2024 (6) TMI 222 - AAR - GST

Employee salary deductions for factory canteen food not taxable under Section 7 CGST Act as employment perquisite

In Re: M/s. Dormer Tools India P Ltd.,

AAR Gujarat ruled that deduction of nominal amounts from employee salaries for factory canteen food is not a supply of services under Section 7 of CGST ... Supply of service or not - deduction of a nominal amount made by the applicant from the salary of the employees who are availing the facility of food provided in the factory premises - applicability of GST on the nominal amount to be deducted from the salaries of employees - ITC to the extent of cost borne by the applicant is available to the applicant on GST charged by the canteen service provider for providing catering services. Whether the deduction of a nominal amount made by the applicant from the salary of the employees who are availing the facility of food provided in the factory would be considered as a ‘supply’ of services by the applicant under the provisions of section 7 of the CGST Act, 2017? - HELD THAT:- In terms of Section 7 of the CGST Act, 2017, supply means all forms of 'supply’ of goods/services or both such as sale, transfer barter, exchange, licence, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. the exception being Schedule-I, which includes the activities made or agreed to be made without a consideration and Schedule-III, which includes activities which shall be treated neither as a supply of goods or services - The applicant’s primary role is that he provided a demarcated space and that the amount is paid by him to the CSP [a part of which is collected from the employees] on behalf of the employees. In terms of circular No. 172/04/2022-GST, it is clarified that perquisites provided by the ‘employer’ to the ‘employee’ in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee. Thus, the deduction of nominal amount made by the applicant from the salary of the employees who are availing the facility of food provided in the factory premises would not be considered as a 'supply’ under the provisions of section 7 of the CGST Act, 2017. Whether GST is applicable on the nominal amount to be deducted from the salaries of employees? - HELD THAT:- Since the answer to the above is not in the affirmative, the ruling sought in respect of this question is rendered infructuous. Whether ITC to the extent of cost borne by the applicant is available to the applicant on GST charged by the canteen service provider for providing catering services? - HELD THAT:- Input Tax Credit will be available to the appellant in respect of food and beverages as canteen facility is obligatorily to be provided under the Factories Act, 1948, read with Gujarat Factories Rules, 1963 as far as provision of canteen service employees working at the factory is concerned. It is further held that the ITC on GST charged by the canteen service provider will be restricted to the extent of cost borne by the appellant only - Input Tax Credit will be available to the appellant in respect of food and beverages as canteen facility is obligatorily to be provided under the Factories Act, 1948, read with Gujarat Factories Rules, 1963 as far as provision of canteen service for employees in factory is concerned. Issues Involved:1. Whether the deduction of a nominal amount from employees' salaries for canteen facilities constitutes a 'supply of service' u/s 7 of the CGST Act, 2017.2. Applicability of GST on the nominal amount deducted from employees' salaries.3. Eligibility for Input Tax Credit (ITC) on GST charged by the canteen service provider.Summary:Issue 1: Supply of ServiceThe primary issue was whether the deduction of a nominal amount from employees' salaries for canteen facilities constitutes a 'supply of service' u/s 7 of the CGST Act, 2017. The applicant, M/s. Dormer Tools India P Ltd., argued that the canteen facility is mandated by section 46 of the Factories Act, 1948, and is provided as part of the employment contract. The facility is subsidized, and the nominal amount deducted does not qualify as 'consideration' for supply. The Authority for Advance Ruling (AAR) referred to circular No. 172/04/2022-GST, which clarifies that perquisites provided by the employer to the employee as part of the contractual agreement are not subject to GST. Therefore, the deduction of the nominal amount from employees' salaries does not constitute a 'supply' under section 7 of the CGST Act, 2017.Issue 2: Applicability of GSTSince the deduction of the nominal amount from employees' salaries is not considered a 'supply,' the question of GST applicability on this amount is rendered infructuous.Issue 3: Input Tax Credit (ITC)The applicant sought to ascertain whether ITC on GST charged by the canteen service provider is available. The AAR noted that section 17 (5) (b) of the CGST Act, 2017, as amended on 1.2.2019, allows ITC on goods or services obligatory for an employer to provide under any law. The applicant is mandated to provide canteen facilities under section 46 of the Factories Act, 1948. Circular No. 172/04/2022-GST clarifies that ITC is available for such obligatory services. Therefore, ITC on GST charged by the canteen service provider is available to the applicant, but it is restricted to the extent of the cost borne by the applicant for providing canteen services to its permanent employees.Ruling:1. The deduction of a nominal amount from employees' salaries for canteen facilities is not considered a 'supply' under section 7 of the CGST Act, 2017.2. The question of GST applicability on the nominal amount deducted from employees' salaries is rendered infructuous.3. ITC on GST charged by the canteen service provider is available to the applicant, restricted to the extent of the cost borne by the applicant for providing canteen services to its permanent employees.