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TMI Blog2023 (12) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are ordinarily employed in a factory and as per sub-clause (2)(dd) above, certain expenditure are to be borne by the employer. Abiding by the above provisions, since the number of workers and contract labourers, ordinarily employed exceeds 250 in number, the Applicant has established a canteen - In the case at hand establishing a canteen facility in the unit is an activity incident to the running of their business. Factory Act, above mandates establishing canteen, bearing certain mandatory costs in running of the canteen by the employer in as much as the number of workers ordinarily employed (workers contract labourers) are above 250 per unit, which is the case in hand as per their submissions. Accordingly, the applicant has established the canteen in their premises and bears certain running cost while collecting the nominal rate as fixed by the Managing Committee, which is an activity in furtherance of their business. In the case at hand, the Applicant supplies food to their employees at a nominal cost, and the same is the consideration for such supply made by the Applicant on which GST is liable to be paid - The supply of the food/beverages, although at subsidized rates, by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his contention of the Applicant is totally not tenable. The recovery of subsidised value from employees for providing canteen facility will amount to supply under the CGST Act and GST is to be levied on the amount recovered by the Applicant from the employees towards provision of canteen facility. X X X X Extracts X X X X X X X X Extracts X X X X ..... , a canteen or canteens shall be provided and maintained by the occupier for the use of the workers" * The State Government of Tamil Nadu has provided for mandatory provision of canteen facility under the Tamil Nadu Factories Rules, 1950, which states that- "65(2) The occupier of every factory notified by the State Government and wherein more than two hundred and fifty workers are ordinarily employed shall provide in or near the factory an adequate canteen according to the standards prescribed in these rules". * Further 'worker' is defined under Section 2(1) of the Factories Act as, "a person employed, directly 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,….." * In compliance with the said requirement, a canteen is provided in the factory premises under two models:- a. Model I - Canteen operated by the Applicant(Padi) - Applicant runs the canteen, hired a cook who is their employee and food supplies are bought by the Applicant b. Model II - Canteen run by a third party (Oragadam and Hosur) -Applicant avails can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Wage Agreement merely specifies the facilities that are available to the workers, which are common to all and hence cannot be equated with an agreement to supply goods or services. * The second requirement is the presence of 'consideration' against the supply; If an activity is undertaken but there was no agreement between the parties, any payment received by a party cannot be automatically linked to a supply for the purpose of levying GST; In this regard, reliance was place on the judgment of Bombay High Court in the case of Bai Mumbai Trust, Vithaldas Laxmidas Bhatia, Smt. Indu Vithaldas Bhatia Vs Suchita [Commercial Suit(I) No. 236 of 2017 decided on 13.09.2019]; The amount collected from the workers towards canteen charges is merely to reimburse the cost incurred by them and it does not give rise to reciprocal obligations between the parties; Therefore, in absence of identifiable supply, the activity of recovery would not constitute a 'supply' and hence GST not leviable. * The last requirement for a transaction to qualify a 'supply' is for it to be in course of furtherance of business. The activity of providing canteen facility does not fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the case of M/s Kothari Sugar and Chemicals Limited [No. 20/AAR/2022 dated 31.05.2022]. * In respect of Model 2, canteen facility through SACL is in nature of a back-to-back arrangement and they do not retain any profit margin. They mediate with SACL and employees as a pure Agent. They are not providing any goods or services on his account. Therefore, merely the act of recovery and reimbursement will not attract GST; As per Rule 33 of the CGST Rules, 2017, expenditure or costs incurred as a pure agent are excluded from the value of supply. In this regard, reliance was placed on the following judgments:- * Amneal Pharmaceuticals - GUJ/GAAAR/Appeal/2021/07dated 08.03.2021 * Bharat Oman Refineries Ltd - MP/AAAR/07/2021 dated 08.11.2021 3.1. The Applicants were offered personal hearing on 23.08.2023, wherein Shri. Kulraj Ashpnani and Mr. Arun Fatela, Chartered Accountants (Authorised Representatives -AR) appeared for the Applicant and reiterated the submissions made in the application. He submitted copies of Employment letter and Wage Agreement, wherein mentioned was made regarding recovery of subsidised charges for availing canteen facility. The AR also cited the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 15 of CGST Act, 2017. * Hence supply of food to their employees by the applicant is supply under the CGST Act, 2017 and attracts GST. 4.2. The Applicant's jurisdictional State Authority has not submitted any remarks and hence it is presumed that there are no pending proceedings in the Applicant's case on the issue raised in the application. DISCUSSION AND FINDINGS: 5.1. We have considered the submissions made by the applicant in their application for advance ruling and the submissions made by their AR during the course of personal hearing and additional submissions made thereon with reference to the issues involved and relevant facts. 5.2. Before moving further, we have to determine the admissibility of the application. In terms of Section 97(2) of the CGST/TNGST Act, Question which advance ruling is sought under the Act, falls within the scope of Section 97(2)(e) & (g) of the CGST/TNGST Act, 2017, and therefore the application is admissible. 5.3. The Applicant has raised the following question on which he has sought Advance Ruling: Whether recovery of subsidised value from employees for providing canteen facility would (a) amount to 'supply' und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... di unit, where the required inputs are procured by the Applicant. In their Oragadam and Hosur unit, canteen is run by Applicant's subsidiary company(SACL) operating within common premises for which the subsidiary company recovers charges from the Applicant. The Applicant recovers agreed rate for the food consumed at the concessional rate from each of the employees for the supply of food in the canteen and the balance cost incurred is borne by them as cost to the employer. The offer of appointment letter in respect of the employees at M/s Sundaram Clayton, Padi unit were furnished. On perusal of the employees appointment order dated 08.05.2018, 02.03.2018 and 03.10.2016 furnished in respect of Shri M Aravindhan, Shri A Bakiaraj and Shri V Velmurugan respectively, it is seen that at point no. 19, it was mentioned that the employee will be .entitled to use the canteen facility within the Factory premises as mandated under the Factories Act, 1948 and the Company will recover charges on a subsidized basis for availing the canteen facility. The Applicant also furnished a Memorandum of Settlement dated 26.10.2020 entered into between the Management of Sundaram Clayton Ltd and the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (2)(dd) above, certain expenditure are to be borne by the employer. Abiding by the above provisions, since the number of workers and contract labourers, ordinarily employed exceeds 250 in number, the Applicant has established a canteen. 7.2. We find it is pertinent to see the term 'business' in the context of GST. The term "business" is defined in Section 2(17) of the GST Act 2017 as:- "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 incidents or ancillary to sub-clause (a);. In the case at hand establishing a canteen facility in the unit is an activity incident to the running of their business. Factory Act, above mandates establishing canteen, bearing certain mandatory costs in running of the canteen by the employer in as much as the number of workers 'ordinarily employed' (workers & contract labourers) are above 250 per unit, which is the case in hand as per their submissions. Accordingly, the applicant has established the canteen in their premises and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees at a nominal cost, and the same is the consideration for such supply made by the Applicant on which GST is liable to be paid. The Applicant had relied on judgment of Bombay High Court in the case of Bai Mumbai Trust, Vithaldas Laxmidas Bhatia, Smt. Indu Vithaldas Bhatia Vs Suchita [Commercial Suit(I) no. 236 of 2017 decided on 13.09.2019] and it was the contention of the Applicant there was no agreement between the parties. In contrast, we find that there is reciprocal obligation between the parties as there is a specific mention in the appointment order regarding recovery of subsidised charges for availing canteen facility. Hence, we find that reliance the said case law in their favour is of no avail. 7.5 The Schedule II to the CGST/SGST Act, 2017 describes the activities to be treated as supply of goods or supply of services. As per clause 6 of the Schedule, the following composite supply is declared as supply of service:- "Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is-for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.8 As per the contents of the employment appointment orders issued to their employees, it is evident that, inter alia, there exists a clause stating that "You will be entitled to use the canteen facility within the Factory premises as mandated under the Factories Act, 1948 and the Company will recover charges on a subsidized basis for availing the canteen". We find that there exists an express mention in the terms of agreement between the Applicant and the employees. 7.9 At this juncture, we find that it is pertinent to see the definition of the term 'Perquisite'. As per Section 17(2) of the Income Tax Act, 1961, "Perquisite" is defined as "any casual emolument or benefit attac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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