2021 (9) TMI 1293 - AAAR - GST

Appellate authority exempts GST on employee canteen fees mediated by pharma company

In Re: M/s. Amneal Pharmaceuticals Pvt. Ltd.

The appellate authority ruled that Goods and Services Tax (GST) is not applicable on the amount collected from employees for canteen services provided by ... Levy of GST - amount recovered from employee on account of third party canteen services provided by Company - obligation under Section 46 of the Factories Act - HELD THAT:- The appellant does not supply any goods or services to its employees against the amount collected from the employees. The appellant collects employees’ portion of amount and pays the consolidated total amount, which includes appellant’s share of amount also, to the Canteen Service Provider towards the foodstuffs provided to employees by the Canteen Service Provider. The appellant neither keeps any margin in this activity of collecting employees’ portion of amount nor makes any separate supply to the employees. Furthermore, it is not the appellant who is supplying the foodstuff or canteen service to its employees, but it is a third party who is supplying the foodstuff or canteen service to the employees of the appellant. As the appellant is not carrying out the said activity of collecting employees’ portion of amount to be paid to the Canteen Service Provider, for any consideration, such transactions are without involving any ‘supply’ from the appellant to its employees and is therefore not leviable to Goods and Services Tax - thus the Goods and Services Tax is not applicable on the collection, by the appellant, of employees’ portion of amount towards foodstuff supplied by the third party / Canteen Service Provider. Issues:Applicability of Goods and Services Tax (GST) on the amount recovered from employees for third-party canteen services as per the Factories Act.Analysis:1. The appellant, a pharmaceutical company with a canteen run by a third party for its employees, sought an advance ruling on whether GST applies to the amount collected from employees for the canteen services, as mandated by the Factories Act.2. The Gujarat Authority for Advance Ruling (GAAR) ruled affirmatively, stating that GST is applicable on the amount collected from employees for the canteen services, citing relevant provisions of the CGST Act, 2017, and the GGST Act, 2017.3. The appellant appealed the ruling, arguing that it merely facilitates the canteen service without making a profit, as it is a statutory requirement under the Factories Act, and acts as a mediator between employees and the canteen service provider.4. The appellant contended that since it does not supply goods or services to employees against the collected amount, and the canteen service is provided by a third party, no GST should be levied on the collection from employees.5. The appellate authority analyzed the transaction, noting that the appellant does not supply goods or services to employees but collects and pays a consolidated amount to the canteen service provider, without retaining any margin or making a separate supply to employees.6. The appellate authority disagreed with the GAAR's reasoning that the appellant is supplying food to employees, as it found that the appellant's role is limited to collecting the employees' portion of the amount, which does not constitute a taxable supply under GST laws.7. Consequently, the appellate authority allowed the appeal, modifying the GAAR's ruling by holding that GST is not applicable on the collection of employees' portion of the amount for food supplied by the third-party canteen service provider.