AI Drafter 
TaxTMI 
TaxTMI 
2023 (9) TMI 164
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....ry premises. For this purpose, the Applicant has appointed a third-party canteen service provider [for short 'CSP'] on contract basis, to provide canteen services at their factory. In terms of the agreement between the Applicant and the CSP, the Applicant provides required space, utensils and other infrastructural facilities to the CSP to enable them provide the required canteen services. CSP raises tax invoice for providing the canteen service as per the agreed billing terms i.e., as per the dining strength which is ascertained based on the coupon collected from each employee and contract workers for tea/snacks and punching records for lunch and dinner, by charging GST at the rate of 5%. 4. The Applicant pays full invoice value to the CSP and accounts such expenses in its statement of profit and loss account. Presently, as per the applicant they are not availing the input tax credit [ITC] of the GST charged by the CSP in view of the condition provided in SI. No 7(ii) of the Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017. 5. The applicant further states that in terms of their Human Resource Policy, they provide the canteen facility to both their employees and ....
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....ng employee's portion of canteen charges collected / recovered by the applicant from its employees. * thus, in order to constitute a 'supply', the following elements are required to be satisfied: (i) there should be supply of 'goods' and / or 'services' (ii) supply is for a 'consideration' (iii) supply is made 'in the course or furtherance of business' (iv) the activity under consideration shall not fall within the scope of section 7(2) of the CGST Act. * that any activity which comes under purview of Section 7(2) of the CGST Act, the same falls outside the scope of supply under the GST law; * as per press release dated 10.7.2017, supply by employer to employee, in terms of contractual agreement entered into between the employer and employee, is not subjected to GST; * as per circular No. 172/04/2022-GST dated 6.7.2022, any perquisites provided by the employer to employee, in terms of the contractual agreement entered between them are in lieu of the services provided by employee to employer in relation to his employment. It follows therefrom that perquisites provided by the employer to the employee in terms of ....
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.... due to the existing employer-employee relationship: that an employee is not allowed to use the canteen facility once the 'employer-employee' relationship ceases i.e., when the employment is terminated. Contract worker's portion of canteen charges * the contractual worker in the factory is employed for carrying out the activity which is either directly or indirectly related to manufacturing activity. The contractual worker in the instant case, is under scope of definition of "worker" as per section 2(l) of Factories Act, 1948. * that it is mandatory for the applicant to provide canteen facility to contract workers, who are employed to carry out activities directly or indirectly in relation to manufacturing activity; * that they provide canteen facility al subsidized rate to its contract workers and the remaining portion of the cost component of the total amount of food/canteen charges is borne by the applicant; * that in the case of contract workers, the amount recovered/collected by the applicant from its contract workers is paid to the CSP on behalf of the contract workers: * that an employee and contract worker in respect of the Fa....
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....e and consideration received. Thus, any amount charged which has no nexus with the supply cannot be construed as consideration under GST for the purpose of levy of GST; * that they wish to rely on the case of M/s Bhayana Builders, [2018 (2) TMI 1325] & Intercontinental Consultants and Technocrats, [2018 (10) GSTL 401 (SC)]; * that there is no contractual agreement between the applicant and contract workers to provide canteen services against consideration; that as the recovery/collection of payment is not premised on the enforcement of reciprocal obligations between the Applicant and the contract workers, the same cannot be linked to a supply for the purpose of levying GST. ITC of the GST paid by the applicant to CSP * that they wish to rely on the case of M/s. Bharat Oman Refineries Ltd. dated 8.11.2021 (Ruling No. MP/AAAR/07/2021); * that as per the proviso to circular No. 172/04/2022-GST dated 6.7.2022, wherein at the end of clause (b) of sub-section (5) of section 17 of the CGST Act clearly states that it is applicable to entire clause (b) of the sub-section (5) of section 17 of the CGST Act; * input tax credit (ITC) of GST paid t....
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....d upon the additional submission dated 4.4.2023. They further argued that as per the factory act ''worker' includes contract workers also; that even under the Contract Labour Act, there is a provision for providing canteen service to contract workers by principal if contractor fails to provide such facility. 11. Additional Commissioner, CGST, Vadodara 1, vide letter no. IV/16-06/Tech/Advance Ruling/Eimco/2022-23 dated 6.1.2023, has submitted the following comments viz • the activity/service is an ongoing activity as clarified in paras G & H of Annexure-A. The same has also been clarified by the authorised person of the applicant; • on the issue of applicability of GST, on the amount recovered/collected by the applicant from the employees and contract workers towards canteen services provided by CSP, it appears that GST is applicable on the portion of amount collected by the applicant from the employees in light of sub-section 1A of Section 7 CGST Act, 2017 read with entry No. 6(b) of Schedule 2; • on the issue of eligibility to avail ITC of the GST charged by the CSP, it appears that the applicant is not eligible to avail ITC in light of Se....
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....d in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall he treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-sections (1), (1A) and (2) the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as - (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. * Section 17. Apportionment of credit and blocked credits.- [relevant extracts] (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 :- (a)......; (aa)........; (ab........: (b) ^3[the following supply of goods or services or both- (i) food and beve....
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.... 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 28^th meeting. The intent of the said amendment in sub- section (5) of section 17, as recommended by the GST Council in its 28^th meeting, was made known to the trade and industry through the Press Note on Recommendations made during the 28^th 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 ....
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....g contract workers in their factory and that they have been provided with canteen facility in terms of section 46 of the Factories Act, 1948. We find that the applicant is paying GST @ 5% in terms of the invoices raised by the CSP. The applicant's primary role is that he provides a demarcated space and that the amount is paid by him to the CSP [a part of which is collected from the employees] on behalf of the employees. As is already mentioned, the applicant's contribution is treated as expenses in his books of accounts. 17. Now 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. We find that factually there is no dispute as far as [a] the canteen facility is provided by the applicant as mandated in Section 46 of the Factories Act, 1948 is concerned; and [b] the applicant has provided an extract of HR policy on canteen facility to employees, wherein it is stated as under: 2.0 CAFETERIA COUPONS & ITEM RAT....
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.... they are not on the pay roll of the company. The term 'contract labour' under Contract Labour (Regulation and Abolition) Act, 1970 ("CLRA") means a person who is hired in or in connection with the work of an establishment by or through a contractor. It is important to note that the word, 'hire', as used in the Act, has a significant connotation and it is not equivalent to an employer-employee relationship. A person, is deemed to have been employed as contract labour when he is hired in or in connection with a particular work of the principal employer. Where a person is 'hired' specifically for the work of an establishment, his scope of work does not extend beyond the work of that establishment and he is considered to be a contract labour. 19. the applicant is providing canteen service to their employees since there are more than 250 employees including contract workers. However, Section 46 of the Factories Act, 1948 stipulates the workers who are employed in the company's pay roll and not contractual workers. Section 46 of the Factories Act, 1948 is reproduced as under: "Section 46 - Canteens (1) The State Government may make rules requiring that in any specif....
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.... vide its Circular No. 172/04/2022-GST dated 6.7.2022 has 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. In the present case contractual agreement is between contractor and contract workers being employer and employee respectively. Further, the test for establishing an employer-employee relationship as laid down by the Apex Court in Balwant Rai Saluja vs. Air India Ltd. is complete administrative control, which is decided by several factors, including, among others who appoints the workers; who pays the salary/remuneration; who has the authority to dismiss; who can take disciplinary action; whether there is continuity of service; and extent of control and supervision i.e. whether there exists complete control and supervision 23. The applicant has entered into agreement with Contractor to provide them workers in lieu of consideration. The applicant has paid the agreed amount to the contractor and the contra....
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.... as the contractual worker are working for the company to run the business activity of the applicant. 26. Schedule II to the CGST Act, 2017, describes the activity to be treated as supply of goods or supply of services. As per clause 6 of the Schedule, the following composite supply is declared as supply of service: 6. Composite supply The following composite supplies shall be treated as a supply of services, namely (a) works contract as defined in clause (119) of section 2: and (b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. 27. Thus even though, there is no profit as claimed by the applicant on the supply of food to its contractual workers, there is indeed a "supply", as provided in Section 7(1)(a) of the CGST Act, 2017. The applicant would definitely come under the definition of "supplier", as per sub-section (105) of Section 2 of the CGST Act, 2017. 28. The term 'consideration' is ....
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....cant in this case only undertakes to provide & maintain canteen facilities to the contact workers. We have gone through the concerned sections and the rules as pointed out supra. We find that the relevant portion of Rule 42 states as follows viz (2) If the contractor fails to provide the canteen facilities within the time laid down the same shall be provided by the principal employer within sixty days of the expiry of the time allowed to the contractor. (3) The canteen shall be maintained by the contractor or principal employer, as the case may be, in an efficient manner. In the copy of the contract [submitted as a part of additional submission, the applicant has entered into a contract with the contractor dtd 30.3.2021 [Ms Urmila J Parmar], wherein clause 25 states that the applicant will make available food, snacks tea at subsidized rate to the contact labour deployed by the contactor through a CSP; that the total cost of the goods, snacks and tea provided to the labourers will be collected by the applicant from the contractor for making payment to the CSP. Thus it is clear that this is a contract entered into by the applicant with the contractor and not with....
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.... ITC on canteen charges on the food supplied to contractual worker 33. In the preceding paragraphs, we have already discussed that contractual worker are not covered under the category of employer-employee relationship, as far as the applicant is concerned. Further, the eligibility of ITC on food supplied to the contractual workers depends on the issue whether applicant is mandated to provide food to contractual worker. In this regard, we refer to the provision of Contract Labour (Regulation and Abolition) Act 1970, the relevant extracts of which are reproduced below viz: Chapter V WELFARE AND HEALTH OF CONTRACT LABOUR 16. Canteens- (1) The appropriate Government may make rules requiring that in every establishment - (a) to which this Act applies, (b) wherein work requiring employment of contract labour is likely to continue for such period as may be prescribed, and (c) wherein contract labour numbering one hundred or more is ordinary employed by a contractor one or more canteens shall be provided and maintained by the contractor for the use of such contract labour. (2) Without prejudice to the generality of the for....