2024 (6) TMI 224 - AAR - GST

Employer recoveries from employees for canteen and transport facilities not taxable under GST section 7 as contractual perquisites not supplies

In Re: M/s. Zentiva Private Limited

Gujarat AAR ruled that GST is not liable on amounts recovered from permanent employees for canteen and transportation facilities as these constitute ... Levy of GST - Portion of the amount recovered by the Applicant from its employees towards the canteen facility provided to the employees - transportation facility provided by Applicant to its employees - input tax credit of the GST charged by the canteen service provider for the canteen facility provided to its employees. Whether GST is liable to be discharged on the portion of the amount recovered by the Applicant from its employees towards the canteen facility provided to the employees? - HELD THAT:- The applicant is on record that the canteen facility is being provided to supervised contract employees and third party employees apart from the permanent employees. However, during the course of personal hearing, on being specifically asked, the authorized representative stated that the ruling being sought is specifically in respect of permanent employees only. 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. The deduction made by the applicant from the employees who arc availing food in the factory would not be considered as a ‘supply’ under the provisions of section 7 of the CGST Act, 2017. Whether GST is liable to be discharged on the transportation facility provided by Applicant to its employees? - 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 for employees other than contract employees is concerned. It is further held that the ITC on GST charged by the CSP will be restricted to the extent of cost borne by the applicant only. - Input Tax Credit will be available to the applicant in respect of canteen facility which is obligatory under the Factories Act, 1948, read with Gujarat Factories Rules, 1963. Whether the Applicant is eligible to avail input tax credit of the GST charged by the canteen service provider for the canteen facility provided to its employees? - HELD THAT:- 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 is provided in terms of the contract between the employer and employee. It is found that factually there is no dispute as far as the applicant has provided transport facility in terms of their transport policy - the deduction for bus transportation facility would not be considered as a ‘supply’’ under the provisions of section 7 of the CGST Act, 2017. Issues Involved:1. GST liability on the amount recovered from employees for canteen facilities.2. GST liability on the transportation facility provided to employees.3. Eligibility to avail Input Tax Credit (ITC) on GST charged by the canteen service provider.Summary:Canteen Facility:The first issue is whether the deduction of a nominal amount made by the applicant from the employees who are availing food in the factory premises would be considered as a 'supply' u/s 7 of the CGST Act, 2017. The applicant provides canteen facilities as mandated by section 46 of the Factories Act, 1948, and deducts Rs. 260/- per month from employees' salaries. The ruling clarifies that perquisites provided by the employer to the employee in terms of a contractual agreement are not subjected to GST. Therefore, the deduction made by the applicant from the employees who are availing food in the factory would not be considered as a 'supply' u/s 7 of the CGST Act, 2017.Input Tax Credit (ITC):The second issue is whether ITC of GST charged by the CSP would be eligible for availment by the applicant. The applicant is mandated by section 46 of the Factories Act, 1948, to provide canteen facilities. Section 17 (5) (b) of the CGST Act, 2017, as amended on 1.2.2019, allows ITC for goods or services which are obligatory for an employer to provide to its employees under any law. The ruling holds that ITC will be available to the applicant in respect of food and beverages as the canteen facility is obligatory under the Factories Act, 1948. However, ITC on GST charged by the CSP will be restricted to the extent of the cost borne by the applicant only.Transportation Facility:The third issue is whether the services by way of renting/hiring of motor vehicles from the TSP is a supply of service by the applicant to its employees u/s 7 of the CGST Act, 2017. The applicant provides transportation facilities for the convenience of its employees, deducting a nominal amount of Rs. 75/- per month from the staff category. The ruling clarifies that perquisites provided by the employer to the employee in terms of a contractual agreement are not subjected to GST. Therefore, the deduction for bus transportation facility would not be considered as a 'supply' u/s 7 of the CGST Act, 2017.Ruling:1. GST is not liable to be discharged on the portion of the amount recovered by the Applicant from its employees towards the canteen facility provided to the employees.2. GST is not liable to be discharged on the transportation facility provided by the Applicant to its employees.3. ITC will be available to the applicant on GST charged by the service provider in respect of canteen facilities provided to its employees other than contract employees, restricted to the extent of the cost borne by the applicant.