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2025 (4) TMI 802 - AAR - GSTTaxation 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.
1. ISSUES PRESENTED and CONSIDERED
The judgment addresses the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability of Recoveries for Canteen and Bus Transport Facilities Relevant Legal Framework and Precedents: The CGST Act, 2017, particularly Section 7, defines 'supply' and includes all forms of supply of goods or services made for a consideration in the course or furtherance of business. The definition of 'business' under Section 2(17) includes activities incidental or ancillary to the main business. Court's Interpretation and Reasoning: The Tribunal found that the provision of canteen and transportation services to employees is incidental and ancillary to the Applicant's principal business activity of manufacturing motor vehicle seats. Therefore, these activities fall within the definition of 'business' as per the CGST Act. Key Evidence and Findings: The Applicant provides these services through third-party service providers and recovers part of the costs from employees. The Tribunal observed that there are two distinct transactions: one between the service providers and the Applicant, and another between the Applicant and its employees. Application of Law to Facts: The Tribunal concluded that the recoveries made from employees for canteen and transportation services are taxable under GST as they constitute a supply in the course of business. Treatment of Competing Arguments: The Applicant argued that these services do not constitute 'supply' as they are not in the course of business and are provided as perquisites. The Tribunal rejected this argument, stating that the services are indeed part of the business activities. Conclusions: The Tribunal held that the recoveries for canteen and bus transport facilities are taxable under GST. Issue 2: Exemption under Notification No. 12/2017-Central Tax (Rate) Relevant Legal Framework and Precedents: Notification No. 12/2017 exempts certain passenger transportation services, including non-air-conditioned contract carriages, from GST. Court's Interpretation and Reasoning: The Tribunal noted that the Applicant is not the holder of a contract carriage permit, and the transportation services do not meet the criteria for exemption under the notification. Key Evidence and Findings: The Tribunal found that the Applicant rents buses from a service provider and does not operate them as contract carriages. Application of Law to Facts: The Tribunal applied the definition of 'contract carriage' under the Motor Vehicles Act and concluded that the Applicant's services do not qualify for the exemption. Treatment of Competing Arguments: The Applicant contended that the services should be exempt as they are provided by non-air-conditioned buses. The Tribunal disagreed, emphasizing the lack of a contract carriage permit. Conclusions: The Tribunal ruled that the Applicant is not entitled to the exemption under Sl. No. 15 of Notification No. 12/2017. Issue 3: Eligibility for Input Tax Credit Relevant Legal Framework and Precedents: Section 17(5) of the CGST Act restricts ITC on certain supplies, including food and beverages, unless obligatory under law. Court's Interpretation and Reasoning: The Tribunal noted that while the Factories Act mandates canteen facilities, the GST law does not allow ITC on restaurant services, which include canteen services. Key Evidence and Findings: The Tribunal found that the canteen services are taxed at a concessional rate of 5% without ITC. Application of Law to Facts: The Tribunal applied the provisions of Section 17(5) and relevant notifications to deny ITC on canteen services. Treatment of Competing Arguments: The Applicant argued for ITC eligibility based on the mandatory nature of the services. The Tribunal rejected this, citing the specific exclusion under GST law. Conclusions: The Tribunal concluded that ITC is not available for the canteen and transportation services. Issue 4: Value on Which GST is Payable Relevant Legal Framework and Precedents: Section 15 of the CGST Act provides the basis for determining the value of taxable supply. Court's Interpretation and Reasoning: The Tribunal clarified that GST is payable on the amount recovered from employees, not on the full value of the services. Key Evidence and Findings: The Tribunal considered the contractual arrangements and the nature of recoveries made from employees. Application of Law to Facts: The Tribunal applied Section 15 to determine that only the recovered amount is subject to GST. Treatment of Competing Arguments: The Applicant's position aligned with the Tribunal's conclusion on this issue. Conclusions: GST is payable on the value of the recoveries made from employees. 3. SIGNIFICANT HOLDINGS The Tribunal established the following core principles and final determinations:
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