoughts that might stand alone as entire sentences. Hence it can be said that ITC is not allowed on canteen charges even though it is obligatory under any other law. The Authority for Advance Ruling, Gujrat in the case of M/s Tata Motors Limited 2021 (8) TMI 735 - AUTHORITY FOR ADVANCE RULING, GUJARAT held that Input Tax Credit on Goods Services Tax charged by canteen service provider will not be available even when the same is obligatory in terms of Factories Act, 1948 - In the case at hand, as brought out, the applicant who runs factory, wherein more than 250 workers are employed is mandated to provide the canteen facility in the premises and bear certain costs the provision of food at nominal rate and recovery of such nominal rate is not as per the employment contract. In view of the stated factual matrix of the case, the case laws relied upon by the applicant do not have even persuasive values to this case and therefore not elaborated individually.

Summary

Issues Involved:
1. Whether the nominal amount of recoveries made by the Applicant from the employees for food in the factory canteen is considered a "Supply" under Section 7 of the 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 GST charged by the Canteen Service Providers for catering services provided in the factory, where it is obligatory for the Applicant to provide the same 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."

Detailed Analysis:

Issue 1: Whether the nominal amount of recoveries made by the Applicant from the employees for food in the factory canteen is considered a "Supply" under Section 7 of the CGST Act, 2017.

The applicant provides canteen facilities to its employees as mandated by the Factories Act, 1948. The applicant argued that the supply of food in the canteen is part of the employment contract and should be excluded from the scope of supply under Entry 1 in Schedule III of the CGST Act, 2017. However, the ruling clarified that services by an employee to the employer in the course of employment are not a supply of goods or services, but the supply of food by the employer to the employees for consideration is a supply. The provision of food in the canteen for a nominal charge is a "Supply" for GST purposes.

Issue 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.

The ruling determined that the supply of food in the canteen is a "Supply of Service" by the applicant to their employees. The amount collected from the employees is considered "Consideration" for the supply, and GST is liable to be paid on this amount. The nominal cost recovered from employees is subject to GST, and the applicant must discharge GST on the taxable value, which includes the cost of the canteen service provider plus a 10% notional markup.

Issue 3: Whether input tax credit (ITC) is available on GST charged by the Canteen Service Providers for catering services provided in the factory, where it is obligatory for the Applicant to provide the same under the Factories Act, 1948.

The ruling stated that ITC on the GST paid for canteen facilities is barred under Section 17(5)(b)(i) of the CGST Act, 2017, and hence inadmissible. The provision of food in the canteen is not part of the employment contract, and the nominal cost recovered from employees is considered a supply of service. Therefore, ITC is not available on the GST charged by the Canteen Service Providers.

Issue 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."

The ruling reaffirmed that ITC is not admissible on the GST paid to the canteen service providers. The applicant cannot avail ITC on the GST charged by the canteen service providers, even if it is obligatory to provide the canteen facility under the Factories Act, 1948.

Ruling:

a. The nominal amount of recoveries made by the Applicant from the employees for food in the factory canteen is considered a "Supply" under Section 7 of the CGST Act, 2017.

b. GST is applicable on both the amount paid to the canteen service provider and the nominal amount recovered from the employees.

c. ITC is not admissible on the GST paid to the canteen service providers and on the amount recovered from the employees.

d. ITC cannot be availed on GST charged by the canteen service providers.