TaxTMI 
TaxTMI 
2023 (6) TMI 1297
X X X X Extracts X X X X
X X X X Extracts X X X X
....ara 1, Schedule III of CGST Act, 2017? (b) Whether 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, Engi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resaid circumstances, the Applicant seeks the present advance ruling to understand whether 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to its employees as a part and parcel of the employment terms and conditions. Therefore, the said food facility is being clearly an activity which is being undertaken in the course 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 contribut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cost-to-company (C2C)". [Emphasis Supplied] 5.9 Further recently, the CBIC vide Circular No. 172/04/2022-GST dated 6.7.2022 (issued vide F. No. CBIC-20001/2/2022-GST) in SI. 5 clarified as following: 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y GST was not applicable on the nominal amounts recovered by Applicant from its employees in said case. 6.3 In the following cases, it has been consistently ruled by the Hon'ble Advance Ruling Authority of various states 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in 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 ter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....c. 7.7 Further, Section 7(l)(c) of the CGST Act provides that the scope of supply includes activities specified in Schedule I, made or agreed to be made without consideration. Para 2 of the Schedule I annexed to the CGST Act provides that supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business. Explanation (a) to Section 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Applicant would have been required to obtain the requisite registration and undertake necessary compliance under the FSSAI regulations. The relevant provisions under FSSAI Act are extracted below:- "Section 3 (1) (n) "Food business" means any undertaking, whether for profit or not and whether public or private, carrying out any of the activities related to any stage of manufacture, processing, packaging, storage, transportation, distribution of 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 Appl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e manufacture of goods and credits the price received in his accounts, he must be deemed to have a profit motive, for it would be uneconomical for the business to store unserviceable articles and to survive as an economic unit. But the question is of intention to carry on business of selling any particular class of goods. Undoubtedly from the frequency, volume, continuity and regularity of transactions carried on with a profit motive, an inference that it was intended to carry 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dinate to, arising out of, or otherwise connected with (something else, usually of greater importance). Also, the term "ancillary" is defined in the Black's Law Dictionary (Ninth Edition) as supplementary; subordinate. 7.22 The activities which are having direct nexus with the main business can be said to be ancillary or incidental. One of such examples could be sale of by-products. However, canteen facility is not related to or connected with the principal business of supply of automotive components 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 cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n by Respondent No.-2 in the impugned order (Annexure A-l)). This may lead to the inference that proceeds from the sales of such vehicles should have been included in the turnover and must be taxed accordingly. But the selling of used cars cannot by any stretch of the imagination be characterized as "ancillary" or incidental to the business of a pharmaceutical company. It is not shown that the cars were of a special character e.g. air conditioned vehicles especially designed to store and ferry pharmacy products. They were 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anding anything contained in Section 16(1) of the CGST Act, input tax credit in respect of goods or services mentioned therein will not be available. Thus, even if credit is available as per Section 16(1) of the CGST Act, credit cannot be availed if it is barred by Section 17(5) of the CGST Act. Section 17(5)(b) of the CGST Act which merits discussion in light of the facts of the instant case is extracted hereunder for ease of reference:- (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not 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 regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct of construction, accommodation, furniture and other equipment of the canteen; (c) the foodstuffs to be served therein and the charges which may be made therefor; (d) the constitution of a managing committee for the canteen and representation of the workers in the management of the canteen; (dd) the items of expenditure in the running of the canteen which are not to be taken into account in fixing the cost of foodstuffs and which shall be borne by the employer; (e) the delegation to the Chief Inspector, subject to such conditions as may be prescribed, of the power to make rules under clause (c)." 8.9 In exercise of the powers conferred under the 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 specifica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew Delhi, Dated the 6th July, 2022 Clarification on various issues of Section 17(5) of the CGST Act 3. 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 subclause (iii) of clause (b)? 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-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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the GST paid on the invoices raised by the canteen service provider in terms of Section 16(1) of the CGST as it is in furtherance to the business as well as is not subject to the rigor of Section 17(5)(b) as such facility was provided under a statutory obligation. 8.15 In view of the above, it is submitted that the canteen facility provided by the Applicant to its employees would not amount to 'supply' under GST and accordingly GST is not payable on the amount recovered / representing the employees portion of canteen charges which is collected by the Applicant and paid to the canteen service provider. Further, the Applicant is eligible to avail ITC of the GST paid on the invoices raised by the contractor for canteen service availed by it for its employees. 9. 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. 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 Commission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed, on which advance ruling is sought by the applicant, relevant facts & the applicant's interpretation of law. 15. We find M/s Shriram Pistons and Rings Limited has arranged a canteen facility for its employees, which is run by a Canteen Contractor M/s P.J. Banan. As per their arrangement, part of the Canteen charges is borne by M/s Shriram Pistons and Rings Limited whereas the remaining part is borne by its employees. The said employees' portion of canteen charges is collected by M/s Shriram Pistons and Rings Limited and paid to the Canteen Service provider. M/s Shriram Pistons and Rings Limited submitted that it does not retain with itself any profit margin in this activity of collecting employees' portion of canteen charges. M/s Shriram Pistons and Rings Limited vide letter dated 15-11-2022 has submitted that more than 2000 employees are working in its factory. 16. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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- 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." 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 ....