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TMI Blog2021 (12) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation which accrues to the employer is in relation to the services provided by the employee. Such compensation is related to the services not provided by him to the employer during the course of employment. In other words, the employer is being compensated for the employee's sudden exit. Merely because the employer is being compensated does not mean that any services have been provided by him or that he has 'tolerated' any act of the employee for premature exit - the Ld. AAR had erred in concluding that such activity was leviable to GST. Whether the amount of premium paid towards Group Medical Insurance policy of non-dependent parents recovered from employees and recoveries from retired employees who were covered under the policy is taxable under GST or not? - HELD THAT:- Any activity done against consideration is treated as supply however, such an activity must be in the course of business or for the furtherance of business - the activity undertaken by the applicant like providing of mediclaim policy for the employees' non-dependent parents/ retired employees through insurance company neither satisfies conditions of Section 7 to be held as supply of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered from employees would not be available to the appellant as they are not providing any outward supply of telephone services and the facility is also not attributable to the purposes of their business in terms of Section 17(1) of the CGST Act - Input credit of GST paid to the insurance provider would also not be available to the applicant- as health insurance is in the excluded category under Section 17 (5) of the CGST Act and as said insurance services are not any outward supply of the applicant - As regards provision of canteen facility, It is found that the appellant has submitted that the canteen facility was required to be provided by a company as per Section 46 of the Factories Act, 1948. Therefore applying the proviso under Section 17(5)(b) that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law, we are of the view that input credit of GST paid would be available to the appellant. Whether the provision of canteen services to all the employees without charging any amount (free of cost) will fall under Para 1 of Schedule III of GST Act and will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BORL is a deemed Public Sector Undertaking, as the holding company, M/s Bharat Petroleum Corporation Limited (BPCL) has 51% paid up capital in the company. v. The application u/s 97 of the Act seeking Advance Ruling was made before the Authority for Advance Ruling- Madhya Pradesh. The issues on which the Advance Ruling were required:- I. Whether GST is applicable on payment of notice pay by an employee to the applicant employer in lieu of notice period, under clause 5(e) of Schedule II of CGST Act. II. Whether GST is applicable on the amount of premium of Group Medical Insurance Policy of non-dependent parents recovered from the employees retired employees at actuals covered under the said Policy. III. Whether GST is applicable on recovery of nominal amount for availing the facility of Canteen at the Refinery at Bina when it is no supply as per clause 1 of Schedule III of CGST Act. IV. Whether GST is applicable on recovery of telephone charges recovered from the employees over and above the fixed rental charges payable to BSNL. V. Whether the provision of Canteen services to all the employees without charging any amount (Free of cost) will fall under pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule II of CGST Act. ii. In respect to Question Number 2, we are of view that the premium of Group Medical Insurance Policy recovered by applicant from the non-dependent parents of employees retired employees will fall within the ambit of supply and is liable to GST. iii. In respect to Question Number 3, This Authority holds that as per Section 15(1) of GST Act, the value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply where the supplier and the recipient of the supply are not related, and the price is the sole consideration for the supply. However, if the transactions are between related persons then value of supply is to be determined as per Rule 28. The employer and employee are related person as per Explanation to Section 15, and therefore, the valuation of canteen facility provided by applicant to its employees shall be as per Rule 28 and not at the nominal amount recovered by applicant from its employees. iv. In respect to Question Number 4, the applicant-company is liable to pay GST on the amount recovered from its employees towards telephone charges at actuals. v. Question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er GST is applicable on recovery of telephone charges from the employees over and above the fixed rental charges payable to BSNL? v. Whether full ITC is applicable to the applicant in respect of question Nos. II, III IV or ITC will be restricted to the extent of GST borne by the applicant-employer? vi. Whether the provision of canteen services to all the employees without charging any amount (free of cost) will fall under Para 1 of Schedule III of GST Act and will not be subjected to GST? vii. If reply in Q. 6 is yes, whether in view of explanation to section 17(3) of GST, ITC shall be available to the applicant on the goods and services used in the activity of provision of free canteen services to the employees? 7. GROUNDS OF APPEAL Aggrieved by the rejection of the application for advance ruling, the appellant has tiled this appeal dated 08-07-2021 under Section 100 of the CGST Act. 2017 and MPGST Act, 2017. on the following grounds:- i. Appellant submits that the Id. AAR has erred in concluding that the applicant as an employer is tolerating the act or situation by accepting the amount in lieu of notice period i.e. relieving an employee without no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees shall be covered under clause (b) of section 2(17) of the Act as a transaction incidental or ancillary to the main business of the applicant and is therefore covered under the definition of outward supply which is liable to tax. vi. Further, Appellant submits that the Id. AAR has observed that the interpretation by the appellants relating to transaction falling under clause 1 of Schedule III is erroneous by stating that here employee is not providing any service rather employer is providing services to employees. vii. Appellant submits that the Id. AAR has failed to consider the submissions made by the appellants that the employer is providing the canteen facility by recovering a nominal amount as a consideration for the services provided by the employees to the employer. Hence, the consideration made by the employer to the employees for such transaction, which is covered by Clause 1 of Schedule III of the Act shall be exempted from levy of tax. viii. Further, Appellant submits that the Id. AAR has failed to take into consideration the Circular issued by CBIC in this regard, which supports the submissions made by the appellants. ix. Appellant submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given an opportunity of personal hearing on 06.10.2021 through virtual mode. Shri S. Krishnan, has attended the personal hearing on behalf of the appellant. After hearing, the appellant has expressed his satisfaction through a letter and asked for decision. 9. DISCUSSION AND FINDINGS We have carefully gone through the submissions made by the appellant in his application as well as the submission made at the time of personal hearing. Point no. 1- The first question raised by the applicant is that whether GST is applicable on payment of notice pay by an employee to the applicant-employer in lieu of notice period under clause 5(e) of Schedule II of GST Act. On this point the Ld. AAR has found that the applicant employer is tolerating the act by relieving the employee without following the notice period clause upon payment of an amount. As a consequence the Ld. AAR concludes that the situation is covered under clause 5(e) of the Schedule II of the CGST Act i.e. (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; which is liable to GST. 2. We have carefully gone through the facts presented by the applicant. Any em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee upon imposition of a cost upon him for the sudden exit . The hon'ble Court further held that ' the definition in clause (e) of Section 66E is not attracted to the scenario before me as, in my considered view, the employer has not 'tolerated' any act of the employee but has permitted a sudden exit upon being compensated by the ' employee in this regard. Though normally, a contract of employment qua an employer and employee has to be read as a whole, there are situations within a contract that constitute rendition of service such as breach of a stipulation of non-compete. Notice pay, in lieu of sudden termination however, does not give rise to the rendition of service either by the employer or the employee. 5. In the GST era also services provided by an employee to the employer is treated as neither supply of goods or services under Schedule III of the CGST Act. Schedule III pertains to activities or transactions which shall be treated neither as a supply of goods nor a supply of services. Clause 1 reads as under - 1. Services by an employee to the employer in the course of or in relation to his employment. 6. Thus services by an employee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir non-dependent parents under the scheme, additional insurance premium is paid by the appellant company which is subsequently recovered from the salary of the employees at actuals. Similarly the amount is recovered from retired employees at actuals. The applicant states that they were not an insurance company and it is not providing any insurance services to non-dependent parents of employees or to the retired employees. This service of insurance is actually provided by the Insurance Company and they were simply collecting insurance premium as a mediator. They state that collection of premium of insurance policy from persons is not the business of the appellant company. 5. We find from the documents of insurance scheme submitted on record that the applicant has taken a New India Flexi Floater Group Medi-Claim policy issued by the New India Assurance Co. As stated the applicant is collecting amounts only in respect of Mediclaim cover provided to the employees non-dependent parents and retired employees who opt for such cover. Evidently, the Applicant is not in the business of providing insurance coverage. Secondly, providing such insurance cover is not a mandatory requirement u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of business is not defined under CGST Act. However, the term business has been defined in Section 2(17) of the CGST Act, 2017 which is reproduced below for ready reference :- business includes (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or-incidental or ancillary to sub clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business, (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) services provided by a race club by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... canteen contractor. As the appellant has arranged to provide the food to its employees at subsidized rate (and not free of cost), the appellant collects some portion of the total amount of food price to be paid to the 'Canteen Service Provider from the employees, by deducting it from the salary of the employees. The appellant has submitted that it is only facilitating the supply of food to the employees, which is a statutory requirement under the Factories Act, 1948, and is recovering only employee's share towards actual expenditure incurred in connection with the food supply, without making any profit. 4. The appellant has referred to para 1 of Schedule III and states that it is part and parcel of employment contract between the employer and the employee. As such, it is services by an employee to the employer in the course of or in relation to his employment in accordance with clause 1 of Schedule-Ill of CGST Act which is neither a supply of goods nor a supply of services. As per section 7(2) of CGST Act, Schedule III supersedes Schedule I and Schedule II, which means even if it is supply u/s 7( 1), no tax will be payable in view of provisions contained in clause 1 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to Goods and Services Tax. We observe that the MPAAR has ruled that the Goods and Services Tax is applicable on the amount recovered from employees, mainly on the premises that 'the appellant is supplying food to its employees', which would be covered under the definition of the term 'business' under Section 2(17) of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017. However, the appellant has asserted before us that it is collecting the portion of employees' share and paying to Canteen Service Provider, a third party, which is nothing but the facility provided to employees, without making any profit and working as mediator between employees and the contractor / Canteen Service Provider. Under these circumstances, we hold that the Goods and Services Tax is not applicable on the activity of collection of employees' portion of amount by the appellant, without making any supply of goods or service by the appellant to its employees. 8. We, therefore,-allow the appeal filed by the appellant by holding that the Goods and Services Tax is not applicable on the collection, by the appellant, of employees' portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section, the expression value of exempt supply shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule. (4) A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of every month, an amount equal to fifty per cent, of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse: Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year: Provided further that the restriction of fifty per cent, shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number. (5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:- [(a) motor vehicles for transportation of perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts employees under any law for the time being in forced (c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation .- For the purposes of clauses (c) and (d), the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property; (e) goods or services or both on which tax has been paid under section 10; (f) goods or services or both received by a non-resident taxable person except on goods imported by him; (g) goods or services or both used for personal consumption; (h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and (i) any tax paid in accordance with the provisions of sections 74, 129 and 130. --- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be subjected to GST ? 2. On this matter we find that Schedule III pertains to activities or transactions which shall be treated neither as a supply of goods nor a supply of services. Clause 1 reads as under - 1. Services by an employee to the employer in the course of or in relation to his employment. Thus services by an employee to the employer in the course of or in relation to his employment have been placed out of the purview of GST. In this case canteen services are provided to employees by the employer. So this is not a case where some services have been provided by the employee to the employer. There is nothing on record to show that the said facility provided to employees is part of the wage structure. Therefore, we do not find any reason to hold that canteen facilities would fall under Schedule III of the CGST Act. However, at point no.3 we have held that canteen services would not be leviable to GST at the hands of the employer because of our findings that the employer was merely a facilitator between the canteen service provider and the employee and that the employer was mandated to run a canteen under the Factories Act. Based on the aforesaid findings foll ..... 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