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TMI Blog2025 (4) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deducted from the salaries of employees? b. Whether ITC is available to the Applicant on GST charged by the Canteen Service Provider for providing the catering services? Question 2: Whether the deduction of nominal amount by the Applicant from the salary of the employees who will be availing the non-air-conditioned bus transportation facility proposed to be provided by the prospective Transport Service Provider will be construed as 'supply of service' by the Applicant under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Maharashtra Goods and Service Tax Act, 2017? a. In case answer to above is yes, whether GST is applicable on the nominal amount to be deducted from the salaries of employees? b. Whether ITC will be available to the Applicant on GST that would be charged by the Transport Service Provider for providing the non-air-conditioned bus transportation services? At the outset, we would like to make it clear that the provisions of both the CGST Act the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledge 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 the manufacturing process, or the subject of the manufacturing process but does not include any member of the armed forces of the Union'. Further, we refer to Section 2 (n) of the Factories Act which defines the term 'occupier' of a factory to mean the person who has ultimate control over the affairs of the factory'. 1.7 In the present case, given that the Applicant has employed more than 250 workers at its factory premises, the provisions relating to the maintenance and provision of canteen facilities for the use of the workers, would be applicable to the Applicant. Moreover, as the Applicant has ultimate control over the affairs of the factory, the Applicant would be considered as an 'Occupier' for the purpose of the Factories Act. Therefore, the Applicant has set up a canteen facility, having a separately demarcated area in the factory premises, pursuant to and in compliance with the Factories Act. The said canteen facility has a seating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CILITY BY THE APPLICANT TO ITS EMPLOYEES 1.12 The factory of the Applicant is situated at a remote location in Pune, outside the city limits, where public transport is scare. This has a direct impact on continuity of operations of the factory, and the convenience and safety of employees to reach/ leave the factory. Accordingly, in order to carry out its business without any disruption and for efficient functioning of the business as a whole, the Applicant proposes to engage contractual service provider to provide transportation services for its employees. 1.13 In this regard, the Applicant wishes to enter into a contract with a Transport Service Provider to provide transportation facility to its employees between the factory premises and the residence, in non-air-conditioned buses having seating capacity of more than 13 persons. 1.14 As per the policy of the Applicant, the proposed bus transportation facility will be offered to the employees working at the middle and lower level management. In order to avail the bus transportation services, the employees would be required to display bus cards and employee IDs issued by the Applicant to board the bus and avail the bus facility. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an invoice on the Applicant on monthly basis. After the termination of employment services, the employees would not be allowed to access the canteen facilities of the Applicant. 2.2 The Applicant wishes to submit that the deduction of nominal amount for the provision of food facility would be taxable only if such amount qualifies as consideration towards a supply' as defined under Section 7 of the CGST Act. In this regard, the Applicant places its reliance upon the interpretation of the following legal provisions. 2.3 Section 9 (1) of the CGST Act provides that the Central Goods and Service Tax will be levied on all intra state supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the CGST Act. 2.4 Basis the above, it is amply clear that in order for GST to be levied on any activity, such activity is required to qualify as a 'supply' in the first place. To evaluate whether the deduction of a nominal amount from the salary of the employees towards the food facility at the Applicant premises, is in the nature of consideration for a 'supply', the Applicant would like to place reliance upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s where an 'employer-employee' relationship exists. An employee would not be allowed to use the canteen facility once the employment ceases to exist. This makes it evident that an 'employer-employee' relationship is a mandatory pre-requisite condition to avail the canteen facility. 2.8 Reliance in this regard is placed on the ruling issued by this Hon'ble Authority in case of Tata Motors Limited', wherein the taxability of bus transportation facility offered by the Tata Motors Ltd. was being evaluated. In this regard, it was held that since the Applicant (i.e. Tata Motors) had not been supplying any services to its employees, in view of the provisions of Schedule-III, GST was not applicable on the nominal amounts recovered by the said Applicant from its employees for providing transportation facilities. It was further observed that the Applicant, in its capacity of being the employer was the recipient of the service and employees were the users of such services. This Hon'ble AAR held that by virtue of Clause 1 of Schedule-III to CGST Act 2017, GST was not applicable to the nominal amount recovered by the applicants from their employees. The relevant paragraph from the said Ruling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the contract between the employer and employee.' 2.11 In the instant case, it is submitted that the Applicant provides the canteen facility in terms of the contractual agreement entered into between the employer and employee. The contractual agreement specifically provides for availment of benefits and allowances as per the Company's policy which apart from other benefits also provides for canteen services to employees. In view of this, the said transaction should not be treated as a supply as per Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Factories Act to its employees for consumption of food. To comply with this statutory obligation, the Applicant offers the canteen facility and has appointed a Canteen Service Provider to undertake the preparation of food and regular maintenance of the facility. 2.17 In the instant case, the Applicant has set up the canteen facility on account of a statutory obligation imposed by the Factories Act on the Applicant in its capacity as the 'occupier' of the factory. This obligation is complied through the Canteen Service Provider appointed by the Applicant. There should be an element of reciprocity for an activity to be subject to GST 2.18 As per Section 7 of the CGST Act, an activity could be considered as a supply only if it is 'made or agreed to be made' for a consideration. Thus, it becomes very critical to analyse the term 'consideration' in the context of the deduction of nominal amount from its employees' salary. 2.19 The term 'consideration' has been defined in Section 2 (31) of the CGST Act, 2017 which has been reproduced below, for ease of reference: consideration' in relation to the supply of goods or services or both includes,- a) any payment made or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees' salary towards the cost of services availed by them from the Canteen Service Providers without any commercial objective. Drawing inference from the above, it can be said that if there is no reciprocity of any activity or transaction i.e. when is no express or implied reciprocity i.e. quid-pro-quo, between the Applicant and the employees, there can be no question of taxability of such transactions. Thus, in the instant case, the absence of an identifiable supply in the case of the provision of a canteen facility to the employees, the activity would not constitute 'consideration' for any supply. The supply should be effected in the course or furtherance of business under the CGST Act 2.23 In order to qualify as a 'supply' as mentioned in Section 7 of the CGST Act, it is pertinent to evaluate the last element of supply i.e. whether the activity is undertaken in the course of or in furtherance of 'business'. Thus, it becomes important to analyze whether the provision of canteen facility pursuant to a statutory obligation could be considered as being provided 'in the course or furtherance of business'. 2.24 In this regard, the Applicant refers to the definition of 'business', as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat can be patented. Examples of manufactures are chairs and tires." iv. Profession "A vocation requiring advanced education and training. Collectively, the members of such vocation." v. Vocation - "A person's regular calling or business; one's occupation or profession." vi. Adventure - "A commercial undertaking that has an element of risk; a venture. Cf. Joint venture; A Voyage involving financial and insurable risk, as to a shipment of goods." vii Wager - "Money or other consideration risked on an uncertain event; a bet or gamble. A promise to pay money or other consideration on the occurrence of an uncertain event. See wagering contract under Contract." 2.27 Further reliance is also placed on the case of Cinemax India Limited Vs Union of India wherein the term 'furtherance of business' has been pointed out as: "The meaning of 'furtherance', as per Black's Law Dictionary, 6th Edition, 11th reprint, 1997, is act of furthering, help forward, promotion, advancement or progress. Furtherance of business will, thus mean, act of furthering business, helping forward business, promotion of business, advancement of business or progress of business." 2.28. In the Australian Conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the canteen facility should not be subject to tax. The relevant extract is provided below, for ease of reference: 'The provision of canteen facility is a welfare measure, also mandated by the Factories Act and is not at all connected to the functioning of their business of developing, manufacturing, and marketing pharmaceutical products. Further, the said activity is not a factor which will take the applicant's business activity forward. We also find the applicant is not supplying any canteen service to its employees in the instant case. Further, the said canteen facility services are also not the output service of the applicant since it is not in the business of providing canteen service. Rather, we find that, this canteen facility is provided to employees by the third-party vendors and not by the applicant. Therefore, the subject case, the applicant is not providing any canteen facility to its employees, in fact the applicant is a receiver of such services. Since the provision of canteen facility by the applicant to its employees is not a transaction made in the course or furtherance of business, and since in terms of Section 7 of the CGST Act, 2017, for a transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce: 'Subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office would NOT be considered a supply under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Gujarat Goods and Service Tax Act, 2017. The applicant is not liable to pay GST on the amount deducted/recovered from the employees. Further the applicant is recipient of canteen service to facilitate the employees and Canteen Service Provider raised the Bill of canteen charges inclusive of GST as per the contract. The applicant collects/ recovers the partial amount from the employees and is required to pay the gross amount inclusive of GST to the canteen service by adding residual amount in the employees' portion and is required to pay gross amount of Bill inclusive GST to the Canteen Service Provider.' This view was reiterated by the Gujarat Authority for Advance Ruling in the case of M/s. Cadmach Machinery Put. Ltd., Dishman Carbogen Amcis Ltd., M/s Astral Ltd. and M/s Intas Pharmaceutical Ltd. 2.36 Further, reliance has been placed in case of M/s Brandix Apparel India Private Limited16, wherein the Authority for Advance Ruling, Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to undertake the business of providing canteen facilities. * Moreover, the recovery related to canteen made by Applicant from its employee is ultimately paid to the third-party vendor i.e. Sarathi Hospitality Industrial Services. * This has been substantiated with reference to various Advance Rulings as provided above which indicates that the canteen facility is not in the nature of supply and therefore, should not be subject to tax. In view of the above, it is submitted that the provision of canteen facility should not be subject to GST. THE APPLICANT IS ELIGIBLE TO AVAIL INPUT TAX CREDIT OF THE GST CHARGED BY THE CANTEEN SERVICE PROVIDER 2.38 In order to determine whether the Applicant is eligible to avail ITC on the GST charged G by the Canteen Service Provider, it is pertinent to refer to Section 16 (1) of the CGST Act. The relevant extract of Section 16 of the CGST Act, 2017 is reproduced below: (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified 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.' In this regard, we refer to section 2 (1) of the Factories Act which defines the term 'worker' to mean '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 the manufacturing process, or the subject of the manufacturing process but does not include any member of the armed forces of the Union' and to Section 2 (n) of the Factories Act, which defines the term 'occupier' of a factory to mean 'the person who has ultimate control over the affairs of the factory'. In the instant case, the Applicant has employed more than 250 workers and therefore, the provisions relating to the maintenance and provision of canteen facilities for the use of the workers would be applicable and also the Applicant has the ultimate control over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees in furtherance of its obligations under the Factories Act. Therefore, the Applicant wishes to submit that the restriction imposed under Section 17 (5) of the CGST Act, 2017 is not applicable in the instance case, since the canteen facility is extended to its employees as a part of its statutory obligations under the provisions of Factories Act. 2.43 Additionally, we refer to the ruling of the Appellate Authority of Advance Ruling Madhya Pradesh in the case M/s Bharat Oman Refineries17 wherein it was held that ITC of GST paid to canteen service provider would be available to the appellant 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 relevant portion of the said Ruling is reproduced below: 'As regards provision of canteen facility we find that the appellant has submitted that the canteen facility was required to be provided by a company as per Section 46 of the Factories Act, 1948. Therefore, applying the proviso under Section 17 (5) (b) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt of transportation services proposed to be provided to the Applicant's employees. In the context of whether the transportation facility proposed to be provided by the Applicant qualifies as a 'supply', the Applicant makes the following submissions. Transportation facility to be provided by the Applicant is the course of employment and therefore, does not qualify as a supply under the CGST Act. 2.48 The Applicant wishes to engage third-party Transport Service Provider to provide transportation facility to its employees for commute between the office and residence in non-air-conditioned buses. Given that the factory premises is located outside the city limits, the Applicant will offer the bus transportation services to ensure that the employees are able to travel to work and therefore, maintain continuity of business. The bus transportation facility would be made available by the Applicant to ensure the safety and convenience of the employees. 2.49 The proposed bus transportation facility would be offered only to the employees as specified in the transportation policy of the company. Therefore, in order to avail the bus transportation services, the specified employees would be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 in respect of nominal amounts of recoveries made from their employees towards bus transportation service, is not correct. The exemption under the said notification is available only when the supply is taxable in the first place. In the subject case, the transaction between the applicant & their employees, due to "Employer-Employee" relation as stated by the applicant in their submissions, is not a supply under GST Act. 5.3.3 To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services. As per clause 1 of the said Schedule-III. Services by an employee to the employer in the course of or in relation to his employment shall be treated neither as supply of goods nor a supply of services. 5.3.4 Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we are of the opinion GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.' 2.52 Given the above, it is submitted that the provision of the proposed trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a supply under Section 7 of the CGST Act. 2.58 We also refer to another ruling of this Hon'ble Authority, in the case of Integrated Decisions and Systems India Pvt. Ltd., where the applicant provided transportation facility to its employees and recovered a nominal amount from such employees. This Hon'ble Authority held that the applicant provided the transportation facility as a security, safety and welfare measure and that the company was not engaged in the business of providing transportation Services. A similar view was also adopted by the Uttar Pradesh Authority for Advance Ruling in the case of North Shore Technologies Put. Ltd. 2:59 Further, as mentioned above, various Authorities for Advance Ruling in the context of other employee recoveries have also held that the companies are not engaged in the providing the services for which recoveries are made from employees, and therefore, should not be subject to GST. We refer to the Advance Ruling pronounced by the this Authority for Advance Ruling in M/s. Posco India Pune Processing Center Private Limited, in M/s Jotun India Pvt. Ltd, (as mentioned above) and in M/s Ion Trading India Private limited reported in [2020] 113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. 2.62 Based on a plain reading of the CGST Act, credit of input tax that would be charged on supply of services would only be allowed when such goods or services or both are used or intended to be used in the course or furtherance of business. In this regard, the Applicant wishes to submit that the prospective Transport Service Provider will be providing the services to the Applicant in the transportation of employees to and from the premises of the Applicant. Such services that will be provided in pursuance of the Applicant's obligation to provide such facilities to its employees is in the course of its employment. 2.63 It is also crucial to refer to the provisions of Section 17 (5) (a) of the CGST Act, which provides for ITC which will not be available to an assessee. We have reproduced below the relevant portion of the provision: "(a) motor vehicles for transportation of persons having ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the applicant shall be eligible for Input Tax Credit. In this case, however we would like to make it very clear that if the motor vehicle hired by them does not have an approved seating capacity of more than thirteen persons (including the driver), then in that case the applicant will not be eligible for Input Tax Credit. As per clause 1 of the said Schedule-III, services by an employee to the employer in the course of or in relation to his employment shall be treated neither as a supply of goods nor a supply of services. Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, it is held that GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.' A copy of the advance ruling is enclosed with this application. In view of the above, it is submitted that the ITC of the tax payable by the Applicant on the value of services that would be provided by the prospective Transport Service Provider will be available as ITC. 3. CONTENTION - AS PER THE JURISDICTIONA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 of the contract between the employer and employee. 4. Now in terms of Circular No. 172/04/2022-GST dated 06 July 2022, it is clarified that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bus transportation facility. 3. As discussed earlier, in terms of Circular No. 172/04/2022-GST dated 06 July 2022, it is clarified 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. Hence this office is of opinion that nominal recovery proposed to be made by the Applicant for Transportation facility from it's employees salary is not subjected to GST. 4. Regarding Input Tax Credit of the GST charged by the proposed Transport Service Provider for providing the transport services, ITC will be available subject to conditions specified in section 17 (5) of CGST/SGST Act 2017. i.e. ITC on leasing, renting or hiring of motor vehicles for transportation of persons having approved seating capacity of more than 13 persons (including driver). 5. It is also submitted that the ITC on GST charged by the TSP will be restricted to the extent of cost borne by the Applicant only. 7. This office has relied on the decision of Hon. Gujrat Advance Ruling No GUJ/GAAR/R/2023/ 23 Dt. 19/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In view of this, Applicant has contended that the said transaction should not be treated as a supply as per Section 7 of the CGST Act read with Schedule III and thus GST is not be leviable on the recovery of nominal amount from the employees. (5) Various grounds raised by the Applicant to contend that the recovery of nominal amounts from the employees for providing canteen services are discussed as below. 5.1.2 Whether supply of canteen services is in the course or furtherance of business. (1) The Applicant has taken view that supply of 'canteen services' cannot be regarded as 'in the course or furtherance of business'. CGST Act, 2017 defines the expression 'business' under section 2 (17) of the CGST Act, 2017. The definition of 'business' as given in Section 2 (17) of the CGST Act, 2017 is as under: - "(17) "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 incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is vol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. The activity of providing food in canteen to its workers who are pivotal to his principal activity can definitely be said to in connection with or incidental or ancillary to his main activity of manufacture and distribution of various products. (3) Further, in terms of Section 2 (17) (c), as mentioned in para (1) above, the volume of transaction is immaterial for the purpose of coverage under 'Business', therefore, even if supply of food is quite insignificant activity in terms of volume of transaction, still in terms of clause (c) of the aforesaid section, the activity of supply of supply of canteen services, falls within the definition of "business". (4) Thus, as discussed above, the activity of supply of canteen services provided to the employees falls under the definition of 'business' on account of following two aspects. 1. The activity of supply of canteen services to the employee is connected with or incidental or ancillary to the principal activity of the taxpayer as explained above. 2. This activity is mandated by the factories Act, 1948 and sine-qua-non for businesses having more than 250 workers, 5.1.3 Whether there is supply of canteen services from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f employment contract were excluded from GST as per the Circular no. 172/04/2022-GST dated 06.07.2022 of CBIC. The relevant extract of the said circular is reproduced hereunder for ease 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 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax as it is consideration against canteen services provided by the Applicant to the employees. 5.1.5 The Applicant has presented following arguments in support of his stand (1) The applicant submits that the provision of canteen facility to the employees is only on account of a statutory obligation and there is no legal intention to provide any service. We observe that Factories Act, 1948 imposes an obligation to provide canteen services where there are more than 250 workers. However, it does not ask for free facility. It mandates provision and maintenance of canteen services. However, it does not specify about the business model to be used for making available the same. It may be on own account or through canteen contractor. It does not specify that it should be free or subsidized. It also does not stipulate about any exemption from due taxes. Intention of the person is to be derived from the nature of transaction effected, especially when GST Act defines when a transaction is to be a taxable supply. Based on the definitions of what constitutes to be 'business', 'consideration', 'supply', if a transaction gets covered as 'taxable supply', then the nature of this transaction c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the facts in these cases and the provisions of law involved are completely different. (4) In this regard, we notice that the applicant has further placed reliance on the ruling of Gujarat AAR in RE: Emcure Pharmaceuticals Limited [2022-VIL-231-AAR], the ruling of Maharashtra AAR in RE: Tata Motors Limited in [2021-TIOL-197-AAR-GST -2020-VIL-257-AAR], the appellate ruling by Gujarat in AAAR in RE: Amneal Pharmaceuticals Limited [GUJ/GAAAR/APPEAL/2021/07], the Maharashtra AAR in a ruling in RE: Posco India Pune Processing Centre Pvt Ltd (Order dated 07.09.2018), Authority for Advance Ruling, Maharashtra in M/s Jotun India Pvt Ltd (Order dated 4.10.2019), the Authority for Advance Ruling, Gujarat in M/s. Zydus Lifesciences Ltd. (Order dated 28.09.2022), M/s. Cadmach Machinery Pvt. Ltd.(Order dated 12.04.2022), M/s. Dishman Carbogen Amcis Ltd.(Order dated 09.07.2021), M/s. Astral Ltd. (Order dated 07.03.2022), M/s. Intas Pharmaceutical Ltd.(Order dated 07.03.2022), the Authority for Advance Ruling, Andhra Pradesh in M/s Brandix Apparel India Private Limited. We would like to place on record that an advance ruling pronounced by the Authority or the Appellate Authority shall be bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, 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 an element of a taxable composite or mixed supply; (ii) membership of a club, health and fitness centre; and (iii) travel benefits extended to employees on vacation such as leave or home travel concession 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." 5.2.3 As per Section 17 (5) of the CGST Act, ITC on food and beverages, outdoor catering, etc. is not available. However, it is seen that a proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is provided to clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 5.2.4 The Applicant has submitted that they are a manufacturing unit and that there are more than 250 workers in the factory and in accordance with Section 46 of the Factories Act, 1948, it is obligatory on them to provide canteen facilities within the factory premises. Thus, in light of the above-mentioned provisions, the ITC of the GST paid in relation to canteen charges is not blocked under u/s 17 (5) (b). However, the issue of eligibility of input tax credit needs to be examined further in the light of the facts of the present case and various Tax Notifications. 5.2.5 As per the provisions of the Factories Act, 1948, the Applicant has the legal responsibility to provide & maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly attracts rate of 5% without ITC in a non-specified premise and the Applicants premises is not '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 block availment of ITC, however, in the present case, availment of ITC is barred in terms of provisions of 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. 5.2.9 There is another way of looking at the transactions, that, had the Applicant not engaged any Canteen Contractor but decided to run the canteen himself, as mandated in the Factories Act, 1948, then also he would be required to pay 5% of GST on taxable supply without availment of any ITC in terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 supra. 'Therefore, just by engaging, a Canteen Contractor, he can't be allowed to adopt an interpretation for availing ITC which is not available to him in a case of direct supply of Service. 5.3 Whether the services by the way of non-air-conditioned bus transportation facility provided by the Applicant to its employees would be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed transportation services squarely falls under Schedule III to the CGST Act and such facility will not be construed as a 'supply'. Therefore, the provision of such facility will not be subject to GST. 5.3.2 In this regard, we observe that entry 1 of Schedule III of the CGST Act, 2017, provides that "services by an employee to employer in the course of or in relation to his employment" shall be neither supply of goods nor supply of services. It could be seen here that Schedule III basically deals with 'services by an employee to employer', and not the other way round. Only as a corollary, the 'services by the employer to the employee', especially when provided in the form of perquisites, has been discussed in the CBIC Circular No. 172/04/2022-GST dated 06.07.2022 wherein it has been explained as follows: - "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 and it follows therefrom that perquisites provided by the employer to the employee in terms of contractual agreement entered into betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortation facilities. We observe that the said Ruling was prior to clarification by Circular No. 172/04/2022-GST dated 06.07.2022. It was clarified that only the perquisite offered in lieu of employee services would as corollary to services mentioned in entry 1 of Schedule III would be eligible for non-subjection of GST. Perquisite as explained in Para 5.3.4 is defined to be the value of benefit given to the employees. Applicant has proposed to receive services from third party in respect of hire or lease or renting of transportation buses. Applicant is using these buses for transportation of its employees from their home to work place and vice versa. There is no privity of contract between the third-party transport service provider and the employees of the applicant. Hence, the applicant received the service from the transport buses provider and provides transportation services to the employees. However, when these services are provided by charging some consideration of whatever value, it would not be perquisite or a service in lieu of employee services, this would be very much supply of transportation services to the employees and liable to tax. 5.4 Value in respect of which cant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer and employee are deemed to be related persons for the purposes of this Act. This means any transaction between employer and employee will not come out of 'supply' for the reason of not having consideration. However, respite to such transactions has come through Schedule 3. Section 7 (2) (a) states that, notwithstanding anything in sub-section (1), activities or transactions specified in Schedule III shall be treated neither as a supply of goods nor a supply of services. Serial Number 1 of Schedule III is as below. "1. Services by an employee to the employer in the course of or in relation to his employment." This entry includes only the services by an employee to the employer. However, it has been clarified by the above referred Circular that 'as corollary to this provision, the perquisite given to the employees in view of the contractual agreement are in lieu of services given by the employee to the employer and should not be subjected to GST'. As the supply of perquisite by the employer to the employee would not have respite from above two aspects mentioned at Sr.No.1 and 2 above as the said supply is neither exempted nor a Non-GST supply, it would be appropriate to interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oms and Service Tax (Bombay High Court) held that Cenvat Credit is not eligible on facility of transportation provided by the appellant to its employees as same was merely in the nature of service for personal use or consumption of its employees. The substantial question of law involved in the said judgement is: 1. Whether the services provided by a Manufacturer of transportation of its employees, from their designated pick up points to their workplace, by Bus, would amount to a service for personal use or consumption of any of the employees?" 2. Whether the activity of providing bus transport services to its employees, at the cost of the Manufacturer, to reach factory in time and the expenses incurred by the Manufacturer in providing such service, (which amount is taken into consideration, while determining the final price of the product) can be said to be a component leading to the manufacturing activity, so as to entitle the Manufacturer, the benefit of Cenvat Credit? The view held by Hon'ble High court is produced below: "The transportation of employees from distance of about 40 kms for reaching factory is not an activity which could be said to be a part of manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided comes under category of personal consumption which makes the applicant ineligible to avail input tax credit on the invoices issued to him by the transporter for transportation of employees as per Section 17 (5) (g) of CGST/MGST Act 2017. 6. In view of the extensive deliberations as held hereinabove, we pass an order as follows: ORDER (Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) For reasons as discussed in the body of the order, the questions are answered thus - Question 1: Whether the deduction of a nominal amount by the Applicant from the salary of the employees who are availing the facility of food provided in the factory premises would be considered as a "Supply of Service" by the Applicant under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Maharashtra Goods and Service Tax Act, 2017? a. In case answer to above is yes, whether GST is applicable on the nominal amount to be deducted from the salaries of employees? b. Whether ITC is available to the Applicant on GST charged by the Canteen Service Provider for providing the catering services? Answer 1. Answered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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