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of <h1>AAAR overturns GST ruling on employee salary deductions for canteen services under Section 7 CGST Act 2017</h1> <h3>In Re: M/s. Federal-Mogul Ignition Products India Limited</h3> AAAR Rajasthan set aside AAR's ruling dated 18.10.2022 regarding GST applicability on nominal deductions from employees for factory food facilities and ... Maintainability of Advance Ruling application - Supply of not - subsidized deduction made by the Appellant from the Employees who are availing food facility in the factory under the provisions of Section 7 of Central Goods and Service Tax Act, 2017 and Rajasthan Goods and Service Tax Act, 2017 - applicability of GST on the nominal amount deducted from the salaries of their employees - Applicability of GST on nominal amount deducted from the Manpower supply contractor in case of contractual employees - Input Tax Credit (ITC) of the GST charged by the Canteen Service Provider. Maintainability of Advance Ruling application - whether or not the application dated 11.03.2022 filed by the Appellant for seeking advance ruling on various questions is maintainable? - HELD THAT:- AAR Rajasthan have not taken note of the above contract furnished by the appellant for the period from 16.01.20022 to 16.01.2024, which was valid during the period when Ruling was pronounced. It will be in the fitness of things if the Authority for Advance Ruling re-consider whole application dated 11.03.2022 filed by the appellant before the Authority for Advance Ruling. Rajasthan on merits. The Ruling of AAR, Rajasthan dated 18.10.2022 is set aside and the matter is remanded back to the AAR to decide the application afresh on merits after considering all the questions posed by the appellant in their application dated 11.03.2022. Issues Involved:1. Whether the subsidized deduction made by the Appellant from the Employees who are availing food facility in the factory would be considered as a 'supply' by the Appellant u/s 7 of CGST Act, 2017 and RGST Act, 2017.2. Applicability of GST on the nominal amount deducted from the salaries of employees and contractual employees.3. Eligibility of Input Tax Credit (ITC) of the GST charged by the Canteen Service Provider.Summary:Issue 1: Consideration as 'Supply'The Appellant sought an Advance Ruling on whether the subsidized deduction from employees' salaries for availing food facility in the factory constitutes a 'supply' u/s 7 of the CGST Act, 2017, and RGST Act, 2017. The AAR held that the Appellant is not the supplier but a receiver of services from the canteen service provider, and since the transactions have been ongoing since July 2017, they are outside the purview of advance ruling.Issue 2: Applicability of GST on DeductionsThe Appellant argued that the nominal amount deducted from employees' salaries for canteen services should not be subject to GST. They contended that this does not qualify as a 'supply' u/s 7 of the CGST Act, as it is a statutory obligation under the Factories Act, 1948, and there is no commercial objective. The Appellant cited several rulings, including those from Gujarat AAAR and Karnataka AAR, supporting their stance that such deductions do not constitute a taxable supply.Issue 3: Eligibility of ITCThe Appellant argued that they should be eligible for ITC on the GST charged by the Canteen Service Provider, as the provision of canteen services is a statutory obligation under the Factories Act, 1948. They referred to Section 17 (5) (b) of the CGST Act and Circular No. 174/06/2022, which clarifies that ITC is available where it is obligatory for an employer to provide such services under any law. The Appellant also cited rulings from AAAR, Madhya Pradesh, and other authorities supporting their eligibility for ITC.Conclusion and Findings:The AAAR observed that the AAR erred in not pronouncing the ruling on the merits. The AAAR noted that the supplies continuing on or after the date of the application (11.03.2022) are ongoing supplies and should be covered under the AR mechanism. The AAAR set aside the ruling of the AAR, Rajasthan, and remanded the matter back to the AAR to reconsider the application on merits, including all questions posed by the Appellant.Order:The ruling of AAR, Rajasthan dated 18.10.2022, is set aside, and the matter is remanded back to the AAR to decide the application afresh on merits after considering all the questions posed by the Appellant in their application dated 11.03.2022.
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