2022 (4) TMI 1335 - AAR - GST

Employee recoveries for canteen and bus transport not taxable supply under GST Section 17(5)(b)(i)

In Re: M/s. Emcure Pharmaceuticals Limited,

AAR Gujarat ruled that recoveries from employees for canteen facility and free bus transport provided by the applicant company do not constitute supply ... Levy of GST - recoveries made by the Applicant from the employees for providing canteen facility to its employees - free of cost bus transport facilities provided by the Applicant to its employees - Exemption under the Sl. No. 15 of N/N. 12/2017 – Central Tax (Rate) dated 28 June 2017 - Admissibility of input tax credit for the GST charged/paid to the vendors on procurement of such services in terms of Sec 16 of CGST Act - HELD THAT:- M/s. Emcure has arranged a canteen for its employees, which is run by a Canteen Service Provider. As per their arrangement, part of the Canteen charges is borne by M/s. Emcure whereas the remaining part is borne by its employees. The said employees’ portion canteen charges is collected by M/s. Emcure and paid to the Canteen Service Provider. M/s. Emcure submitted that it does not retain with itself any profit margin in this activity of collecting employees’ portion of canteen charges. Further, it is found that M/s. Emcure has arranged free of cost transportation facility to its employees in Non-AC buses, which is provided by third party vendor, as a part of its HR policy and this facility is as per employment arrangement with its employees. It cannot be accorded that these activities provided by M/s Encure to its employees to be an activities made in the course or furtherance of business to deem it a Supply by M/s. Emcure to its employees. Input Tax Credit - HELD THAT:- Section 17(5)(b)(i) sub-clause ending with a colon and followed by a provisio which ends with a semi colon is to be read as independent sub-clause, independent of sub clause Section 17(5)(b)(iii) and its proviso [of subclause iii]. Thereby, the provisio to section 17(5)(b)(iii) is not connected to the sub-clause of Section 17(5)(b)(i) and cannot be read into it. ITC on GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) CGST Act and inadmissible to M/s Emcure - ITC on motor vehicle for transportation of persons having approved seating capacity of more than 13 persons is not blocked credit vide Section 17(5) CGST Act. Thereby, hiring of bus of approved seating capacity of more than 13 persons do not falls under blocked credit as provided under Section 17 (5)(b)(i) CGST Act. Issues Involved:1. Taxability of recoveries made from employees for canteen facilities.2. Taxability of free bus transportation facilities provided to employees.3. Applicability of exemption under Notification No. 12/2017 for bus transportation facilities.4. Admissibility of input tax credit (ITC) on GST paid for canteen and bus services.Detailed Analysis:1. Taxability of Recoveries Made from Employees for Canteen Facilities:M/s. Emcure Pharmaceuticals Limited argued that the recoveries made from employees for canteen facilities do not constitute a 'supply' under Clause (a) of Section 7(1) of the CGST Act. They contended that the canteen facility is not a business activity but a statutory obligation under Section 46 of the Factories Act, 1948. The company only acts as a conduit, passing the collected amounts to third-party service providers without any profit motive. The canteen facility is thus not in furtherance of business and should be excluded from the scope of 'supply' under Section 7(2)(a) read with Schedule III of the CGST Act, which excludes services by an employee to the employer in the course of employment.2. Taxability of Free Bus Transportation Facilities Provided to Employees:M/s. Emcure also argued that the free bus transportation facilities provided to employees do not qualify as 'supply' under Section 7(1)(a) of the CGST Act. The transportation service is provided by third-party vendors, and no recoveries are made from employees. The company contended that these services are part of the HR policy and employment arrangement, thereby not in furtherance of business. They further argued that even if considered a supply, it would be exempt under Entry 15(b) of Notification No. 12/2017-Central Tax (Rate), which exempts non-air-conditioned contract carriage services.3. Applicability of Exemption Under Notification No. 12/2017 for Bus Transportation Facilities:M/s. Emcure submitted that the bus transportation services, if considered a supply, would be exempt under Entry 15(b) of Notification No. 12/2017-Central Tax (Rate). This entry exempts non-air-conditioned contract carriage services used for passenger transportation, excluding tourism, conducted tours, and hire. The buses used for employee transportation qualify as contract carriages under the Motor Vehicles Act, 1988, and thus fall under this exemption.4. Admissibility of Input Tax Credit (ITC) on GST Paid for Canteen and Bus Services:M/s. Emcure argued that they are eligible for ITC on GST paid for canteen services under Section 16 of the CGST Act. They cited the proviso to Section 17(5)(b), which allows ITC if the provision of such services is obligatory under any law. Since providing a canteen is mandatory under the Factories Act, they claimed eligibility for ITC. Similarly, they argued for ITC on GST paid for bus services, as the buses used have a seating capacity of more than 13 persons, which is not blocked under Section 17(5) of the CGST Act.Findings:Taxability of Recoveries Made from Employees for Canteen Facilities:The authority found that M/s. Emcure does not retain any profit margin from the canteen charges collected from employees and paid to the service provider. Thus, these activities are not in furtherance of business and do not constitute a 'supply' under the CGST Act.Taxability of Free Bus Transportation Facilities Provided to Employees:The authority concluded that the free bus transportation facilities provided by M/s. Emcure are not in furtherance of business and do not qualify as 'supply' under the CGST Act.Applicability of Exemption Under Notification No. 12/2017 for Bus Transportation Facilities:The authority agreed that the bus transportation services provided by M/s. Emcure qualify for exemption under Entry 15(b) of Notification No. 12/2017-Central Tax (Rate).Admissibility of Input Tax Credit (ITC) on GST Paid for Canteen and Bus Services:The authority held that ITC on GST paid for canteen services is blocked under Section 17(5)(b)(i) of the CGST Act and is inadmissible. However, ITC on GST paid for hiring buses with a seating capacity of more than 13 persons is admissible.Ruling:1. GST is not leviable on the amount representing the employees' portion of canteen charges collected by M/s. Emcure and paid to the canteen service provider.2. GST is not leviable on the free bus transportation facility provided to employees.3. ITC on GST paid for canteen facilities is blocked and inadmissible.4. ITC on GST paid for hiring buses with a seating capacity of more than 13 persons is admissible.