2022 (9) TMI 200 - AAR - GST

Subsidized staff canteen under s.46 Factories Act not taxable; contract worker recoveries taxable; ITC limited by s.17(5)(b) proviso

The AAR held that subsidized canteen services provided by the applicant to its regular employees, as mandated under s.46 of the Factories Act, 1948, ... Supply (as constituting taxable event) - In the course or furtherance of business - Consideration and contractual reciprocity / direct nexus - Outward supply - Input tax credit eligibility - Obligation under the Factories Act as determinant for ITC - Distinction between employees and contractual workers for Schedule IIISupply (as constituting taxable event) - In the course or furtherance of business - Distinction between employees and contractual workers for Schedule III - GST liability on the amount recovered by the company from its employees towards subsidised canteen charges - HELD THAT: - The Authority examined whether collections from employees for canteen meals amount to a supply by the applicant. Having regard to the CBIC clarification that perquisites provided by an employer to its employees in terms of the contractual agreement are in lieu of employee services and are not subject to GST when provided under the contract, and on the finding that the employees are on the applicant's payroll and the canteen is provided pursuant to the contractual terms of employment and the obligation under the Factories Act, the Authority held that the provision does not constitute an activity in the course or furtherance of business amounting to taxable supply by the applicant. Consequently, the amount collected from employees in terms of the contractual agreement, received as employees' share and paid to the canteen service provider, is not leviable to GST in the hands of the applicant. [Paras 20]GST is not leviable on the employees' portion of canteen charges collected by the applicant.Outward supply - Consideration and contractual reciprocity / direct nexus - Supply (as constituting taxable event) - GST liability on the amount recovered by the company from contractual workers (supplied by contractors) towards subsidised canteen charges - HELD THAT: - The Authority analysed whether amounts recovered from contractual workers constitute an outward supply by the applicant. It found that contractual workers are not on the applicant's payroll and are supplied through contractors; they do not satisfy the employer-employee relationship for Schedule III exclusion. The recovery from contractual workers is a deferred payment for the food supplied and falls within the definition of 'consideration' and 'outward supply'. Even in absence of any profit margin, the transaction is a supply of service (composite supply of food) under Schedule II and Section 7 read with Section 2(83). Therefore the recoveries from contractual workers are taxable in the hands of the applicant. [Paras 21, 25, 27, 28]GST is leviable on the contractual workers' portion of canteen charges collected by the applicant.Input tax credit eligibility - Obligation under the Factories Act as determinant for ITC - Provisionally available ITC where supply is obligatory under law - Admissibility of input tax credit (ITC) on GST paid for canteen supplies provided to the applicant's employees - HELD THAT: - The Authority referred to the proviso to Section 17(5)(b) and the CBIC circular clarifying that the proviso applies to the entire clause (b): ITC is available where the inward supply is obligatory for an employer to provide under any law. Since the applicant is mandated by Section 46 of the Factories Act to provide a canteen for its workers who are on its payroll, the GST paid on the canteen service procured by the applicant for its employees is eligible for ITC, subject to the condition that the burden of GST has not been passed on to the employees. [Paras 30]ITC on GST paid for canteen supplies to employees is admissible to the applicant, provided the GST burden has not been passed on to employees.Input tax credit eligibility - Obligation under the Factories Act as determinant for ITC - Distinction between employees and contractual workers for Schedule III - Admissibility of input tax credit (ITC) on GST paid for canteen supplies provided to contractual workers - HELD THAT: - The Authority considered whether ITC is available for food supplied to contractual workers. Chapter V of the CLRA places the obligation to provide canteens for contract labour on the contractor, not the principal employer. The contractual workers do not form part of the applicant's employer-employee relationship for this purpose and the applicant is not statutorily obliged to provide canteens to them. The proviso to Section 17(5)(b) permits ITC only where the inward supply is obligatory under law on the employer. As the applicant has no such obligation towards contractual workers, ITC on GST paid for food supplied to contractual workers is not admissible and remains blocked under Section 17(5)(b). [Paras 31]ITC on GST paid for canteen supplies to contractual workers is not admissible to the applicant.Final Conclusion: The Authority ruled that (i) collections from payroll employees towards canteen charges are not taxable in the hands of the applicant; (ii) collections from contractual workers are taxable as outward supply by the applicant; (iii) ITC on GST paid for food supplied to employees is admissible where the canteen is obligatory under law and the GST burden is not passed to employees; and (iv) ITC for food supplied to contractual workers is not admissible because the applicant is not legally obliged to provide such canteens to contract labour. Issues Involved:1. Applicability of GST on the amount recovered by the company from employees for canteen services.2. Applicability of GST on the amount recovered by the company from contractual workers for canteen services.3. Availability of Input Tax Credit (ITC) on GST paid on canteen services provided to employees.4. Availability of ITC on GST paid on canteen services provided to contractual workers.Detailed Analysis:1. Applicability of GST on the amount recovered by the company from employees for canteen services:M/s Troikaa Pharmaceuticals Limited provides canteen facilities to its employees as mandated by Section 46 of the Factories Act, 1948. The company recovers 50% of the food cost from employees and pays the full invoice to the canteen service provider. The company argued that the recovery of canteen charges from employees does not constitute 'supply' under Section 7 of the CGST Act, 2017, as it is not in the course or furtherance of business.The Authority for Advance Ruling (AAR) referred to CBIC Circular No. 172/04/2022-GST dated 6-7-22, which clarified that perquisites provided by the employer to employees in terms of contractual agreements are not subject to GST. Consequently, the AAR ruled that the amount collected from employees towards canteen charges is not liable to GST.2. Applicability of GST on the amount recovered by the company from contractual workers for canteen services:M/s Troikaa also provides subsidized food to contractual workers, recovering 50% of the food cost from them. These workers are not on the company's payroll but are employed through contractors. The AAR noted that contractual workers do not fall under the definition of 'employees' as per the Factories Act, 1948.The AAR concluded that the supply of food to contractual workers constitutes 'outward supply' as defined in Section 2(83) of the CGST Act, 2017, and is therefore liable to GST. The contractual workers do not have an employer-employee relationship with the company, and the recovery from them is considered a consideration for the supply of services.3. Availability of ITC on GST paid on canteen services provided to employees:The AAR examined Section 17(5)(b) of the CGST Act, 2017, which restricts ITC on food and beverages unless it is obligatory for an employer to provide such services under any law. Since providing canteen facilities is mandatory under Section 46 of the Factories Act, 1948, the AAR ruled that ITC on GST paid on canteen services provided to employees is admissible, provided the burden of GST is not passed on to the employees.4. Availability of ITC on GST paid on canteen services provided to contractual workers:The AAR referred to the Contract Labour (Regulation and Abolition) Act, 1970, which mandates that contractors, not the principal employer, provide canteen facilities to contract labor. Since the company is not obligated to provide canteen services to contractual workers under any law, the AAR ruled that ITC on GST paid on canteen services provided to contractual workers is not admissible and is blocked under Section 17(5)(b) of the CGST Act, 2017.Ruling:1. GST is not leviable on the amount representing the employees' portion of canteen charges, which is collected by M/s Troikaa and paid to the canteen service provider.2. GST is leviable on the amount representing the contractual workers' portion of canteen charges, which is collected by M/s Troikaa and paid to the canteen service provider.3. ITC on GST paid on canteen facilities is admissible to M/s Troikaa under Section 17(5)(b) of the CGST Act on the food supplied to employees, subject to the condition that the burden of GST has not been passed on to the employees.4. ITC on GST paid on canteen facilities is not admissible to M/s Troikaa under Section 17(5)(b) of the CGST Act on the food supplied to contractual workers supplied by labor contractors.