2025 (4) TMI 801 - AAR - GST

Levy of GST - recoveries made from the employees towards providing canteen facility at subsidized rates in the factory and office - recoveries made from the employees towards providing bus transportation facility - exemption under N/N. 12/2017 Central Tax (Rate) - ITC of the input services received in respect of the services procured in respect of bus transportation services. Taxation of recovery of canteen services and transportation services made from employees - HELD THAT - The Applicant (employer) is supplying these services to their employees for which the Applicant is receiving consideration although at the subsidized rate from their employees. The respective service provider invoices the appellant for the entire services. He charges the consideration along with GST thereon. 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 to 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. Hence as discussed in Para 5.1.2 and 5.1.3 Applicant s activity of supply of canteen and transportation services falls u/s 7 (1) of CGST Act 2017. As discussed in Para 5.1.4 only the perquisites i.e. free supplies in terms of a contractual agreement between the employer and employee are not to be subjected to GST as these are in lieu of the services provided by employee to the employer in relation to his employment. Hence 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 SI. No. 15 of Notification No. 12/2017 - Central Tax (Rate)? - HELD THAT - The transport service provider provides buses to M/s. Spicer India Private Limited and charges them on monthly basis based on fixed amount plus additional charges based on the Km running of the bus. Additionally 12% GST under SAC 9966 is also charged in the bill. Cost of fuel is included in these charges and the buses provided are along with the drivers. It is for M/s. Spicer India Private Limited 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. In case of MAH AAR-M/s. Shailesh Ramsundar Pande and RAJ AAR in case of M/s. Pawan Putra travels the services provided by the transport service providers to the companies or organization for transportation of its employees have been held to be renting services to the company. 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. Spicer India Private Limited 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 is available to the Applicant on GST charged by the Transport Service Providers for providing the non-air-conditioned bus transportation services? - HELD THAT - The service provider of transportation service to the Applicant is required to discharge GST on the said services. It is seen that ITC on leasing renting or hiring of motor vehicles for transportation of passengers having approved seating capacity of more than 13 persons is not blocked u/s 17 (5) (b)(i) - The transportation of employees by picking them from their residence to the factory or office premises is merely for personal convenience of the employees to enable them to reach the premises of the office so as to participate in the business activity. 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. Taxability of value in respect of which canteen and transportation services - HELD THAT - Supply of canteen services and transportation services to the employees would in normal course constitute to be the supply of services u/s 7 (1) of GST Act 2017. However it is now clarified by the CBIC circular No. 172/04/2022/GST dated 6th July 2022 that perquisite provided to the employees in view of the Contractual Agreement would not be subjected to GST. It is clarified that such perquisite are in lieu of the services provided by the employees to the employer in the course of or in relation to his employment and should not be subjected to GST. The supply of canteen and transportation services in the nature of perquisite by the employer to the employee would not have respite from two aspects mentioned at Sr. No. 1 and 2 above as the said supply is neither exempted nor a Non-GST supply. Hence it needs to be analysed if such services can be called as supply u/s 7. 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) GST is payable on the recoveries made from employees for canteen facilities based on the value of recoveries. ii) GST is payable on the recoveries made from employees for bus transportation facilities and no exemption under Notification No. 12/2017 applies. iii) ITC is not available for the GST paid on bus transportation services.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(a) Whether GST is payable on recoveries made from employees for providing canteen facilities at subsidized rates in the factory and office, and if so, on what value should the tax be payable?

(b) Whether GST is payable on recoveries made from employees for providing bus transportation facilities, and if so, whether the applicant is exempted under Notification No. 12/2017 Central Tax (Rate)?

(c) Whether Input Tax Credit (ITC) of the input services received in respect of bus transportation services is available?

2. ISSUE-WISE DETAILED ANALYSIS

(a) GST on Canteen Facility Recoveries

Relevant Legal Framework and Precedents: The definition of "supply" under Section 7 (1) of the CGST Act was examined, which includes all forms of supply of goods or services for consideration in the course or furtherance of business. The term "business" is defined under Section 2 (17) of the CGST Act to include activities incidental or ancillary to the main business.
Court's Interpretation and Reasoning: The Tribunal concluded that providing canteen services is incidental or ancillary to the main business of manufacturing automotive components. Thus, it falls under the definition of "business" and constitutes a "supply" under the GST Act.
Key Evidence and Findings: The applicant provides canteen services to employees at subsidized rates, and the cost is recovered from employees through salary deductions. The Tribunal noted that the applicant is not engaged in the business of providing canteen services but acts as a conduit between employees and the third-party service provider.
Application of Law to Facts: The Tribunal found that the recoveries made from employees for canteen services are taxable as they constitute consideration for a supply of services.
Treatment of Competing Arguments: The applicant argued that the canteen services are not in the course of business and are excluded under Schedule III of the CGST Act. However, the Tribunal disagreed, stating that the services are incidental to the main business and thus taxable.
Conclusions: GST is payable on the value of recoveries made from employees for canteen services.

(b) GST on Bus Transportation Facility Recoveries

Relevant Legal Framework and Precedents: The Tribunal examined the applicability of Notification No. 12/2017 Central Tax (Rate), which exempts certain passenger transportation services from GST.
Court's Interpretation and Reasoning: The Tribunal determined that the transportation services provided by the applicant do not qualify for exemption under the notification as they do not meet the criteria for "contract carriage" as defined under the Motor Vehicles Act, 1988.
Key Evidence and Findings: The applicant provides transportation services using non-air-conditioned buses, and the cost is partially recovered from employees. The buses are rented from a third-party service provider.
Application of Law to Facts: The Tribunal found that the transportation services are taxable as they are not covered by the exemption notification.
Treatment of Competing Arguments: The applicant argued for exemption under the notification, but the Tribunal found that the conditions for exemption were not met.
Conclusions: GST is payable on the value of recoveries made from employees for transportation services, and the exemption under Notification No. 12/2017 does not apply.

Relevant Legal Framework and Precedents: The Tribunal considered Section 17 (5) of the CGST Act, which restricts ITC on certain goods and services, including those used for personal consumption.
Court's Interpretation and Reasoning: The Tribunal concluded that the transportation services are for personal consumption of employees and not for furtherance of business, thus making ITC ineligible.
Key Evidence and Findings: The Tribunal noted that the transportation services are provided for the personal convenience of employees and not as a business necessity.
Application of Law to Facts: The Tribunal found that ITC is not available as the services are used for personal consumption.
Treatment of Competing Arguments: The applicant argued for ITC availability, but the Tribunal found that the services do not qualify for ITC under the CGST Act.
Conclusions: ITC is not available for the GST paid on bus transportation services.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "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."
Core Principles Established: The Tribunal established that services incidental to the main business activity, even if provided at subsidized rates, constitute a supply under GST. It also clarified the inapplicability of certain exemptions and ITC restrictions for services provided for personal consumption.
Final Determinations on Each Issue: GST is payable on recoveries for canteen and transportation services, and ITC is not available for bus transportation services.

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