2022 (10) TMI 304 - AAR - GST

Employer-provided canteen services through third-party not taxable under GST Section 7

In Re: M/s. Zydus Lifesciences Ltd. (Formerly known as Cadila Healthcare Ltd.),

The AAR Gujarat ruled that canteen services provided by an employer to employees through a third-party service provider do not constitute a taxable supply ... Supply or not - subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office - levy of GST on the amount deducted from the salaries of its employees - Section 7 of Central Goods and Service Tax Act, 2017 and Gujarat Goods and Service Tax Act, 2017 - HELD THAT:- It clear that the provisions of CGST Act and GGST Act are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the GGST Act. M/s Zydus has arranged a canteen facility 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 Zydus whereas the remaining part is borne by its employees. The said employees' portion canteen charges is collected by M/s Zydus and paid to the Canteen Service Provider. M/s Zydus submitted that it does not retain with itself any profit margin in this activity of collecting employees' portion of canteen charges. The applicant is providing canteen facility to its permanent employees (on payroll) as per contractual agreement between employer-employee relationship - The Provision of Services of transports and canteen facility to its employees is as per the contractual agreement between the employee and the employer in relation to the employment. The provision of the services of transportation and canteen facility cannot be considered as supply of goods or services and hence cannot be subjected to GST. Issues Involved:1. Whether the subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office would be considered a supply under Section 7 of the CGST Act, 2017 and GGST Act, 2017.2. If the answer to the above is yes, whether GST is applicable on the amount deducted from the salaries of its employees.3. If the answer to the above is no, whether GST is applicable on the amount paid by the Applicant to the Canteen Service Provider or only on the amount recovered from the employees.Detailed Analysis:Issue 1: Whether the subsidized deduction is considered a supply under Section 7 of CGST and GGST ActsThe Applicant, M/s Zydus Lifesciences Ltd., provides canteen facilities to its employees as per the Factories Act, 1948. The cost of the canteen services is partially borne by the employees, and the remaining part is borne by M/s Zydus. The Applicant argued that the amount deducted from the employees' salaries for the canteen facility does not constitute a 'supply' under Section 7 of the CGST Act, 2017, as it is not in the course or furtherance of business. They relied on various rulings, including the Gujarat AAR in their own case (Cadila Healthcare Limited) and the Gujarat AAAR in the matter of Amneal Pharmaceuticals Pvt. Ltd, which held that no GST is applicable on the collection of employees' portion of canteen charges.The Authority observed that the canteen facility is provided as per the contractual agreement between the employer and the employees, and the arrangement does not involve any profit margin for M/s Zydus. The CBIC Circular No. 172/04/2022-GST dated 06-07-22 clarified that perquisites provided by the employer to the employee in terms of the contractual agreement are not subject to GST. Thus, the provision of canteen services does not qualify as a 'supply' under Section 7 of the CGST Act, 2017.Issue 2: Applicability of GST on the amount deducted from employees' salariesSince the subsidized deduction is not considered a supply under Section 7, the question of GST applicability on the amount deducted from the employees' salaries does not arise. The Authority confirmed that the Applicant is not liable to pay GST on the amount deducted/recovered from the employees.Issue 3: GST applicability on the amount paid to the Canteen Service ProviderThe Applicant is the recipient of the canteen service, and the Canteen Service Provider raises the bill inclusive of GST. The Applicant collects a partial amount from the employees and pays the gross amount inclusive of GST to the Canteen Service Provider. Since the provision of canteen services is not considered a supply, the GST paid to the Canteen Service Provider is not applicable to the amount recovered from the employees.Ruling:1. The subsidized deduction made by the Applicant from the employees who are availing food in the factory/corporate office would NOT be considered a supply under the provisions of Section 7 of the CGST Act, 2017 and GGST Act, 2017.2. The Applicant is not liable to pay GST on the amount deducted/recovered from the employees.This comprehensive analysis covers all relevant issues and preserves significant legal terminology and phrases from the original judgment.