Employer-employee transactions: notice pay, insurance premiums, canteen charges constitute taxable supplies under GST Schedule II

The AAR, MP ruled on multiple GST issues involving an employer-employee relationship. Notice pay received by employer from employee for shortened notice period constitutes taxable supply under Schedule II. Group medical insurance premium recovery from non-dependent parents/retired employees at actuals is taxable supply as it's incidental to business. Canteen facility charges and telephone charges recovered from employees are taxable supplies, with valuation under Rule 28 for related persons. ITC is available for insurance premium and telephone charges as they constitute further taxable supplies. Free canteen services to employees are taxable supplies valued per Rule 28, but ITC is blocked under specific notification provisions for such services.

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Issues Involved:
1. GST applicability on notice pay by an employee to the employer.
2. GST applicability on the premium of Group Medical Insurance Policy recovered from non-dependent parents of employees and retired employees.
3. GST applicability on recovery of nominal amounts for canteen facilities.
4. GST applicability on recovery of telephone charges from employees.
5. Availability of full Input Tax Credit (ITC) for the applicant concerning the above issues.
6. GST applicability on free canteen services provided to employees.
7. ITC availability for goods and services used in providing free canteen services.

Detailed Analysis:

Issue 1: GST on Notice Pay
- Applicant's Argument: The payment of notice pay is covered under clause 1 of Schedule III, which is not a supply under GST. It should not be considered as a supply of service under clause 5(e) of Schedule II.
- Authority's Decision: GST is applicable on payment of notice pay by an employee to the employer under clause 5(e) of Schedule II of the CGST Act. The act of tolerating the employee's early exit is considered a supply of service.

Issue 2: GST on Group Medical Insurance Premium
- Applicant's Argument: The recovery of insurance premiums from non-dependent parents of employees and retired employees is not in the course or furtherance of business and should not be taxable.
- Authority's Decision: The premium recovered from non-dependent parents and retired employees falls within the ambit of supply and is liable to GST. The applicant is not acting as a pure agent of the insurance company.

Issue 3: GST on Canteen Facilities
- Applicant's Argument: Canteen services provided to employees are part of the employment contract and should be treated as services by an employee to the employer under clause 1 of Schedule III.
- Authority's Decision: The recovery for canteen facilities falls within the definition of 'outward supply' and is liable to tax. The valuation should be as per Rule 28 since the employer and employee are related persons.

Issue 4: GST on Telephone Charges
- Applicant's Argument: The recovery of telephone charges from employees is not in the course or furtherance of business and should not be taxable.
- Authority's Decision: The recovery of telephone charges from employees is a supply and is liable to GST. It is an activity incidental or ancillary to the business of the applicant.

Issue 5: Availability of ITC
- Applicant's Argument: Full ITC should be available for the inputs and input services related to the supplies mentioned in Issues 2, 3, and 4.
- Authority's Decision:
- Insurance Premium: ITC is available to the extent of further supply.
- Canteen Services: ITC is not available due to specific provisions in the Notification No. 11/2017-Central Tax (Rate).
- Telephone Charges: ITC is available as these charges are not covered by the provisions of Section 17 relating to blocked credit.

Issue 6: GST on Free Canteen Services
- Applicant's Argument: Free canteen services provided to employees should fall under para 1 of Schedule III and not be subject to GST.
- Authority's Decision: Free canteen services are considered a supply and are liable to tax as per value determined in accordance with Rule 28.

Issue 7: ITC for Free Canteen Services
- Applicant's Argument: ITC should be available for goods and services used in providing free canteen services.
- Authority's Decision: ITC is not available for canteen services as per specific provisions in Notification No. 11/2017-Central Tax (Rate).

Ruling:
1. GST is applicable on notice pay under clause 5(e) of Schedule II of the CGST Act.
2. Premium recovered for Group Medical Insurance from non-dependent parents and retired employees is liable to GST.
3. Canteen facilities provided to employees are taxable, and valuation should follow Rule 28.
4. GST is applicable on telephone charges recovered from employees.
5. ITC is available for insurance premiums to the extent of further supply, not available for canteen services, and available for telephone charges.
6. Free canteen services are taxable and should be valued as per Rule 28.
7. ITC is not available for free canteen services as per specific provisions.

Validity:
The ruling is valid subject to the provisions under section 103 (2) until declared void under Section 104 (1) of the GST Act.

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