2022 (10) TMI 305 - AAR - GST

Employer-provided canteen and transportation services to employees exempt from GST under employment contracts

In Re: M/s. SRF Limited,

AAR Gujarat ruled that canteen and transportation services provided by an employer to employees under employment contracts are not subject to GST. The ... Applicability of Goods and Services Tax - Canteen services - collection of employee's portion of consideration by the appellant - appellant has a manufacturing setup and maintains/manages industrial canteen for providing food and refreshments to its employees - HELD THAT:- The applicant 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 the applicant whereas the remaining part is borne by its employees. The said employees portion canteen charges is collected by the applicant and paid to the Canteen Service Provider. The applicant submitted that it does not retain with itself any profit margin in this activity of collecting employees' portion of canteen charges also do not charge any mark up therein. The applicant as a part of its HR policy is providing bus transportation facility at subsidized rate to the employees of the company. The applicant is not supplying any bus transportation service to its employees in the instant case. Further Bus transportation service is also not the output service of the applicant since they are not in the business of providing transport service. Rather, this bus transportation facility is provided, to the employees by the third party vendors and not by the applicant. Therefore in the subject case, the applicant is not provider of bus transportation facility to its employees, in fact the applicant is a receiver of such services. The applicant is providing transport and canteen facility to its permanent employees (on payroll) as per contractual agreement between employer employee relationships - 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. As cited in the referred provisions of scheduled III and the clarification issued vide Circular No. 172/04/2022-GST dated 06-07-22, 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. Taxability of recovery of subsidized amount from employees for canteen services.2. Taxability of recovery of subsidized amount from employees for bus transportation services.Issue-wise Detailed Analysis:1. Taxability of Recovery of Subsidized Amount from Employees for Canteen Services:The applicant, a multi-business chemicals conglomerate, provides canteen facilities to its employees through a third-party service provider. The applicant recovers a subsidized amount from its employees for these services. The applicant contends that the canteen services are provided by the third-party service provider, not by the applicant itself. The applicant merely facilitates the service and recovers a nominal amount from its employees.The applicant argues that since the canteen services are provided by a third party and the applicant does not retain any portion of the recovered amount, no GST liability arises on the part recovery made by the applicant from its employees. The applicant also highlights that the services have already been subjected to GST as the third-party service provider raises an invoice with GST.The applicant further submits that providing canteen services is not the business of the applicant but a welfare measure mandated by the Factories Act, 1948. Therefore, the recovery of the subsidized amount from employees does not qualify as a 'supply' under Section 7 of the CGST Act, 2017, as it is not made in the course or furtherance of business.The applicant relies on various rulings, including:- Emcure Pharmaceuticals Ltd. (AAR - Maharashtra)- Amneal Pharmaceuticals Pvt. Ltd. (AAAR - Gujarat)- Dishman Carbogen Amcis Ltd. (AAR - Gujarat)- Bharat Oman Refineries Limited (AAAR - Madhya Pradesh)- Tata Motors Ltd. (AAR - Gujarat)- Cadila Healthcare Limited (AAR - Gujarat)- Cadmach Machinery Pvt. Ltd. (AAR - Gujarat)These rulings consistently hold that the recovery of canteen charges from employees does not constitute a 'supply' and is not subject to GST.2. Taxability of Recovery of Subsidized Amount from Employees for Bus Transportation Services:The applicant provides bus transportation facilities to its employees through third-party service providers. The applicant recovers a nominal amount from its employees for these services. The applicant contends that the bus transportation services are provided by the third-party service provider, not by the applicant itself. The applicant merely facilitates the service and recovers a nominal amount from its employees.The applicant argues that since the bus transportation services are provided by a third party and the applicant does not retain any portion of the recovered amount, no GST liability arises on the part recovery made by the applicant from its employees. The applicant also highlights that the services have already been subjected to GST as the third-party service provider raises an invoice with GST.The applicant relies on various rulings, including:- North Shore Technologies Pvt. Ltd. (AAR - Uttar Pradesh)- DR Wilmar Schwabe (I) (P.) Ltd. (AAR - Uttar Pradesh)- Integrated Decisions & Systems India Pvt. Ltd. (AAR - Maharashtra)These rulings consistently hold that the recovery of bus transportation charges from employees does not constitute a 'supply' and is not subject to GST.Conclusion:The Authority for Advance Ruling, Gujarat, after considering the submissions and relevant facts, ruled that GST is not leviable on the amount representing the employees' portion of canteen and transportation charges, which is collected by the applicant and paid to the canteen and bus transporter service providers. The provision of these services is as per the contractual agreement between the employee and the employer and is in relation to employment, thus not constituting a 'supply' under the GST law.