Input & OutPut Tax on Susidised Casnteen, Goods and Services Tax - GST

[Ravi K]

We have an canteen at plant having more than 250 Employees, canteen contractor billing at 5% GST. We are providing subsidized foods to employees & workmans supplied through Manpower Supply contractor, nominal amount will recover from Employees salary & Manpower Supply contractor.

Question 1 - Whether We can avail GST Input Credit on Canteen supply bill charged at 5%

Question 2 -Whether We can pay GST at 5% on the recovery amount from Employees salary or on Open market Value

Question 3 -Whether We can pay GST on 5% on the recovery amount from Manpower Supply contractor?

Also specify other options available with permutation and combination which reduces the cost to company

Posts / Replies

[Padmanathan Kollengode]

Question 1 - Whether We can avail GST Input Credit on Canteen supply bill charged at 5%

Yes, if it is obligatory for an employer to provide canteen to its employees under any law for the time being in force.

Question 2 -Whether We can pay GST at 5% on the recovery amount from Employees salary or on Open market Value.

No, GST payable. It will be covered by Circular No. 172/04/2022- GST Dt. 6th July 2022 which clarifies -

1. Schedule III to the CGST Act provides that “services by employee to the employer in the course of or in relation to his employment” will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment.

2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that 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 when the same are provided in terms of the contract between the employer and employee.

Following AARs also upheld this view:

1. Tata Motors Ltd. 2021 (8) TMI 735 - AUTHORITY FOR ADVANCE RULING, GUJARAT

2. Dishman Carbogen Amics Ltd. 2022 (6) TMI 133 - AUTHORITY FOR ADVANCE RULING, GUJARAT

3. Emcure Pharmaceutical Ltd. 2022 (1) TMI 186 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

4. Tata Motors Ltd. 2020 (9) TMI 352 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

5. Integrated Decision and Systems 2021 (12) TMI 774 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

However, contrary view is taken by Kerala AAAR in Caltech Polymers - 2018 (10) TMI 1313 - APPELLATE AUTHORITY FOR ADVANCE RULING, KERALA

Question 3 -Whether We can pay GST on 5% on the recovery amount from Manpower Supply contractor?

Yes. since there is no employee-employer relationship, it will be difficult to argue that it will not fall within scope of supply. Hence, advisable to pay GST on recoveries from Manpower supply contractors.

[Kiran Tahelani]

Perfect answer by Padmanathan Kollengode.

Also you can go through latest ruling in case of M/s Cadila Pharmaceuticals Ltd, 2023 (4) TMI 298 - Authority for Advance Ruling, Gujarat for answer 1 and 2.

[Amit Agrawal]

My views:

Question 1 - Whether We can avail GST Input Credit on Canteen supply bill charged at 5%

Answer: Yes, but only on the proportionate / actual cost / expenses borne by the factory / tax-payer. In other words, ITC cannot availed on the portion which is recovered from employees & contractor. This ITC (against actual expenses borne) is available because it is obligatory for an employer (i.e. factory having more than 250 Employees) to provide canteen to its employees under law for the time being in force.

Question 2 -Whether We can pay GST at 5% on the recovery amount from Employees salary or on Open market Value

Answer: GST is not payable against such recoveries if said facility is given in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. Kindly refer to Circular No. 172/04/2022- GST dated 6th July 2022.

Question 3 -Whether We can pay GST on 5% on the recovery amount from Manpower Supply contractor?

Answer: Factory / Tax-payer is treated as 'Principal employer' of manpower which supplied (& employed) by the contractor but works within the factory under labour law/s. And hence, no gst is payable, in my view, even on recoveries made from 'Manpower Supply contractor' on grounds similar to the Answer to Question No. 2. This is subject to my understanding that such contractor is in-turn recovering such amount from the manpower so supplied (i.e. manpower which has used said canteen facility).

These are ex facie views of mine, the same should not be construed as professional advice / suggestion. & I respect contrary views.

[Padmanathan Kollengode]

Amit JI,

Thank a ton for mentioning the proportionate ITC in Q1. Very very important aspect, which I missed out to mention.

Regarding Principal-employer concept, does not it depend on various factors like

Who has the right to select workers?

who has the right to suspend/dismiss workers?

whose instructions the employee are attuned to work, etc?

Who has the right to control over the method of work?

I believe the Principal-employer concept is very complex and highly fact specific and the manpower contract plays a very crucial role.

[Shilpi Jain]

A very complicated issue under GST. Also note that there are a certain advance rulings which have ruled that there is no supply between the employee and the employer as what the employee is doing is nothing but collecting money from the employee and passing on to the canteen contractor. It is merely only pass through.

There are similar rulings in the case of health insurance recoveries also.

Though an important aspect to note is that rulings are not binding on you.

Further, in case of recoveries from the contractor, terms of contract will play an important role to decide taxability.

[Amit Agrawal]

Dear Shri Padmanatham Ji,

W.r.t. your post at Serial No. 4 above, my views are as under:

A. My answer to Question No. 3 above was with the understanding that under 'supply of manpower contract', overall supervision & control upon manpower lies upon manufacturer / factory-owner (that's why, it is called a supply of manpower & not a contract to do a particular job, generally speaking) and labour-laws treats such manufacturer / factory-owner as 'Principal Employer'.

B. Even if the manufacturer / factory-owner is not treated as 'Principal Employer' due to peculiar fact & circumstances of any case, still in my view, there is no supply of canteen-services by manufacturer / factory-owner due to following reasons (read with scenario articulated in Para I & II below):

I) Due to understanding / arrangement with the contractor (for whatever job, he is hired for / given contract to), the manufacturer / factory-owner is supposed to provide subsidized food through its canteen to the manpower deployed by the contractor within the factory.

II) As part of this understanding / arrangement with the contractor, certain portion of actual expenses (i.e. amount exceeding subsidy of manufacturer) are actually borne by the contractor (through recovery mechanism)

III) Even in above scenario, the perquisites / facility (i.e. subsidised food in its canteen) provided by the manufacturer to its contractor is in terms of contractual agreement entered into between the manufacture and the contractor are in lieu of the services provided by the contractor to the manufacture in relation to his contract. It follows therefrom that perquisites provided by the manufacture to the contractor in terms of contractual agreement entered into between the manufacturer and the contractor, will not be subjected to GST when the same are provided in terms of the contract between the manufacturer and contractor.

IV) Of course, you will note that I have quoted very same Circular No. 172/04/2022- GST dated 6th July 2022 by replacing 'Employer & Employee' with 'Manufacturer & Contractor'.

V) My reason for doing so is because of the fact that said clarification - as I see it - has got nothing to do with the fact that ''Services by an employee to the employer in the course of or in relation to his employment" are treated as 'supply of goods / services' under GST. Otherwise, one can NOT find any logical / cogent legal sense of said clarification given by the Board from my view.

VI) Actually, it is clear that entire dispute involved in both cases (i.e. 'Employer & Employee' / 'Manufacturer & Contractor') is whether there is any 'supply' - leviable under GST - from Employer / Manufacture's side and NOT whether there is any 'supply' - leviable under GST - from employee / contractor's side.

VII) Hence, for very same legal reasons (as articulated in Circular No. 172/04/2022- GST dated 6th July 2022), even if the manufacturer / factory-owner is not treated as 'Principal Employer' due to peculiar fact & circumstances of any case (as explained above in Para (I) & (II)), still in my view, there is no supply - leviable under GST - of canteen-services by manufacturer / factory-owner.

These are ex facie views of mine, the same should not be construed as professional advice / suggestion. & I respect contrary views.

[Amit Agrawal]

Please read Para V above as follows:

My reason for doing so is because said clarification - as I see it - has got nothing to do with the fact that ''Services by an employee to the employer in the course of or in relation to his employment are not treated as 'supply of goods / services' under GST". Otherwise, one can NOT find any logical / cogent legal sense of said clarification given by the Board in my view.

[Padmanathan Kollengode]

Ld. Amit ji. Thank you so much for such informative post. Many, just like me, will save this thread for my future reference. Thanks a lot.

[Amit Agrawal]

You are welcome, Shri Padmanathan Ji!

To my earliest post, I want to add that for very reason (which are listed in my post at serial no. 6 above), 'subsidy / net cost' borne by the manufacturer / factory-owner (i.e. towards canteen services used by 'the manpower deployed by the contractor') will NOT form part of consideration (i.e. as defined u/s 2 (31) of the CGST Act, 2017) to the contractor for providing his services to the manufacturer / factory-owner.

These are ex facie views of mine, the same should not be construed as professional advice / suggestion. & I respect contrary views.