2021 (12) TMI 999 - AAAR - GST

Appellate ruling: GST exemptions on notice pay, insurance premium, canteen services, telephone charges

The appellate authority ruled that GST is not applicable on various scenarios: payment of notice pay by an employee, premium of Group Medical Insurance ... Services by an employee to the employer in the course of or in relation to his employment - activities treated neither as a supply of goods nor a supply of services (Schedule III) - agreeing to refrain, tolerate or do an act (Schedule II clause 5(e)) - supply made for a consideration in the course or furtherance of business - input tax credit restrictions and blocked credits - employer as facilitator/mediator between employee and third party service providerAgreeing to refrain, tolerate or do an act (Schedule II clause 5(e)) - services by an employee to the employer in the course of or in relation to his employment - GST applicability on notice pay paid by an employee to the employer in lieu of notice period - HELD THAT: - The Appellate Authority held that notice pay received by the employer is compensation related to the employee's services and arises in relation to services by the employee to the employer. Applying the reasoning of the Madras High Court in GE T&D (considering earlier CBEC guidance) and noting that Schedule III excludes services by an employee to the employer from GST, the Authority concluded that the employer neither renders a taxable service nor 'tolerates' an act attracting clause 5(e) merely by accepting monetary compensation for premature exit. Consequently the AAR's finding of leviability under clause 5(e) was set aside.GST is not applicable on payment of notice pay by an employee to the employer in lieu of notice period.Supply made for a consideration in the course or furtherance of business - employer as facilitator/mediator between employee and third party service provider - GST applicability on premium of Group Medical Insurance recovered at actuals from non dependent parents of employees and from retired employees - HELD THAT: - The Authority found that the appellant merely collected premiums for a policy issued by an insurance company and was not engaged in providing insurance. The collection related to optional coverage for non dependent parents/retired employees, not mandated by law, and therefore was not in the course or furtherance of the appellant's business as defined. As the activity did not satisfy the elements of 'supply' under the Act, it was held not to be a taxable supply by the appellant.GST is not payable by the employer on the amount of premium paid towards Group Medical Insurance policy recovered from non dependent parents and retired employees.Employer as facilitator/mediator between employee and third party service provider - activities treated neither as a supply of goods nor a supply of services (Schedule III) - GST applicability on recovery of nominal amount from employees for availing canteen facility - HELD THAT: - The Authority accepted that the canteen is run by a third party contractor and the appellant merely collects employees' portion and pays the consolidated amount to the contractor without retaining any margin. The appellant's role was held to be that of a facilitator/mediator and not a supplier of food/canteen services. Consequently, there was no supply by the employer to employees in respect of the amounts collected, and GST was not leviable on such recoveries. While Schedule III's clause on services by an employee was considered, the ruling rests on the facilitator character of the employer and the statutory obligation to maintain a canteen under the Factories Act.GST is not payable by the employer on recovery of the nominal amount for availing the canteen facility.Supply made for a consideration in the course or furtherance of business - employer as facilitator/mediator between employee and third party service provider - GST applicability on recovery of telephone charges from employees over and above fixed rental payable to BSNL - HELD THAT: - Applying the same reasoning as for insurance recovery, the Authority held that facilitation of BSNL telephone connections with recovery of usage charges does not amount to the appellant making a supply in the course or furtherance of its business. The appellant was not providing telecommunication services itself and the activity therefore did not meet the 'supply' criteria under the Act.GST is not payable on recovery of telephone charges from employees over and above fixed rental charges payable to BSNL.Input tax credit restrictions and blocked credits - obligation under law making input tax credit available - Availability of input tax credit (ITC) in respect of insurance premium, canteen services and telephone charges - HELD THAT: - The Authority examined Section 17 restrictions. It concluded that ITC on insurance premiums (health insurance) is not available because health insurance falls within the excluded category under the blocked credits provisions and the appellant did not make any outward supply of such insurance. ITC on telephone usage charges recovered from employees is also not available as these supplies are not attributable to the appellant's business. Conversely, ITC in respect of GST paid to the canteen service provider was allowed because the appellant is statutorily obliged under the Factories Act to provide canteen facilities, thereby invoking the proviso permitting ITC where provision of the facility is obligatory under law.ITC on insurance and telephone recoveries is not available; ITC on canteen service provider payments is available under the proviso to the blocked credits rule.Activities treated neither as a supply of goods nor a supply of services (Schedule III) - Whether provision of free canteen services to all employees falls under Schedule III paragraph 1 and is not subject to GST - HELD THAT: - The Authority observed that Schedule III excludes services by an employee to the employer, but where the employer provides canteen services to employees there is no basis on record to treat that facility as a service by the employee. The Authority therefore did not accept that free canteen services fall within Schedule III para 1. However, on separate reasoning (employer as facilitator and statutory obligation), the Authority earlier held such canteen transactions not leviable to GST when the employer merely collects employees' share for a third party provider.Provision of free canteen services does not fall under Schedule III paragraph 1, but canteen recoveries remain not leviable on the stated factual basis.Final Conclusion: The Appellate Authority set aside the AAR findings and held that (i) notice pay recovered by the employer, (ii) premiums recovered for optional group medical cover for non dependent parents and retired employees, (iii) nominal canteen recoveries collected as employees' share for a third party canteen contractor, and (iv) telephone usage recoveries are not taxable supplies by the employer under GST. ITC on insurance and telephone is disallowed; ITC on canteen service provider payments is allowed where provision of the canteen is obligatory under law. Issues Involved:1. Applicability of GST on payment of notice pay by an employee.2. Applicability of GST on premium of Group Medical Insurance Policy recovered from non-dependent parents and retired employees.3. Applicability of GST on recovery of nominal amount for availing the canteen facility.4. Applicability of GST on recovery of telephone charges from employees.5. Availability of Input Tax Credit (ITC) for the applicant in respect of questions II, III, and IV.6. Provision of canteen services to employees without charging any amount and its GST implications.7. Availability of ITC on goods and services used in the provision of free canteen services to employees.Detailed Analysis:Issue 1: GST on Payment of Notice PayThe appellate authority concluded that GST is not applicable on payment of notice pay by an employee to the employer in lieu of notice period. The authority referenced the Madras High Court decision in GE T&D India Ltd vs Deputy Commr of Central Excise, LTU, Chennai, which stated that the employer does not render any service by tolerating the employee’s premature exit. The authority emphasized that the compensation paid by the employee is related to the services provided by the employee during the course of employment, which is excluded from GST under Schedule III of the CGST Act.Issue 2: GST on Group Medical Insurance PremiumThe appellate authority found that GST is not applicable on the amount of premium paid towards Group Medical Insurance policy recovered from non-dependent parents and retired employees. The authority reasoned that the activity of recovering insurance premiums at actuals does not constitute a supply of service under Section 7 of the CGST Act. The appellant is not in the business of providing insurance services, and the recovery of costs is not in the course or furtherance of business.Issue 3: GST on Canteen Facility RecoveryThe appellate authority held that GST is not applicable on the recovery of nominal amounts for availing the canteen facility. The appellant provides the canteen facility as mandated by the Factories Act, 1948, and merely facilitates the supply of food to employees without making any profit. The appellant collects employees' share of the cost and pays it to the canteen service provider. Since the appellant does not supply any goods or services to employees and acts only as a mediator, the transaction does not involve a supply subject to GST.Issue 4: GST on Recovery of Telephone ChargesThe appellate authority concluded that GST is not applicable on the recovery of telephone charges from employees over and above the fixed rental charges payable to BSNL. The activity of providing telephone facilities to employees does not satisfy the conditions of Section 7 to be considered a supply of service, nor is it covered under the term 'business' as defined in Section 2(17) of the CGST Act.Issue 5: Availability of ITC- Telephone Charges: ITC on GST paid to BSNL for telephone usage charges recovered from employees is not available, as the appellant does not provide any outward supply of telephone services, and the facility is not attributable to the purposes of their business.- Insurance Premium: ITC on GST paid to the insurance provider is not available, as health insurance is excluded under Section 17(5) of the CGST Act, and the insurance services are not an outward supply of the appellant.- Canteen Services: ITC on GST paid to the canteen service provider is available, as providing canteen facilities is obligatory under the Factories Act, 1948, and falls under the proviso of Section 17(5)(b) of the CGST Act.Issue 6: Provision of Free Canteen ServicesThe appellate authority determined that the provision of canteen services to employees without charging any amount does not fall under Para 1 of Schedule III of the CGST Act. The canteen services are provided by the employer and are not part of the wage structure. However, GST is not applicable on the employer's activity of facilitating canteen services, as the employer acts as a mediator between the canteen service provider and the employees.Final Order:1. GST is not applicable on payment of notice pay by an employee to the employer in lieu of notice period.2. GST is not payable by the employer on the amount of premium paid towards Group Medical Insurance policy recovered from non-dependent parents and retired employees.3. GST is not payable by the employer on recovery of nominal amounts for availing the canteen facility.4. GST is not payable on recovery of telephone charges from employees over and above the fixed rental charges payable to BSNL.5. ITC on GST paid to BSNL and the insurance provider is not available, but ITC on GST paid to the canteen service provider is available.6. Provision of canteen services to employees without charging any amount does not fall under Para 1 of Schedule III of the CGST Act.