AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 1297
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....ther the subsidized deduction made from the salary of employees who are availing facility of food in the factory can be considered as consideration of 'supply of service ' by the Applicant to its employees in furtherance of business of the Applicant as per Section 7 r/w Schedule I of the Central Goods and Service Tax Act, 2017 and Uttar Pradesh Goods and Service Tax Act, 2017? (c) In case answer to (b) is yes, whether GST is applicable on the amount deducted from the salaries of employees? (d) Whether the Applicant is eligible to take input tax credit on the GST charged by third party contractor for canteen services availed by it for its employees? 3. As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant. 3.1 The applicant has submitted that- Shriram Pistons and Rings Limited (hereinafter referred to as 'Applicant') is engaged in manufacture and supply of automobile parts (two wheelers and four wheelers) viz. Engine Parts such as Pistons, Piston rings, Engine Valves etc. and related products at its manufacturing unit (factory) l....
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....ether GST is payable on the amount recovered by the Applicant from its employees for providing the food in the canteen under the GST law. Also, whether the Applicant is eligible to take input tax credit of GST charged by contractor for canteen service availed by it for its employees. 4 The applicant has submitted their interpretation of law as under- 4.1 Applicant's interpretation that the deductions made from the salary of the employees for providing food facility on the agreed terms is a part and parcel of employment contract and thus do not qualify as 'supply of goods or services in terms of Paragraph I to Schedule III of the CGST Act and will not be subjected to GST. Further, the Applicant is eligible to take input tax credit of GST charged by contractor for canteen service received by it for its employees as same is received in course or furtherance of its business of manufacture in terms of Section 16(1) of the CGST Act. The submissions in support of the aforesaid interpretation has been enunciated in the ensuing paragraphs: 5 The food facility provided by the Applicant to employees is excluded from the scope of 'supply' in terms of Clause (a) of Section 7 (2) of the CGST ....
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....of employment only. The food facility has a direct nexus with the employment of the employee with the Applicant. Therefore, by virtue of Section 7 (2) read with Entry (1) of Schedule III, the food facility does not amount to supply. 5.5 In the instant case, the Applicant has made available food facility to its employees in the course or in relation to their employment whereby they can purchase coupon and take a meal in the factory canteen. The food facility is being provided by the Applicant due to the reason of employment contract only. Further, as already stated above, the food facility is being provided in the factory of the Applicant due to the mandatory requirement of Section 46 of the Factories Act read with Rule 68 (1) of UP Factories Rules. 5.6 The Applicant further submits that the food facility is similar to the other facilities like providing workspace, air-conditioning, laptops, computers & photocopy machines etc., made available by the employer, facilitating the employees to contribute towards the business activities of the employer, and these facilities are not for personal benefit of the employees. Therefore, the said food facility cannot be said to be an independe....
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....ing: Perquisites provided by employer to the employees as per contractual agreement 5. Whether various perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are liable for GST? 1. Schedule III to the CGST Act provides that "services by employee to the employer in the course of or in relation to his employment" will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment. 2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom 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. 5.10 In view of the above, it is submitted that the food facility provided by....
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....es that the amount recovered from the employee and paid to the third-party canteen service provider, is not exigible to GST in the hands of the employer:- * In Re: Emcure Pharmaceuticals Limited, 2022 (1) TMI 186 - Authority For Advance Ruling, Maharashtra * In Re: The Tata Power Company Limited - 2021 (11) TMI 398 - Authority For Advance Ruling, Maharashtra * In Re: Amneal Pharmaceuticals Pvt. Ltd., 2021 (9) TMI 1293 - Appellate Authority For Advance Ruling, Gujarat * In Re: Jotun India Pvt. Ltd. - 2019 (10) TMI 482 - Authority For Advance Ruling, Maharashtra * In Re: Posco India Pune Processing Center Private Limited - 2019 (2) TMI 63 -Authority For Advance Ruling, Maharashtra ln Re: Tata Motors Limited - 2020 (9) TMI 352 - Authority For Advance Ruling, Maharashtra. 6.4 The understanding of the Applicant is duly supported by the aforesaid rulings that the Applicant is not involved in the business of providing canteen facility. The Applicant has no intention to carry out the canteen business and the Applicant is only a facilitator in the transaction between the employee and the third-party canteen service provider. The Applicant is only paying the part value of the cant....
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.... Schedule II. [Emphasis Supplied] 7.3 Section 7 (1) (a) of CGST Act defines the term 'supply' widely to include all forms of supply of goods or services or both such as sale, transfer, disposal, etc. made or agreed to be made for a consideration in the course or furtherance of business. Therefore, in order to constitute supply under Section 7 (1) (a) of the CGST Act, the following key elements are required to be satisfied: (a) Supply of goods or/and services; (b) Consideration; (c) In the Course or furtherance of business. 7.4 It is clear from the above that in order to constitute supply under Section 7, the supply should be in the course of business or furtherance of business. The term in the "course of business" or "furtherance of business" is not defined under the CGST Act. However, it is pivotal to appreciate that the term "Business" has been defined under Section 2 (17) of the CGST Act and reads as under:- Section 2 (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 ....
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.... 15 to the CGST Act defines related for the purposes of the CGST Act. Explanation (a)(e) provides that the employer and the employee are deemed to be related persons. 7.8 On a conjoint reading of the above provisions, any supply of goods or services between employer and employee in the course or furtherance of business even without consideration will be treated as supply for the purposes of Section 7 of the CGST Act. 7.9 It is submitted that the Applicant is engaged in the business of manufacture of Engine Parts such as Pistons, Piston rings, Engine Valves etc. The entire business activities are aimed towards the manufacture, develop, sale, distribution, promotion of Pistons, engine valves only. As stated above, the Applicant is providing canteen facility to the employees at the Ghaziabad unit. 7.10 It is submitted that as per Section 46 of the Factories Act read with Rule 68(1) of the UP Factories Rules, every factory is mandatorily required to provide and maintain canteen in the factory in which more than 250 workers are employed. Therefore, in order to comply with the said mandatory condition, the Applicant is providing and maintaining the canteen at the factory. The Applican....
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....f food, import and includes food services, catering services, sale of food or food ingredients; Section 3 (1) (o)"food business operator" in relation to food business means a person by whom the business is carried on or owned and is responsible for ensuring the compliance of this Act, rules and regulations made thereunder;" 7.15 From the above, the term "food business" means any undertaking involved in the activities related to manufacture, processing, packaging, storage, transportation and in distribution of food. It also provides that a food business operator is a person who carries or owns a food business and is responsible for carrying out the compliance of this Act, rules and regulations made under this Act. The Applicant is not involved in any of the activities mentioned above. The Applicant only enters into the contract with a third-party contractor who provides the food to the employees. The Applicant is only a facilitator in the said transaction. 7.16 Further, according to Regulation 2.1 of Food Safety and Standards (Licensing and Registration of Food Businesses), Regulations 2011, all the food business operators in the country will have to be registered. Since, the Ap....
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.... on business in the commodity may arise. But it does not arise merely because the price received by sale of discarded goods enters the accounts of the trader and may on an overall view enhance his total profit, or indirectly reduce the cost of production of goods in the business of selling in which he is engaged. An attempt to realize price by sale of surplus unserviceable or discarded goods does not necessarily lead to an inference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the assessee also does not lead to inference that business is intended to be carried on in selling those goods. 14. It appears from the statement furnished that coal of the value of Rs. 16,083/- was sold by the Company under 12 bills in the year 1953-54. Coal is purchased by the Company for the purpose of lighting its furnaces and heating boilers. A part of the coal purchased was sold. The Tribunal merely stated in respect of all the items of goods sold that looking to the volume and frequency of their sale, the Company should be regarded as a dealer in respect of those goo....
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....ponents in that manner. Hence, the same cannot be construed as incidental or ancillary to the main business of the Applicant. 7.23 In support of the above contention, the Applicant relies on the case of Deputy Commissioner of Commercial Taxes vs. Thirumagal Mills Ltd., 1967 (20) STC 287 Mad, where a similar provision was examined and considered by the Hon'ble Madras High Court with the following observation:- "4. The primary requisite of "business" as defined even under Madras Act 15 of 1964 is that it should be a trade or commerce or adventure or concern in the nature of trade or commerce. Presence or absence of profit will not matter. But the activity must be of commercial character and in the course of trade or commerce. The second clause in the definition of "business", as it appears to us, is still one invested with commercial character, for the reference is to any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern. Unless the transaction is connected with trade, that is to say, it has something to do with trade or has the incidence or elements of trade or commerce, it will not be within the definition. The....
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....purchased for use of company employees and executives, for office purposes. At the stage of purchase, they suffered sales tax, which the assessee, as buyer, was bound to pay. However, the assessee never held them for the purpose of sale and purchase, but for using them. After their use, having regard to lapse of time, and their wear and tear, the assessee decided to replace them. These cars were then sold. Their sales, in a sense are twice removed from the business of the assessee. They cannot be called "incidental" or "ancillary" to the manufacture and sale of pharmaceutical products, which the assessee is engaged in." ...Emphasis Supplied 7.25 Based on the above cited judgments, the canteen facility provided by the Applicant to its employees cannot be said to be principal or ancillary or incidental business activity of the Applicant. Therefore, one of the essential ingredient i.e. "business' is missing to constitute 'supply' under GST. Thus, it is submitted that the said canteen facility cannot be taxed under GST as Supply. 8. INPUT TAX CREDIT OF GST PAID BY CANTEEN SERVICE PROVIDER IS AVAILABLE TO THE APPLICANT. Service provided by the canteen service provider is in course ....
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....be available in respect of the following, namely :- (b) the following supply of goods or services or both ,- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; (ii) membership of a club, health and fitness centre; and (iii) travel benefits extended to employees on vacation such as leave or home travel concession: Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. 8.5 On a perusal of the above provision, it can be seen that ITC with....
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.... Factories Act, the State Government of Uttar Pradesh framed the Uttar Pradesh Factories Rules, 1950, which also mandated maintenance of canteen in the factory under Rule 68 ibid. The relevant provision is reproduced below:- "Canteens: Rules 68. (1) The occupier of every factory wherein more than two hundred and fifty workers are ordinarily employed on any one day and which is specified by the State Government in this behalf shall provide, within six months from the dare of specification, in or near the factory, an adequate canteen according to the standards prescribed in this rule. This rule shall come into force at once. (2) The manager of every factory shall submit in triplicate, through the Inspector of Factories of the region concerned, the plans and site plan of the building to be constructed or adopted, for use as a canteen to the Chief Inspector of Factories for his approval. (3) The canteen building or buildings shall be situated not less than fifty feet from any latrine/urinal, boiler house, coal stacks, ash dumps and any other source of dust, smoke or obnoxious fumes : (4) The canteen building or buildings shall accommodate a dining hall, kitchen, store room, p....
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....ees under any law for the time being in force." 2. The said amendment in sub-section (5) of section 17 of the CGST Act was made based on the recommendations of GST Council in its 28th meeting. The intent of the said amendment in sub- section (5) of section 17, as recommended by the GST Council in its 28th meeting, was made known to the trade and industry through the Press Note on Recommendations made during the 28th meeting of the GST Council, dated 21.07.2018. It had been clarified "that scope of input tax credit is being widened, and it would now be made available in respect of Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force." 3. Accordingly, it is clarified that the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of sub-section (5) of section 17 of the CGST Act. 8.12 In view of the aforesaid, the second proviso is applicable to the entire Section 17(5)(b) of the CGST Act. In the instant case, it is obligatory for the Applicant to have canteen in its factory in terms of Section 46 of the Factories Act due to more....
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....issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant. 10. The application for advance ruling was forwarded to the Jurisdictional GST Officer to offer their comments/views/verification report on the matter and reminder dated 27.10.2022 was sent. The Deputy Commissioner, CGST & Central Excise Division, Lucknow-III vide his letter C. No. 20-CGST/R-11/D-III/Misc/131/2021/964 dated 11.10.2022 offered desired comments/view/verification report on the question raised in the Advance Ruling Application as under: - As per section 7 read with schedule I of CGST, Act 2017 and SGST Act 2017 the activity of providing food at subsidized rate to employees doesn't appear supply of service by the applicant to his employees. No, in view of the provision of Section 17(5)(b)(i) the party is not eligible to take Input tax Credit of GST charged by the contractor for canteen services. 11. The applicant was granted a personal hearing on 15.11.2022 which was attended by Shri Sanjay Kumar And Shri Atul Gupta, the authorized representative of the applicant during which they reiterated the submissions made in the applic....
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....We find that CBIC vide Circular No. 172/04/2022-GST dated 6-7-22 has issued following clarification on the issue whether GST is leviable on the benefit provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee: Clarification 1. Schedule III to the CGST Act provides that "services by employee to the employer in the course of or in relation to his employment" will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment. 2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows there from 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. 17. We are not inclined to accord these acti....
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....he time being in force." 19. We find that the proviso of Section 17 (5)(b) stipulates that ITC shall be available on the GST paid where it is obligatory to provide a benefit for an employer to its employees in terms of any law for the time being in force. The CBIC vide Circular No. 172/04/2022-GST dated 6-7-22 has issued clarification on the eligibility of such ITC which is reproduced as under: Issue: Whether the proviso at the end of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the entire clause (b) or the said proviso is applicable only to sub-clause(iii) of clause (b)? Clarification: 1. Vide the Central Goods and Service Tax (Amendment Act) 2018, clause(b) of sub-section (5) of section 17 of the CGST Act was substituted with effect from 01.02.2019. After the said substitution, the proviso after sub clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act provides as under: "Provided that the input tax credit in respect of such goods or services or both shall be available where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. 2. The said amendment in sub....