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TMI Blog2022 (10) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... dus submitted that it does not retain with itself any profit margin in this activity of collecting employees' portion of canteen charges. The applicant is providing canteen facility to its permanent employees (on payroll) as per contractual agreement between employer-employee relationship - The Provision of Services of transports and canteen facility to its employees is as per the contractual agreement between the employee and the employer in relation to the employment. The provision of the services of transportation and canteen facility cannot be considered as supply of goods or services and hence cannot be subjected to GST. - GUJ/GAAR/R/2022/42 - - - Dated:- 28-9-2022 - MILIND KAVATKAR AND AMIT KUMAR MISHRA, MEMBER Present for the applicant: Shri Rashmikant Shah, G.M. (Indirect Taxation), Amit Parmar, Manager (Indirect Taxation) Brief Facts M/s. Zydus Lifesciences Ltd. (Formerly known as Cadila Healthcare Ltd.), hereinafter referred to as M/s Zydus for the sake of brevity, is engaged in manufacture, supply and distribution of various pharmaceutical products. M/s Zydus is having 1200 (approx.) employees in their factory and registered under the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax rate of 5%. M/s Zydus does not avail ITC of the GST component paid thereunder. 3.2 M/s Zydus has submitted that Section 46 of the Factories Act. 1948 provides that in any specified factory wherein more than 250 workers are ordinarily employed, a canteen or canteens, shall be provided and maintained by the 'Occupier' for the use of the workers. Further refer to Section 2(n) of the Factories Act, 1948 which defines the term 'occupier' of a factory to mean the person who has ultimate control over the affairs of the factory It is submitted that M/s Zydus has the ultimate control over the affairs of the factory and hence will be treated as the occupier. Therefore, Zydus is mandated to provide and maintain canteen for the use of its employees. 3.3 Further, as per Section 2(1) of Factories Act 1948 worker means a person employed, directly or by or through any agency (including a contractor) with or without the knowledge of the principal employer, whether for remuneration or not], in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration (1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. 1.3. Thus, the term 'Supply' includes all forms of supply (goods and/or services) and includes agreeing to supply when the supply is for a consideration and is in the course or furtherance of business. The word 'supply' is all-encompassing, subject to exceptions carved out in the relevant provisions. 1.4. The following criteria, inter alia, plays a crucial role to determine the GST implications on provision of such a facility:- - There shall be a legal intention of both the parties to the contract to supply and receive the goods or services or both. The absence of such intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nteen Service Provider (CSP) (ii) working as mediator between employees and contractor / CSP, therefore no GST would be payable by employees to company on the subsidized value of food and (iii) this activity does not fall within the scope of 'supply ' as the same is not in the course or furtherance of its business; Highlights that the appellant does not supply any goods or services to its employees against the amount collected from the employees but only collects employees portion of amount and pays the consolidated total amount, which includes appellant's share of amount also, to CSP towards the foodstuffs provided to employees by CSP; In specific term, claims The appellant neither keeps any margin in this activity of collecting employees' portion of amount nor makes any separate supply to the employees 1.8. Further. M/s Zydus places reliance on the following decision of various states Authority of Advance Rulings :- (i) Dishman Carbogen Amcis Ltd (Advance Ruling No. GUJ/GAAR/R/22/2021) wherein it has been held that GST, at the hands on the applicant, is not leviable on the amount representing the employees portion of canteen charges, which is coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, it becomes very critical to analyze the term consideration against the deduction of amount from its employees' salary. 1.13. The term consideration defined in Section 2(31) of the CGST Act, 2017 is as follows: 'consideration ' in relation to the supply of goods or services or both includes,- a) any 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. 1.14. M/s Zydus submit that a supply must involve enforceab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity 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) [activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and] (i) any activity or transaction undertaken by the Central Government, a state Government or any local authority in which they are engaged as public authorities. 1.19. M/s Zydus states that considering the nature of activities and transactions undertaken by them does not fall within the definition of business from Sr. No. (c) to (i) above. M/s Zydus has analyse in detail, various elements of the definition of business as provided in Sr. No. (a) above i.e . any trade, commerce, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that (a) the statutory obligation of maintenance of a hostel which involved supply and sale of food was an integral part of the objects of the Institute; and (b) the running of the said hostel could not be treated as the principal activity of the Institute. Consequently, the Institute was held to not be doing business. 1.24. M/s Zydus has submitted that in the light of the above canteen services cannot be treated as ancillary to their business activity. Firstly, canteen services are provided only to the employees of the Company as per the internal employment policy applicable to the employees. Hence, if canteen can be termed as expenses for use in the course of business than a business activity itself, then the same cannot be termed as 'supply' to be taxed under GST. 1.25. M/s Zydus submits that the Canteen Service Provider is required to adhere to all the applicable provisions of such Act since they are engaged in the provision of manufacturing, selling and handling food and not the Applicant. Therefore, the activity of setting up the canteen facility and subsequent deduction of nominal value would not tantamount to Supply under Section 7 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation casted upon M/s Zydus for its employees only, and hence the same must be considered as a part of employment arrangement. 1.30. M/s Zydus submits that Schedule III read with Section 7(2) of the CGST Act specifies that any services provided by an employee to the employer in the course of or in relation to his employment shall be neither a supply of goods nor supply of services. In short, the consideration paid by the employer to the employee as part of the employment policy shall be out of the scope of levy of GST. 1.31. Further, it is submitted by M/s Zydus that as the facility of canteen is provided due to the existing 'Employer-Employee' relationship, an employee is not allowed to use the canteen facility once the 'Employer-Employee' relationship ceases i.e. when the employment is terminated. This makes it evident that 'Employer-Employee' relationship is a pre-requisite to avail the canteen facility. 1.32. M/s Zydus has placed reliance on the following Ruling issued by various Hon'ble Authority :- (i) [GST-ARA -23/2019-20/B-46 dated 25 August 2020], wherein it was held that since the Applicant (i.e. Tata Motors) had not been su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of GST. Once the activity comes under Schedule III, then anything which contradicts or withstands this clause shall be ineffective or inoperative qua this clause. Section 7(2) - Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities. as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services . 1.34. M/s Zydus submitted that the canteen facility provided to its employees upon which they are deducting the nominal value, cannot be regarded as supply under the GST law. Therefore, GST cannot be levied on such activity. Question on which Advance Ruling sought: 5. Whether the subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office would be considered as a supply by the Applicant under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Gujarat Goods and Service Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as per contractual agreement between employer-employee relationship. 10.3 We find that CBIC vide Circular No. 172/04/2022-GST dated 06-07-22 has issued following clarification on the issue whether GST is leviable on the benefit provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee :- Clarification 1. Schedule Ill 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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