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TMI Blog2023 (9) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... icant has appointed a third-party canteen service provider [for short 'CSP'] on contract basis, to provide canteen services at their factory. In terms of the agreement between the Applicant and the CSP, the Applicant provides required space, utensils and other infrastructural facilities to the CSP to enable them provide the required canteen services. CSP raises tax invoice for providing the canteen service as per the agreed billing terms i.e., as per the dining strength which is ascertained based on the coupon collected from each employee and contract workers for tea/snacks and punching records for lunch and dinner, by charging GST at the rate of 5%. 4. The Applicant pays full invoice value to the CSP and accounts such expenses in its statement of profit and loss account. Presently, as per the applicant they are not availing the input tax credit [ITC] of the GST charged by the CSP in view of the condition provided in SI. No 7(ii) of the Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017. 5. The applicant further states that in terms of their Human Resource Policy, they provide the canteen facility to both their employees and contract workers at a subsidized rate. As f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant from its employees. * thus, in order to constitute a 'supply', the following elements are required to be satisfied: (i) there should be supply of 'goods' and / or 'services' (ii) supply is for a 'consideration' (iii) supply is made 'in the course or furtherance of business' (iv) the activity under consideration shall not fall within the scope of section 7(2) of the CGST Act. * that any activity which comes under purview of Section 7(2) of the CGST Act, the same falls outside the scope of supply under the GST law; * as per press release dated 10.7.2017, supply by employer to employee, in terms of contractual agreement entered into between the employer and employee, is not subjected to GST; * as per circular No. 172/04/2022-GST dated 6.7.2022, any perquisites provided by the employer to employee, in terms of the contractual agreement entered between them are in lieu of the services provided by employee to 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 them, will not be subjected to GST when the same are provided in terms of the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the employment is terminated. Contract worker's portion of canteen charges * the contractual worker in the factory is employed for carrying out the activity which is either directly or indirectly related to manufacturing activity. The contractual worker in the instant case, is under scope of definition of "worker" as per section 2(l) of Factories Act, 1948. * that it is mandatory for the applicant to provide canteen facility to contract workers, who are employed to carry out activities directly or indirectly in relation to manufacturing activity; * that they provide canteen facility al subsidized rate to its contract workers and the remaining portion of the cost component of the total amount of food/canteen charges is borne by the applicant; * that in the case of contract workers, the amount recovered/collected by the applicant from its contract workers is paid to the CSP on behalf of the contract workers: * that an employee and contract worker in respect of the Factories Act. 1948 is treated at par and no differential treatment is given with regards to casting an obligation on the applicant for providing canteen facility to contract workers; * the services are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinental Consultants and Technocrats, [2018 (10) GSTL 401 (SC)]; * that there is no contractual agreement between the applicant and contract workers to provide canteen services against consideration; that as the recovery/collection of payment is not premised on the enforcement of reciprocal obligations between the Applicant and the contract workers, the same cannot be linked to a supply for the purpose of levying GST. ITC of the GST paid by the applicant to CSP * that they wish to rely on the case of M/s. Bharat Oman Refineries Ltd. dated 8.11.2021 (Ruling No. MP/AAAR/07/2021); * that as per the proviso to circular No. 172/04/2022-GST dated 6.7.2022, wherein at the end of clause (b) of sub-section (5) of section 17 of the CGST Act clearly states that it is applicable to entire clause (b) of the sub-section (5) of section 17 of the CGST Act; * input tax credit (ITC) of GST paid to canteen service provider is eligible in terms of proviso under Section 17(5)(b), where it is obligatory for an employer to provide the same to its employees under any law; * the ITC on facility of canteen made available to the contractual workers is also eligible in terms of followings: o wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide letter no. IV/16-06/Tech/Advance Ruling/Eimco/2022-23 dated 6.1.2023, has submitted the following comments viz * the activity/service is an ongoing activity as clarified in paras G & H of Annexure-A. The same has also been clarified by the authorised person of the applicant; * on the issue of applicability of GST, on the amount recovered/collected by the applicant from the employees and contract workers towards canteen services provided by CSP, it appears that GST is applicable on the portion of amount collected by the applicant from the employees in light of sub-section 1A of Section 7 CGST Act, 2017 read with entry No. 6(b) of Schedule 2; * on the issue of eligibility to avail ITC of the GST charged by the CSP, it appears that the applicant is not eligible to avail ITC in light of Section 17(5)(b)(i), ibid. Discussion and findings 12. Al the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act. 13. We have consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as - (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. * Section 17. Apportionment of credit and blocked credits.- [relevant extracts] (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely :- (a)......; (aa)........; (ab........: (b) 3[the following supply of goods or services or both- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-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 industry through the Press Note on Recommendations made during the 28th meeting of the GST Council, dated 21.07.2018. It had been clarified "that scope of input tax credit is being widened, and it would now be made available in respect of Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force." 3. Accordingly, it is clarified that the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of sub-section (5) of section 17 of the CGST Act. 5. Whether various perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are liable for GST? 1. Schedule III to the CGST Act provides that "services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ', 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. We find that factually there is no dispute as far as [a] the canteen facility is provided by the applicant as mandated in Section 46 of the Factories Act, 1948 is concerned; and [b] the applicant has provided an extract of HR policy on canteen facility to employees, wherein it is stated as under: 2.0 CAFETERIA COUPONS & ITEM RATES 2.1 The Company will make available canteen facility as per Factories Act, 1948 and rules made thereunder including other laws, as applicable. Such canteen facility will be available at a subsidized rate, the details of which is tabulated below in clause 2.3. The canteen service provider will provide Lunch/Dinner and Tea/Coffee/Snacks directly to you. Company issued QR Codes is necessary to avail the said facilities. The cost of the Lunch/Dinner Tea Coffee/Snacks as tabulated in Clause 2.3, will be borne by you and collected by the Company for making payment to the canteen service provider on your behalf and the remaining amount of the cost will be b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be a contract labour. 19. the applicant is providing canteen service to their employees since there are more than 250 employees including contract workers. However, Section 46 of the Factories Act, 1948 stipulates the workers who are employed in the company's pay roll and not contractual workers. Section 46 of the Factories Act, 1948 is reproduced as under: "Section 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 maintained by the occupier for the use of the workers. (2) Without prejudice to the generality of the foregoing power, such rules may provide for.- (a) the date by which such canteen shall be provided; (b) the standards in respect of construction, accommodation, furniture and other equipment of the canteen; (c) the foodstuffs to be served therein and the charges which may he made therefore; (d) the constitution of a managing committee for the canteen and representation of the workers in the management of the canteen; (dd) the items of expenditure in the running of the canteen which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 23. The applicant has entered into agreement with Contractor to provide them workers in lieu of consideration. The applicant has paid the agreed amount to the contractor and the contractor pays the salary/wages to such contract workers. Therefore, it evident that the instant case does not pass the test of employer-employee relationship as far as the contract workers and the applicant is concerned and therefore does not fall within the ambit of entry 1 of Schedule III of CGST Act, 2017. 24. We find that the term, 'outward supply', is defined in section 2(83) of the CGST Act, 2017, as under: (83) "outward supply" in relation to a taxable person, means 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; 25. The term "business" is defined in section 2(17) of the CGST Act, 2017 as under: (17) "business" includes - (a) any trade, commerce, manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indeed a "supply", as provided in Section 7(1)(a) of the CGST Act, 2017. The applicant would definitely come under the definition of "supplier", as per sub-section (105) of Section 2 of the CGST Act, 2017. 28. The term 'consideration' is defined in Section 2(31) of the CGST Act, 2017, which is extracted below: (31) "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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s will be collected by the applicant from the contractor for making payment to the CSP. Thus it is clear that this is a contract entered into by the applicant with the contractor and not with the contract workers. Even otherwise, the onus shifts to the principal employer [ie the applicant] only in case of failure of the contractor to provide such facility. Nothing is brought on record to exhibit that the contractor who supplied workers to the applicant, in this case, failed to provide the canteen facilities. The averment therefore is not legally tenable. 30. In view of the above, we hold that recovery of amount from contractual worker on account of third party canteen services provided by the applicant would fall within the ambit of the definition of 'outward supply' as per section 2(83) of the CGST Act, 2017 and therefore, is liable to tax as a supply under GST. Input Tax Credit 31. The next question on which the applicant has sought ruling is whether ITC of GST charged by the CSP would be eligible for availment by the applicant. In this connection, before proceeding further, certain factual aspects which we would like to mention, though at the cost of repetition are viz * th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the use of such contract labour. (2) Without prejudice to the generality of the foregoing power, such rules may provide for (a) the date by which the canteens shall be provided, (b) the number of canteens that shall be provided, and the standards in respect of construction, accommodation, furniture and other equipment of the canteens; and (c) the foodstuffs which may be served therein and the charges which may be made thereof. 34. 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 direct mandate to the applicant company to provide canteen facility to the contractual worker. We find that ITC on food, beverages, outdoor category is not blocked, 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), ibid. In the instant case the applicant company and contractual workers, do not fall within the ambit of employer-employee relationship and further as is pointed out supra, it is not obligatory on the applicant company to provide canteen facility to the contractual worker as per pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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