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TMI Blog2024 (1) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... ractually agreed, is not an allowance as a part of the employment. Thus, the provision of food in the canteen for a nominal cost is a 'Supply' for the purposes of GST. Schedule II to the CGST Act, 2017 describes the activities to be treated as supply of goods or supply of services - the supply of food is a 'Supply of Service'. Whether the amount received from the employees is in the nature of recovery and not consideration? - HELD THAT:- The applicant has chosen to run the canteen through a third party vendor in the course of furtherance of business. It is also clear that in running of such canteen, the employer is mandated to bear certain costs. The contention that the applicant only collects the employee cost and pays the third party vendor that such employee cost is only a recovery is not tenable. Provision of canteen facility and bearing certain costs in running of canteen are mandated on the part of the employer as per the Factories Act. Accordingly, such canteens are provided - It has been established that the supply of food in the canteens are 'Supply of Service' by the applicant. The applicant has established canteen facilities as mandated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods would be attracted. In other words, if the cooking of food supply of the same food is made as a single transaction, then the said transaction is the Restaurant Service and is liable to 5% of GST in terms of entry no. 7 (ii) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 which was amended by the Notification No. 20/2019-C.T. (Rate) dated 30.09.2019, effective from 01.10.2019. The flow of the transaction is that the Canteen Contractor is providing service to the applicant, which is classifiable as Restaurant Service and the applicant himself is also providing same service to its worker, as mandated in the Factories Act, 1948 i.e. he is also providing a Restaurant Service to its worker. As already brought out above, the Restaurant Service, compulsorily attracts GST rate of 5% without ITC, in a non-specified premises and the applicant's premises is not a specified premises in terms of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017. Therefore, though the Section 17(5) of the CGST Act, 2017, does not debar availment of ITC in entirety, but in the present case availment of ITC is debarred in terms of provisions of Notification No. 11/2017- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees on monthly basis and such recoveries are shown as a deduction in the monthly slip of the employees. (d) They do not avail input tax credit (ITC) on the expenses incurred on the services provided by the canteen service provider and are absorbing the GST charged by the canteen service provider as a cost in the books of accounts. (e) They discharge GST @5% on the cost of the canteen service provider total taxable value plus 10% notional mark up. In view of the above facts, 'the applicant' is sought advance ruling as to;- a. Whether the nominal amount of recoveries made by the applicant from the employees who are provided food in the factory canteen would be considered as a Supply by the applicant under the precisions of Section 7 of Central Goods and Service Tax Act, 2017 b. In case answer to the above is Yes , - Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the applicant to the Canteen Service Provider? c. Whether input tax credit (ITC) is available to the applicant on GST charged by the Canteen Service Providers for providing the catering se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant had relied heavily upon at the time of filing advance ruling application before the Authority. We find that, prima-facie; this Circular appears to have relevance and significant force in deciding the instant issue in the context of this case. Since CBIC Circulars are binding in nature, the Authority for Advance Ruling was obligated to give it its due consideration. Even if the Authority had doubts about the applicability of the said Circular to the facts of the instant case, principles of natural justice required it to elaborate upon the said reasons. But for some reason no cognizance of the said Circular was taken by the said Authority in its Order No. 12/2022-23 dated 24.11.2022 and the same was not discussed at all. 11. In view of our findings as at paras 9 to 9.3 and 10 to 10.4 above, I find that the Order No. 12/2022-23 dated 24.11.2022 issued by Authority for Advance Ruling suffers from fatal flaws that warrants its remand back to the Authority for giving its findings by considering CBIC Circular No. 172/04/2022-GST dated 06.07.2022 . And thereafter, the Appellate Authority for Advance Ruling, Goods Service Tax, Uttarakhand, remanded the matter back for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity of personal hearing was granted to the applicant on 12.09.2023 Sh. K Sivarajan, Chartered Accountant and Sh. K Karthikeyan, Company Representative, on behalf of the applicant appeared for personal hearing on the said date and re-iterated the submission already made in their application. Sh. Deepak Brijwal, Deputy Commissioner, Concerned Officer from the State Authority was also present during the hearing proceedings. He presented the facts and requested the authority to decide the case on merits. 6. From the record submitted by the applicant we find that applicant is registered in Uttarakhand with GSTIN bearing No. 05AADCT1398N1ZW. Before proceeding in the present case, we first go through the submissions made by the applicant at various stage, which are as under:- i. That they are a company incorporated under Companies Act, 1956 manufacturing precision steel tubes and strips, automotive, industrial chains, car door frame and bicycles in the state of Uttarakhand where in 520 workmen (both direct and indirect) are employed. And in compliance with the provisions of the Factories Act, 1948 they provide canteen facility to those employees. ii. They have entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l amount from the employees on monthly basis to provide food to them and for same they have engaged contractors, who operates canteen within the factory premises. The applicant discharge GST @5% on the taxable value which is sum total of the cost of the canteen service provider plus 10% notional mark up. It has also been submitted by the applicant that they do not avail input tax credit (ITC) on the expenses incurred on the services provided by the canteen service provider and are absorbing the GST charged by the canteen service provider as a cost in the books of accounts. It is seen that the Applicant had set up a canteen facility, for the benefit of its employees and workers. The clarification sought is as to whether GST is liable to be paid on that part of the amount collected from their employees towards provision of food and also that whether ITC is available on the GST paid by them on the taxable value of the canteen service. We find that the applicant has contended that since the supply of food in canteen is part of employment contract, the same shall be ousted from the scope of supply vide the Entry 1 in Schedule III of the CGST Act, 2017 and that there is no supply betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Accordingly, it is clarified that the proviso after sub-clause (iii) of clause (b) of subsection (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of subsection (5) of section 17 of the CGST Act. The contention by the applicant is that the supply of food at subsidized rate is not liable to GST in terms of Circular No. 172/04/2022-GST dated 06.07.2022 of CBIC, the relevant extract of the said circular is reproduced hereunder for case of reference: S.No. Issue Clarification 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employer in the course of or in relation to his employment are neither a supply of goods nor a supply of service. But in this case supplies are provided by the employer to the employees for a consideration, though nominal. We also find that CBIC vide the Press Release dated 10.07.2017 with the description GST on gifts , clarified that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods nor supply of services). It follows that supply by the employer to the employee in terms of contractual agreement of employment (part of the salary/CTC) is not subject to GST. We are of the view that the above press release makes it clear that any benefit provided to the employees as part of employment contract would not be subjected to tax under GST, however, in the instant case, firstly it is not mandatorily compulsory to consume the food and secondly the Canteen facility is provided by the applicant in their factory in accordance with the mandate under the Factories Act, 1948; but in lieu of such facility, collects an amount though nominal, fixed as employee cost, therefore, the contention that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of their business. The 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 is above 250, accordingly, and the applicant has established the canteen in their premises and bears certain running cost while collecting the nominal rate, which is an activity in furtherance of their business. In this regard, the definition of 'outward supply', as per Section 2(83) of the CGST Act, 2017, has to be studied. The same is reproduced as below:- Outward Supply' in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business . Thus supply made by a taxable person in the course or furtherance of business is an Outward supply'. It has been brought out above, that establishing canteen is in the furtherance of business of the applicant and supply of food to the employees when the same is not contractually agreed, is not an allowance as a part of the employment. Thus, the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as 'Supply of service' as per Schedule-II of the GST Act and the amount collected by the applicant is a 'Consideration' on which GST is liable to be paid. We find that it has been claimed that they are adding 10% mark up cost on the cost of service provider for payment, but did not provided the components of such mark up cost or what are the constituents, even though they are silent on the issue of cost of the area and the infrastructure, which admittedly includes tables, chairs, utensils, washrooms, wash basins, storage rooms for keeping the cooked food, washing the utensils provided by them to the canteen service providers i.e. contractors. We also find that the electricity and other equipment for running the canteen is also supplied by the applicant, but the cost incurred or capitalized in the books of accounts have not been charged from the contractors for using and utilizing the infrastructure of the applicant as discussed supra, which ought to have been the cost for the contractors to be included in the taxable value. To sum up, the applicant has established canteen facilities as mandated under Factories Act, 1948 and supplies food at a cost through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes it clear that provisions of blocked credit under Section 17(5) (b), inter-alia on food and beverages, do not apply only where, it is obligatory for an employer to provide goods and services or both to the employee under any law for the time being in force. Since, the proviso carves out an exception to the Rules/ Provisions, a strict interpretation is required to be adopted for examining its applicability. Since the contract workers are not employees of the applicant, therefore, the benefit of the above proviso will not be applicable in respect of contract workers but will be limited only with respect to the employees. We observe that the above Section 17(5) (b) was amended on 01.02.2019. The Press Note issued on the recommendations of the 28th meeting of the GST Council meeting stated that the scope of input tax credit is being widened and it would now be 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. We also observe that that Circular No. 172/04/2022-GST dated 06.07.2022 has been issued, by the CBIC, wherein clarifications on various issue pertaining to GST have been provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the whole of clause (b) of sub-section (5) of section 17 of the CGS T Act. In view of above legal position clarified by CBIC, as second proviso to Section 17(5)(b) inserted vide CGST Amendment Act, 2018, effective from 1.2.2019, is applicable to the whole of clause (b) of sub-section (5) of Section 17 of the CGST Act, 2017, therefore, the clarification implies that the Input Tax Credit will only be available in respect of its direct employees, that too upon fulfillment of the terms and condition of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017. The issue which is flowing out of Para 12.5 above is, whether ITC available on GST charged by the canteen service provider, on canteen facility provided to its employees working in their factory', will be restricted to the extent of cost borne. We find that the ITC on GST charged by the canteen service provider will only be available to the extent of cost borne by the applicant only upon fulfillment of the terms and condition of Notification No. 11 /2017-Central Tax (Rate) dated 28.06.2017. However, as per the provisions of the Factories Act, 1948 as extracted in Para 11.4, the applicant has the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) .... .... .... And that Specified premises has been defined as under: (xxxvi) Specified premises means premises providing hotel accommodation services having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent. From the facts of the case, it is clear that in the instant case, the Canteen Contractors are providing Restaurant Service at a non-specified premises at the rate 5% to the applicant, and opted for Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended, and as per the condition the service providers are not eligible to avail the ITC. Accordingly, the canteen service providers are providing the service to the workers of the applicant through applicant and paying Tax at reduced rate of 5% in terms of the Notification ibid. The applicant is also recipient of service when viewed in terms of definition of recipient of service, as defined in Section 2(93)(a) of the CGST Act, 2017, which is reproduced below:- (93) recipient of supply of goods or services or both, means (a) where a consideration is payable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Goods and Service Tax Act, 2017 and Himachal Pradesh Goods and Service Tax Act, 2017? And; Question 2: Whether GST is applicable on the nominal amount deducted from the salaries of its employees? And; Question 3: Whether GST would be applicable on the nominal amount deducted from the Manpower supply contractor in case of contractual employees? Answer : Supply of food to the employees and contract workers is a supply under the provisions of Section 7 of the CGST Act, 2017 and the Himachal Pradesh Factories Rules, 1950 and accordingly, it is leviable to the GST. Question 4: Whether Input Tax Credit (ITC) of the GST charged by the Canteen Service Provider would be eligible for availment to the Appellant? Answer : Input Tax Credit will not be available to the Appellant on GST charged by the canteen service provider, in terms of provisions of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 20/2019-C.T. (Rate) dated 30.09.2019, as discussed above. We also find that the Authority for Advance Ruling, Gujarat in the case of M/s Tata Motors Limited held that Input Tax Credit on Go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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