TaxTMI 
TaxTMI 
2022 (12) TMI 192
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....a factory to manufacture the auto components and have about 3200 employees working on a permanent as well as contractual basis. 3. The applicant entered into a contract with M/s Mithrapriya Enterprises (Service Provider) for supply of manpower to operate and manage canteen within the factory premises and a part of the cost of the meals provided is deducted by the applicant from the salary of the employees on a monthly basis. 4. In view of the above, the applicant has sought advance ruling in relation to applicability of GST on the deductions made from the salary of the employees in respect of the following questions:- Whether the subsidized deduction made by the applicant from the employees who are availing food in the factory would be considered as a "supply" by the Applicant under the provisions of Section 7 of the CGST/KGST Act 2017. a. In case answer to above is yes, Whether GST is applicable on the nominal amount being recovered by the Applicant? b. Whether Input Tax Credit ("ITC") of the GST charged by the Service Provider would be eligible for availment to the Applicant? 4.1 Admissibility of the application : The questions raised by the ap....
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.... 8s Loss account without taking the benefit of ITC of the GST paid on the service provider's invoice. 5.5 The applicant discharges GST on the above recovery on the basis of total canteen expenses divided by number of employees availing canteen facility during the month in case of payroll employees. Further, in case of contract employees, the GST is paid on the actual amount deducted by the applicant. 5.6 The applicant pays to the service provider for the supply of manpower to manage canteen operations, along with the GST @ 18%, but do not avail ITC of the GST paid there under. 5.7 The applicant, as per Section 46 of the Factories Act 1948, in terms of which a canteen shall be provided to the employees in the factory if more than 250 workers are ordinarily employed and also as per Section 2(n) & 2(i) respectively of the Factories Act, wherein the terms 'occupier' and 'worker' have been defined respectively, is undoubtedly obligated and mandated to provide canteen facility to its employees. The contract employees, who are employed through a manpower supplier are also considered as 'workers' and hence the applicant is obligated to extend the cantee....
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....employees is only due to mandatory statutory obligation. The applicant, in this regard, wishes to rely on the judgement of European Court of Justice (ECJ) in the case of R.J. Tolsma Vs Inspecteur (der Omzetbelasting Leeuwarden in case C-16/93 wherein it is held that "there was no intention of the applicant to contract with its employees with respect to the service of food and beverages in its canteen premises - and hence, the basis requirement of qualifying as supply itself is not satisfied". The applicant, in the light of above judgement, submits that there must be a legal intention to enter in a contractual relationship with its recipient, which casts roles and responsibility on each of the contractual party, in order to fall under the ambit of supply under GST; unless there is an intention to provide a service, the same shall not be treated as Supply within the meaning of Section 7 of the CGST Act and contends that they are merely providing demarcated space for canteen facility, as mandated under the provisions of the Factories Act, 1948 to their employees for eating the food during the specified time; the ultimate responsibility for deduction of statutory levies (providen....
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....i). The applicant, further, furnishing the definitions of the terms/elements of the definition of business as provided at SI.No.(a) i.e. "trade, commerce, manufacture, profession, vocation, adventure, wager" from the Black Law's dictionary placed reliance on the case of Cinemax India Limited Vs Union of India (Special Civil Appeal Nos.8032,9661,11032,11111,12933 of 2010 and 707 of 2011 decided on 23.08.2011) wherein the term 'furtherance of business has been pointed out as under: "The meaning of 'furtherance', as per Black's Law Dictionary, 6th Edition, 11th reprint, 1997, is act of furthering, help forward, promotion, advancement or progress. Furtherance of business will, thus mean, act of furthering business, helping forward business, promotion of business, advancement of business or progress of business". The applicant also furnished the Australian Concise Oxford Dictionary (1997) definition of the phrase 'in the course of as during and the word 'furtherance' as to mean furthering or being furthered; the advancement of a scheme etc., The applicant also stated that in the case of Indian Institute of Technology Vs State of Uttar Pr....
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.... by the employer to the employee in terms of contractual agreement entered between the employer and the employee. will not be subjected to GST. The applicant. considering the said press release claims that the following common facilities provided commonly to the employees without any recovery would not be subjected to GST, as they can't be considered as gifts.- 1. Telephone / Mobile services 2. Internet Services 3. Educational reimbursement for employee's children 4. Transport facilities 5. Membership of gym, health club etc., 6. Subscription to Journals 7. Canteen facility etc., c) The applicant submitted that there is no independent contract between the applicant and the employees for setting up of the canteen facility at the factory, which is undertaken on account of the legal obligation casted upon the applicant for their employees only and hence the same must be considered as a part of employment contract. d) Schedule III to Section 7(2) of the CGST Act 2017 specifies that any service provided by an employee to the employer in the course of or in relation to his employment shall be neither....
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....t any transactions which are provided by the employee to employer in the course / relation to the employment shall be out of the scope of GST. Once the activity comes under Schedule III, then anything which contradicts or withstands this clause shall be ineffective or inoperative qua this clause. h) The applicant, in view of the above, contends that canteen facility provided to their employees upon which they are deducting the nominal value, can't be regarded as supply under the GST Law and thus GST can't be levied on such activity. 6.6 The applicant, with regard to 'Eligibility of ITC of the GST paid to the Service Provider' contends that the canteen facility is set up by them only out of mandate laid down under the Factories Act, 1948 and to comply with the said statutory requirement; the ITC of GST paid towards availing manpower supply services, which are used for the purpose of providing such canteen facility should be allowed as credit as the same is not restricted under Section 17(5) of the CGST Act, 2017. Further the said ITC can't be restricted since the outward service is not a 'Supply' at the first place; consequently, there is no restr....
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....nds in paras 6.1 to 6.5 supra, that the amount deducted from the salary of the employees towards canteen facility is nominal and said canteen facility cannot be considered as supply as per Section 7 of the CGST Act 2017 and therefore GST is not attracted on such activity. 12. We proceed to examine whether the impugned activity of the applicant amounts to supply in terms of Section 7 of the CGST Act 2017. In this regard we invite reference to section 7(1)(a) which is as under:- 7. Scope of supply.- (1) For the purposes of this Act, the expression "supply " includes,- (a) all forms of supply of goods or 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; It could be inferred from Section 7(1)(a) of the CGST Act 2017, that for any activity to qualify as supply under the said Act it should satisfy three limbs/parts i.e. (i) the activity must be a form of supply of goods or services or both, made or agreed to be made; (ii) for a consideration by a person (iii) in the course or furtherance of business. Now we proceed to exam....
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....g employees. In the applicants own submission it is stated that they charge Rs 50/- per month from the payroll and union employees and Rs 10/- per meal from contract employees. The said charges are deducted from the salaries on a monthly basis. Since the charges are predecided and deducted from the salaries, which are also agreed upon by the employees, contractual relationship is clearly established between the applicant and their employees. Further it is an admitted fact that the applicant themselves are running the canteen but claims that they merely provide demarcated space for canteen facility is factually incorrect. 13.4 It is also observed that the applicant has incorrectly quoted the judgement R.J. Tolsma Vs Inspecteur 'der Omzetbelasting Leeuwarden in case C-16/93, which is correctly referenced at https:/ /eur-lex.europa.eu /legal-content/HR/TXT/?uri=CELEX:61993CJ0016 wherein consideration received for musical performance on the public highway giving rise to payments on a voluntary basis of money in an unquantified amount was sought to be excluded from the value of supply as there was no legal relationship between the provider of the service and the recipient. It is ....
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....ty is provided as per the mandate under Factories Act and running the canteen is not their business activity. In this regard we invite reference to the relevant provisions of the definition of 'business' under Section 2(17) of the Act, which are as under:- (17)- Business includes- (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a) 13.9 It is an undisputed fact that the applicant is a manufacturer and thus then-activity is covered under Section 2(17)(a) of the CGST Act. Further Section 2(17)(b) stipulates that any activity/transaction in connection with sub-clause (a) i.e. Section 2(17)(a), is included in the business. In the instant case, the applicant is running the canteen in connection with the manufacturing activity. Thus providing canteen facility is incidental to their main activity of manufacture, and therefore covered in the definition of 'business' in terms of Section 2(17)(b). 13.10 Now we proceed to examine whether the provisio....
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....hall be treated neither as supply of goods nor a supply of services. This provision is not applicable to the instant case as the issue pertains to the services being provided by the employer to the employee and not vice-versa. 15.2 The applicant further quotes para 3 of the CBIC press release dated 10.07.2017 wherein the GST implications on the services of employer and employee have been clarified and provided that the supply by the employer to the employee in terms of contractual agreement entered between the employer and the employee will not be subject to GST. The extract of the said press release is appended below: CBIC Press Release dated 10th July 2017 3. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply 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. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [....
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.... supply are not related and the price is the sole consideration for the supply. (2) ........................ (3) ............................ (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. (5) ................................ Explanation.- For the purposes of this Act,- (a) persons shall be deemed to be "related persons " if,- (i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent, or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term "person" also include....
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....for the supply of goods of like kind and quality by the recipient to his customer not being a related person Provided further that the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. 18. In the instant case, the applicant and their employees are related persons and the supply is of canteen services (SAC 996333), wherein open market value and the value of like kind and quality are not available from the facts furnished by the applicant and thus clauses (a) and (b) are not applicable and clause (c) alone is applicable, in accordance to which the value of impugned supply has to be determined by the application of rule 30 or rule 31 of the CGST Rules 2017 and the said rules are as under. Rule 30 : Value of supply of goods or services or both based on cost - where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this chapter (i.e. rules 27,28 & 29), the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of the acquisition of such goods or the cost of provision of s....