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TMI Blog2022 (9) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... yed' is not defined under the GST, therefore, we refer to the dictionary meaning. The Law Lexicon says that the word 'employed' means engaged or occupied in the performance of work or hired to perform labour. Security Firm/ Contractor pays the salary to the contractual worker i.e. Security personal. Theses contractual worker are supplied by the contractor to M/s Troika for carrying out activity in the premises. M/s Troika has paid gross amount for the moth to the labour contractor for supply of labours at factory premises. The gross amount includes allowances, leave encashment and Provident Fund. This shows that M/s Troika paid gross amount to the labour contractor and labour contractor being employer paid the wages per month to the workers being employees and also deduct Provident Fund - therefore, it is evident that the instant case does not pass the test of employer-employee relationship and is therefore does not fall under the ambit of entry I of Schedule III of CGST Act. In the case at hand, the applicant has established canteen facilities as mandated under Section 46 of the Factories Act, 1948 and supplies food at a subsidized cost through third-party-vendor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 250 workers is required to provide a canteen facility to its employees. As a result, the company makes arrangements for providing the food (lunch and dinner) for the employees and workers at the plant and godown location. 2. M/s Troikaa made arrangement of food (lunch and dinner) through an outside party, who prepares the food and supplies it to the company's employees and the contractual workers. The food supplier vendor raises an invoice of the food bill as per the agreed billing frequency (said invoice is raised on the basis of the actual number of the food plates consumed) by charging 5% GST. A copy of the invoice and the agreement entered with the food supplier vendor is attached herewith as a reference as per Exhibit - A. 3. M/s Troikaa provides the canteen facility at a subsidized rate of 50% (i.e. @ Rs.30 per plate amount as the amount charged by the food supplier vendor is Rs.60) to its employees and contractual workers. The food supplier raises the invoice for the full amount on the company against food supplied to the employees. The Company bears 50% of food amount and recovers the balance 50% of the food amount from the company employee's salary pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consideration (iv) it should made in the course or furtherance of business have been satisfied any transaction or activity cannot be treated as supply: (ii) Further GST is applicable on outward supply by the supplier to recipient. Section 2(83) of the CGST Act defined outward supply in relation to a taxable per supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business; (iii) In light of above provisions, for a transaction to qualify as supply in terms of Section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act), it should essentially be made in the course or furtherance of business. (iv) Section 2(17)(a) and (b) of the CGST Act: Section 2 (17) defined 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; As per clause (b) of Section 2 (17), business also includes any activity which is in connection with or incidental or ancillary to the activities covered under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business as follows. (i) Is the activity, a serious undertaking earnestly pursued? (ii) Is the activity is perused with reasonable or recognizable continuity? (iii) Is the activity conducted in a regular manner based on sound and recognizable business principles? (iv) Is the activity predominantly concerned with the making of taxable supply for consideration/profit motive? (ix) The Applicant company is engaged only in the business of pharmaceutical products and is maintaining canteen under obligation as provided under section 46 of the Factories Act, 1948. Even if the said canteen facility were not provided, the pharmaceutical business of the Applicant would still be continuing. Thus, providing canteen facilities to its employees is not the business of the Applicant and the same cannot qualify as supply under section 7 of CGST Act, 2017. (x) Applicant has place reliance on the following decisions : (i) Base Repair Organisation (Now Naval Dockyard), Vishakhapatnam Vs. State of A.P. reported in 1993 53 STC 223 (ii) State of Gujarat vs. Raipur Manufacturing Co. Ltd. (Civil Appeal No. 603 of 1966) (iii) Deputy Commissioner of Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2017 and also to the definition of the expression in section 2(d) of the Contract Act 1872. The Supreme Court in case of Commissioner of Service Tax Vs. M/s Bhayana Builders, 2018 (2) TMI 1325, while deciding the appeal filed by the Department against the aforesaid decision of the Larger Bench of Tribunal, has observed that any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does no become part of the value which is taxable under Section 67 of Finance Act. The aforesaid view was reiterated by the Supreme Court in Union of India Intercontinental Consultants and Technocrats, 2018 (10) GSTL 401 (SC) and it was observed that since service tax is with reference to the value of service, as a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 7.2 Further applicant has submitted that what follows from the aforesaid decisions of the Supreme Court in Bhayana Builders and Intercontinental Consultants, and the decision of the Larger Bench of the Tribunal in Bhayana Builders is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount and recovers the balance 50% of the food amount from the company employee's salary pay out and utilized same for payment of the bill of canteen service provider. The applicant is not the supplier of food to employees and contract workers and only providing canteen facility as a facilitator. Neither any intent to make profit nor any element is being retained as profit from the amount recovered from the employees pay out as their share (50% of food value). There is no reciprocity and direct and immediate link / nexus between supply of foods made by the third party canteen service provider to employees and recovery of amount from the employees and contract workers to treat it as consideration received by Applicant against any supply which is liable to GST. 8. The applicant submits that without prejudice to the above, the canteen facility provided by them is excluded from the scope of supply in terms of Clause (a) of Section 7 (2) of the CGST Act. 8.1 It is submitted that the canteen facility provided by the Applicant is specifically excluded from the coverage of 'supply' under GST as per Clause (a) of Section 7(2) of the CGST Act which begins with a non-obstant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess release issued by the Ministry of Finance dated 10 July 2017 any services provided by the employer to the employees in terms of the contractual agreement entered into between the employer and employee will not be subjected to the GST. 9. The applicant has submitted that without prejudice to the above, it is settled position under GST regime that employee recoveries do not amount to 'supply' and not liable to GST. It is also submitted that it is now settled position under GST Regime that recovery made from employees for any facility does not amount to supply under GST laws. 9.1 The applicant has placed reliance on the following Rulings by the Authority of Advance Rulings and Appellate Authority of Advance Ruling under GST Laws in the context where it is held that recovery / collection of employee portion of canteen charges / food provided by canteen service provider is not a supply and liable to GST. (i) Tata Motors Ltd. [2021] 129 taxmann.com 277 (AAR - GUJARAT) (ii) Amneal Pharmaceuticals Pvt. Ltd. (GST AAAR Gujarat), Appeal Number: Advance Ruling Appeal No. GUJ / GAAAR / APEEAL/2021/07, Date of Judgement/Order : 08/03/2021 (iii) Emcure Pharmac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act 1948 without making any profit and working as mediator between employees / workers and the Canteen Service Provider / Agency. So, the Goods and Services Tax is not applicable on the activity of collection of employees' / workers portion of amount by the applicant, without making any supply of goods or service by the appellant to its employees. 10.2 The Applicant has submitted that it is their bonafide believe that collection of employees portion of the amount towards foodstuff supplied by the third party / Canteen Service Provider for their employees is not an activity which is incidental or ancillary to the activity of manufacturing of drug and pharmaceutical goods, sale its sale and export, nor can it be called an activity done in the course of or in furtherance of such business as it is not integrally connected to the business in such a way that without this the business will not function. Hence, not liable to levy of Goods and Service Tax. 11. The applicant submits that the availability of the input tax credit on food bill, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948. As per Section 16(1) of the CCST Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee. When the company has borne the cost of catering and not recovered from the employees, then in that case, it cannot be treated as such catering service is primarily for personal use or consumption of employee and accordingly, CENVAT credit is allowed. In other words, catering service would be treated as primarily used for consumption of employee only when any cost of catering is recovered from the employees of the company. So in view of above GST paid on applicants share of payment for foods supplied to employees shall be eligible for availment of Input Tax Credit. 11.4 The applicant has submitted that in view of above facts, provisions of law and judiciary decisions , it is bonafide believe that the on the amount recovered by the company, Troikaa Pharmaceuticals Limited, from employees or contractual workers, when provision of third-party canteen service is obligatory under section 46 of the Factories Act, 1948 is not liable to GST and eligible for availability of the input tax credit on food bill, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948. 15. Question on which Advance Ruling sought: 1. Whether GST shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (v) It has been clarified that any prerequisite provided by employer to employee in terms of contractual agreement are not liable to GST. Hence this circular has settled the position which was many times accepted by the authority of Advance Ruling of various states including Gujarat. (vi) CBIC has clarified the issue of admissibility of ITC under the clause (b) of sub-section 5 of Section 17 of the CGST Act, in its circular No. 1.72/04/2022-GST dated 6-7-2022. Clarification is as under: Issue : Whether the proviso at the end of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the entire clause (b) or the said proviso is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the GGST Act. 20. We find M/s Troikaa has arranged a canteen facility for its employees, which is run by a Canteen Service Provider. As per their arrangement, part of the Canteen charges is borne by M/s Troikaa whereas the remaining part is borne by its employees. The said employees' portion canteen charges is collected by M/s Troikaa and paid to the Canteen Service Provider. M/s Troikaa submitted that it does not retain with itself any profit margin in this activity of collecting employees' portion of canteen charges. 20.1 M/s Troika vide letter dated 8-8-2022 has submitted that in its factory total 288 employees are in payroll and details of all the employees have been submitted vide Annexure-1. All the employees are working in Applicant Company in terms of contractual agreement entered into between employer and the employee. 20.2 We find that CBIC vide Circular No. 172/04/2022-GST dated 6-7-22 has issued following clarification on the issue whether GST is leviable on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1970 ( CLRA ) means a person who is hired in or in connection with the work of an establishment by or through a contractor. It is important to note that the word, 'hire', as used in the Act, has a significant connotation and it is not equivalent to an employer-employee relationship. A person is deemed to have been employed as contract labour when he is hired in, or in connection with a particular work of the principal employer. Where a person is 'hired' specifically for the work of an establishment, his scope of work does not extend beyond the work of that establishment and he is considered to be a contract labour. 21.1 M/s Troikaa is mandated to provide canteen service to their employees since there are more than 250 employees. Section 46 of the Factories Act, 1948 stipulates the workers who are employed in the company's pay roll and not covered contractual workers. Section 46 of the Factories Act, 1948 is reproduced as under: 46. Canteens.-( 1) The State Government may make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority to dismiss; who can take disciplinary action; whether there is continuity of service; and extent of control and supervision i.e. whether there exists complete control and supervision. 21.6 M/s Troika has submitted the sample copy of Bill issued by labour contractor namely M/s Clean India Services and M/s Utility Labour Suppliers. Sample copy of Bill No.426/KLL/2021-22 dated 6-6-22 issued by M/s Clean India Services is reproduced as under : 21.7 We have observed from the above mentioned bill that M/s Troika has paid gross amount for the moth to the labour contractor for supply of labours at factory premises. The gross amount includes allowances, leave encashment and Provident Fund. This shows that M/s Troika paid gross amount to the labour contractor and labour contractor being employer paid the wages per month to the workers being employees and also deduct Provident Fund. M/s Troika has entered into agreement with Contractor to provide the worker i.e. Security Personal in lieu of some consideration. M/s Troika paid agreed amount to the contractor and contractor pays the salary/wages to the Security Personal. Therefore, it evident that the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or-both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply. Since the applicant recovers the cost of food from its contractual worker, there is 'consideration', as defined in Section 2(31) of the CGST Act, 2017. 27. To sum up, in the case at hand, the applicant has established canteen facilities as mandated under Section 46 of the Factories Act, 1948 and supplies food at a subsidized cost through third-party-vendor. The supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 6-7-22 has issued clarification on the eligibility of such ITC is reproduced as under : Issue: Whether the proviso at the end of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the entire clause (b) or the said proviso is applicable only to sub-clause(iii) of clause (b)? Clarification : 1.Vide the Central Goods and Service Tax (Amendment Act) 2018, clause (b) of sub-section (5) of section 17 of the CGST Act was substituted with effect from 01.02.2019. After the said substitution, the proviso after sub clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act provides as under: Provided 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 for the time being in force. 2. The said amendment in sub-section (5) of section 17 of the CGST Act was made based on the recommendations of GST Council in its 28th meeting. The intent of the said amendment in sub section (5) of section 17, as recommended by the GST Council in its 28th meeting, was made known to the trade and industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provision of Chapter V of CLRA stipulates that labour contractor shall provide the canteen facility to the labour employed by the contractor. Thus, there is no mandate to the applicant company to provide canteen facility to the contractual worker. We find that ITC on foods, beverages, outdoor category is not block provided it is obligatory for an employer to provide the same to its employees under any law for the time being in force under Section 17 (5). In the instant case the applicant company and contractual worker do not cover under the category of employer-employee relationship and also it is not obligatory on the applicant company to provide canteen facility to the Contractual worker as per the provisions of CLRA Act. Section 17 (5) allows ITC on food, beverages and outdoor catering only in case it is obligatory under any law for the time being in force. Thus applicant is not eligible of ITC on the food supplied by canteen service provider to contractual worker and is blocked under Section 17(5) (b) of CGST Act 2017. 31.2 Thus, we hold that applicant company is not eligible to the ITC on food supplied to the contractual worker under Section 17 (5) (b) of CGST Act 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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