TaxTMI 
TaxTMI 
2023 (11) TMI 949
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....hancing the tax liability or reducing the amount of admissible input tax credit shall be made, unless the Appellant has been given an opportunity or being heard. 2. Under Section 103(1) of the Act, this Advance ruling pronounced by the Appellate Authority under Chapter XVI of the Act shall be binding only:- (a) on the applicant who had sought it in respect or any matter referred to in sub-section (2) of Section 97 for advance ruling: (b) on the concerned officer or the jurisdictional officer in respect of the applicant. 3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the said advance ruling have changed; 4. Under Section 104(1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-section (1) or Section 101 has been obtained by the Appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio and thereupon all the provisions of this Act or the rules made there-under shall apply to the Appellant as if such advance ruling has never been made. 1. At the outset, ....
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....ries of its employees; (ii) Whether GST would be applicable on the nominal amount deducted from the Manpower supply contractor in case of contractual employees? b. Whether Input Tax Credit (ITC), on the GST charged by the Canteen Service Provider, would be eligible for availment to the Appellant?" 4.1 The Original Authority vide Order No. HP-AAR-21/2021-7865-68 dated 22.03.2023 has ruled as follows: "Question 1: 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 Central Goods and Service Tax Act, 2017 and Himachal Pradesh Goods and Service Tax Act, 2017. Answer: Answered in the Affirmative. Question 2: Whether GST is applicable on the nominal amount deducted from the salaries of its employees? Answer: Answered in the Affirmative. Question 3: Whether GST would be applicable on the nominal amount deducted from the Manpower supply contractor in case of contractual employees? Answer: Answered in the Affirmative." Question 4: Whether Input Tax Credit (ITC) of....
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....perator level' is disclosed under the deduction side of the salary pay slip and the subsidized charges towards the canteen facility used by the contractual staff, the Manpower supplier issues a credit note to the Appellant towards the subsidized canteen charges. (vi) That the Appellant discharges GST on the canteen facility' basis the head count of the employees availing canteen facility during the month at an open market value which is determined as under -Management employees - Per plate rate charged by the Canteen Service Provider from the Appellant for the Canteen services (i.e. open market value instead of actual recovery made from the employees) Contractual employees - GST is paid on the actual recovery from Manpower Supplier towards meals and snacks deemed as open market value. (vii) That the Appellant is liable to pay to the Canteen Service Provider, for establishing the canteen set-up. who raises GST invoice with tax rate of 5%. The Appellant does not avail ITC of the GST component paid there-under. (viii) That Section 46 of the Factories Act, 1948 provides that any specified factory wherein more than 250 workers are ordinarily employed, a cantee....
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....reinafter referred to as "SOW"), the copy of the Canteen Service. Agreement along with the SOW is enclosed as Enclosure 1. (xiv) That while the food is provided by the Canteen Service Provider to all the employees at the canteen facility set up by the Appellant, considering that it is practically inconvenient to enter in contractual agreement with every employee, the Canteen Service Provider has requested the Appellant and has entered into a contractual arrangement with the Appellant It is agreed that the Appellant shall contract and pay in full for the food served during a prescribed period on behalf of the employees and a portion of the amount paid by the Appellant is recovered from the employees and the balance amount which is borne by the Appellant, is treated as employee benefit / welfare expenses. (xv) That for the sake of reiteration, the Appellant would like to submit that such canteen facility is set up by the Appellant out of the mandate laid down by the Factories Act, 1948. (xvi) That the Appellant had relied on the following rulings by various AARs at the Advance Ruling Authority stage, where it has been commonly held that GST is not leviable ....
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....loyees and recovery from employees towards such transport facility, under the terms of employment contract, cannot be considered as supply of service in the course of furtherance of business. Providing transport facility to employees is nowhere connected with the business of the applicant". Accordingly, ruled that the subsidized shared transport facility' to the employees in terms of the employment contract through third party vendors would not be construed as "Supply of Service" by the company to its employees; (xix) That the Appellant places reliance on the decision of the Haryana Authority for Advance Ruling- in the case of RITES Limited (2022-VIL-283-AAR), where the applicant company charged a nominal amount from its employees for the canteen facility. The authority ruled that "The payment of the meals is being made by the applicant in bill to the canteen vendor. In this matter, the authority is of view that the transaction/deduction of nominal amount from the salary of the employees at fixed rate is outside the preview of the taxability under the GST Act." (xx) That the Appellant places reliance on the decision of the Maharashtra Authority for Advance Ruling ....
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....nt collected by the Appellant is a 'Consideration' on which GST is liable to be paid. Further, learned authority has not agreed the contention that the Appellant only collects the nominal amount from employee and pays the same to the third-party vendor and that such amount deducted from employee salary is only a recovery; (xxiv) That as provided u/s 7 of the Act, the term 'Supply' includes all forms of supply (goods and/or services) and covers agreeing to supply when the supply is for a consideration and is in the course or furtherance of business. The word 'supply' is all-encompassing, subject to exceptions carved out in the relevant provisions. 'The Appellant submits that 'supply' as defined under Section 7 (stated supra) also provides that it has to be 'made or agreed to be made' for a consideration, thus indicating the requirement of an activity to be done on the part of the supplier in order to trigger the event of supply; (xxv) That as per definition of "consideration" in terms of Section 2(31) of CGST Act, 2017 and Para 2.3. of the Education Guide, (which lists down the salient features of 'activities for a consideration', 'activities without a consideratio....
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....est possible monetary terms) it cannot be said that a 'supply' has taken place. - In the absence of reciprocal enforceable obligations, a 'supply' for 'consideration' does not arise (xxx) That the Appellant places reliance on the decision of Division Bench of the Madhya Pradesh High Court in the case of Commissioner of Sales Tax, M.P. v. Hukumchand Mills Ltd. (1988) 68 S.T.C.378 was considering the question whether food-stuffs and other items served in canteen of a factory sold on non-profit basis at approved prices would constitute sale and it was laid down that as dominant object of running canteen was rendering services to its employees as a welfare measure, the said activity would not constitute sale (xxxi) That the Appellant places reliance on the decision in the case of Woodlands Hotel (P) Ltd. v. The State of Karnataka (1995) 97 S.T.C. 251 wherein a question had arisen before the Division Bench of the Karnataka High Court as to whether the activity of the employee in supplying food to its workmen and deducting the same from their wages would constitute sale and it was laid down that such an activity would not come within the ambit of sale, and, the....
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....ection 2(17) of CGST Act, 2017, business includes, any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity. Any activity or transaction in connection with or incidental or ancillary to trade, commerce, manufacture etc, or any activity or transaction in the nature of trade, commerce or manufacture etc. alone included in the business; (xxxvii) That the various judicial precedents relied upon by the Appellant has been reiterated here below' which the learned authority have failed to consider and appreciate:- a. 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, 'furtherance of business' has been pointed out that, it means an act of furthering business, helping forward business, promotion of business, advancement of business or progress of business" b. Indian Institute of Technology Vs. State of Uttar Pradesh & Ors. [1976 (38) STC 428 (All.)] it was held that - (a) the statutory obligation of maintenance of a hostel which involved supply and sale of food was an integral part of the objects of the Inst....
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....he facility of canteen; (xlii) That the learned authority in para 21 of the impugned order has stated that "No employment contract has been provided which proves the canteen facility provided as part of employment contract". In the regard, the Appellant wishes to submit that the learned authority has grossly erred in understanding the substance of the transaction and has simply ruled that in the absence of the facility of canteen in the employment contract, the said facility is said to be in furtherance of business. This finding by the learned authority is without application of mind and unreasonable. It is a settled principle in law that the substance survives over the form. In the present case, even though the Appellant does not have an employment contract for provision of canteen facility as such, it is implied that the canteen area is set up for the benefit of the Appellant's employees only and not for any outsiders. As already stated, the Appellant wish to reiterate that the canteen facility is being provided by the Appellant to its employees due to the mandate specified in the Factories Act. Therefore, irrespective of whether the Appellant has separately entered into....
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....locked input tax credit and further, it also provides that input tax credit in respect of 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; (xlvi) That the authorities have observed that, the input tax credit on Goods and Services Tax paid on canteen facility is barred u/s 17(5)(b)(i) of the Central Goods and Services Act, 2017 and hence inadmissible; that the learned authority completely ignored the circular issued by the Board, the Circular No. 172/04/2022-GST dated July 06, 2022, it draws reference of GST council's 28th meeting and press noted dated July 21, 2018, it has clarified that "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". 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. (xlvii) That further ....
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....iven by the Learned authorities for ignoring the decisions of AAR's and AAAR's which approach is contested by the Appellant, they have also failed to address the decisions of Hon'ble High courts which are highlighted by the Appellant; that the learned authority has violated the principle of judicial discipline and thus the impugned order deserves to be set aside; (l) That the learned authority concluded that GST is applicable on both the amount paid by the Appellant to the canteen service provider and also on the nominal amount recovered from the employees as it is a "Supply". However, the learned authority erred in concluding that Input tax credit (ITC) is not admissible. (li) The learned authority did not consider Section 17(5)(b)(l) of CGST Act- 2017; that thus, without prejudice to our other arguments .and contentions in this appeal, it is submitted that if the activity of recovery of nominal amount from employees towards canteen food is held to be supply taxable under GST, then consequentially the Input tax credit (ITC) with respect to the GST levied on the expenses incurred for the canteen facility including the GST charged by the canteen contractor in their....
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....cting it to the press note. It was also highlighted that the ambit of Entry' 1 in Schedule III is wide as it uses the expression "in the course of or in relation to employment". The Counsel also submitted that additional submissions will also be filed within 10 days' time. 6.4 The Member of Appellate Authority asked the Learned Counsel whether he is disputing the position that their employment contract does not talk about provisioning of Canteen facility, to which the Counsel replied that he has not produced employment contract even before AAR or this Authority. In-fact, he has not gone through the employment contract himself to ascertain whether or not such Canteen facilities are part of employment contract. He said that this is their legal obligation, as Factory Act made it mandatory to provide it to workers who are their workers & employees. 6.5 The Counsel further stated that since in bis opinion, it is statutorily mandated, it is immaterial whether it has been mentioned in employment contract or not The Counsel further stated that recoveries from employees are made through Pay-slips and employees are aware that they are getting food at subsidized rates. This according to....
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........... 2.2........ 2.3.1...... 2.3.2 . Doubts have also been raised regarding the taxability of various perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee. 2.4 Law Committee in its meeting dated 11.04.2022 deliberated on the issue and recommended that the issue may be clarified through a circular that i............... ii .................... . iii. 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 [this aspect was earlier made known to the public through press release dated 10.07.2017]" Relevant extract from the minutes of 47th GST Council Meeting: "7.23 Clarification on various issues of Section 17(5) of the CGST Act 7.23.1............ 7.23.2............ 7.23.3 Another issue was whether various perquisites provided by employer to its employees as per contractual agreement, were liable for GST. The Law Committee clarified that any perquisites provided by employer to its employees in acc....
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....id to be a business activity of the Appellant and the provision of canteen facility to the employees cannot, qualify as supply. (j) The Appellant also submits that the business of manufacturing, cooking, packing, supplying food items is strictly regulated in India under the Food Safety and Standard Act, 2006 ("FSSAI Act"). The canteen service provider, being involved in such activities of manufacture of food and the provider of canteen service is complying with the conditions and provisions of FSSAI Act. Accordingly, the canteen service provider has obtained the requisite license under FSSAI Act as a 'food caterer'. A copy of the license is attached as Annexure-B. (k) The Appellant is acting as a mere facilitator in the transaction between the third-party contractor and employees. Therefore, the Appellant does not hold a license to carry out food related business. Had the Appellant been engaged in the business of canteen services, the Appellant 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 b....
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....t deducted/ recovered from the employees. (p) That in addition to the detailed submissions made in para DI to D7 of their grounds of Appeal filed before your good office, the Appellant wishes to submit the following additional arguments that ITC should be eligible with regard to the canteen facility provided to the direct and contract employees; (q) That Section 17(5) of the CGST Act, 2017, begins with Notwithstanding anything contained in section 16(1) ", to imply that section 17(5) of the CGST Act, 2017, would have an overriding effect on section 16(1) of the CGST Act 2017. It is settled law that a clause beginning with 'notwithstanding anything...' appended to a section, with a view to give the enacting part of the section an overriding effect over any other provision or any other provisions of the Act mentioned in the non obstante clause. (r) That the Learned Authority in para 20 of the impugned order has held that the Appellant is not eligible to ITC of the GST paid on manpower supply services that are used for providing canteen facility, as the services of providing canteen facility by the Appellant fall under SI. No. 7 of the Notification No. 11/20....
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....tion issued by the CBIC vide Circular 172/04/2022-GST dated July 06, 2022, which makes it amply clear that ITC should be available where it is obligatory' for an employer to provide the services to the employees under the provisions of any law. The circular clarifies that the proviso at the end of Section 17(5)(b) is applicable to the entire clause (b) of Section 17(5) of the CGST Act, 2017. (w) The Appellant would also like to draw attention to the agenda and the minutes of the 47th GST Council Meeting, wherein the applicability of the proviso (supra) was discussed. The relevant extract from the agenda for the 47th GST Council Meeting is provided below: "B. Clarification on various issues of section 17(5) of the CGST Act and supply by employer to employees a 2.1.......... 2.2.......... 2.3.1 In the context oj section 17(5) of the CGST Act, various doubts have been raised by the field formations as to - i. 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)? ii. ..........
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.... ambit of GST. Further, the ITC of GST paid by the Appellant towards canteen service would be available to the Appellant considering the mandatory' obligation to provide canteen facility in terms of the Factories Act. 7. DISCUSSIONS AND FINDINGS 7.1 We have carefully considered all the material on record and the relevant provisions of Law. The Appellant is before this Authority seeking to set aside/modify the ruling passed by the AAR and hold that recovery of nominal amount from the employees for making payment to the third-party service provider, providing food in canteen, as mandated in the Factories Act, 1948, would not attract tax under GST being not a "supply". 7.2 The Appellant has set up a canteen facility for the benefit of its employees and contract workers, at their manufacturing unit located at Plot No. 5, Sector 2, Tehsil Kasauli, Parwanoo, Solan, H.P. As per facts on record, there are 380 workers/ employees in the factory (at the time of filing application for obtaining Advance ruling). The Appellant is calling its own employees as 'management employees', where as he is calling contract workers as 'contract employees'. For the sake of clarity and gravity, we w....
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....ith this intention we quote the relevant provisions of Section 7 of the CGST Act. as under: - SECTION 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 he made for a consideration by a person in the course or furtherance of business; (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration. 8.4 From the reading of clause (a) and (aa) above, it is clear that the definition of supply is inclusive definition and it includes ah forms of supply of goods or services for a consideration in the course of "Furtherance of Business". The Appellant is arguing that supply of food is not made for consideration and is not in the course of furtherance' of business. We would examine the pleas in this regard. 9. We find that the Appellant has stated that they are recovering nominal amount from their employees (including contractual workers) for food provided whic....
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....ains a 'consideration' within the meaning of word 'consideration' as defined above. 9.3 The second argument of the Appellant is that there is no element of reciprocity between the service provider and the person making the payment. For this proposition, they are relying upon Education Guide of Service Tax. It is an accepted case that the amount is deducted/charged from the employees/contract workers, for supply of subsidised food and therefore, the element of consideration is self-evident. In other words it is not a case where amount is deducted/ collected without any supply in return. Though, the supply is made at concessional price, still there is direct connection between the supply of food and money recovered/ charged from employees/manpower contractor. Moreover, there are no free lunches in the world except in case of gift and donations. The supply of food to workers is neither a gift nor a donation. So consideration, monetary or otherwise, is self-evident. 9.4 Further, we also find that the Appellant has also relied upon some judgments passed by Hon'ble High Courts, wherein, it has been held that, supply of food stuff in factory, for canteen, does not constitute sale, a....
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....r the activity of supply of food, falls under clause (b) of definition of business, as extracted above? 10.2 The term ''incidental' has been defined in various dictionaries as under: Oxford Dictionary - the happening as part of something more important. Cambridge Dictionary - less important than the thing something is connected with or part of Dictionary.com - happening or likely to happen in an unplanned or subordinate conjunction with something else. 10.3 Similarly word ''ancillary" has been defined as under: Oxford Dictionary - provide necessary support to the main work or activities of an organisation. - In addition to something else but not as important. Cambridge Dictionary: providing support or help. Dictionary.com - supporting, secondary, subsidiary 10.4 The reading of all above definitions clarifies that any activity, which supports the main activity or necessary' to carry out the principle activity, is an activity or transaction in connection with or incidental to or ancillary' to the principle activity. The Appellants has pleaded that he is providing food in compliance to the provisions of the Factor....
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....yee 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. 11.1 Before proceeding further in the matter, it is necessary to understand the logic and law behind the aforesaid clarification. As is rightly observed in the clarification, the services by the employer to the employee, in the course of employment, are out of the purview of GST. Naturally, an employer pays some compensation either in monetary (money) form or otherwise (kind) to the employee. Therefore, perks provided by the employer to its employees, as a part of compensation for the services rendered, is not an independent supply but is in connection with or in relation to the em....
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.... Section 48 of the Factories Act, 1948 are produced as under: "46. Canteens- (1) The State Government may make rules requiring that in any Specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers. (2) Without prejudice to the generality of the foregoing power, such rules may provide for- (a) The date by which such canteen shall be provided: b) the standards in respect of construction, accommodation, furniture and other equipment of the canteen: (c) the foodstuffs to be served therein and the charges which may be made therefore: (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 he taken into account in fixing the cost of foodstuffs and which shall be home 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). 11.5 From the read....
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....c binding on and to be followed by revenue. But, the fact of the matter is that, since the Appellant had no explicit contractual agreement with regard to the canteen facility, the same cannot be equated to perquisites mentioned in the said Circular. Hence, even as per the Circular ibid, and cited by the Appellant, the canteen facility goes out of the purview of 'perquisites' as the canteen facility was not provided in terms of contract between the employer and employee. 12. Now, coming to the other issue which is to be decided here is, whether input tax credit (ITC) is available to the Appellant on GST charged by the service provider on the canteen facility provided to employees working in the factory or otherwise? 12.1 Before deliberating on this issue, it would be prudent to refer to the Section 17(5) (b) of CGST Act, 2017, which pertains to blocking of ITC: 'Section 17(5): Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input lax 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, b....
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....tories Act, 1948, it is obligator}- on them to provide canteen facilities within the factory' premises. 12.4 We also observe that that Circular No. 172/04/2022-GST dated 06.07.2022 has been issued, by the CBIC, wherein clarifications on various issue pertaining to GST have been provided. In the above Circular, at S. No.3 of Para 2, clarification has been provided on the issue as to whether the proviso at the end of clause (b) of Section 17(5) of CGST Act is applicable to the entire clause (b) or only to sub-clause (iii) of clause (b). It has been clarified by the Board that vide the CGST (Amendment Act), 2018, clause (b) of Section 17(5) was substituted with effect from 01.02.2019 on the recommendation of GST Council's 28th meeting and accordingly, the proviso after sub-clause (iii) of Section 17(5)(b) of CGST Act, is applicable to whole clause (b) of Section 17(5). The relevant portion of above clarification is reproduced below: 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 s....
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....ted to the extent of cost borne by the Appellant or not? For answering this question, we intend to rely upon the judgment of Hon'ble High Court of Bombay in the case of Commissioner of Central Excise, Nagpu Versus Ultratech Cement Ltd., [2010 (260) E.L.T. 369 (Bom.)] wherein it was held as under:- "39. The Larger Bench of CESTAT in the case of GTC Industries Ltd. (supra) has also observed that the credit of service tax -would be allowable to a manufacturer even in cases where the cost of the food is borne by the worker (see last para). That part of the observation made by the Larger Bench cannot be upheld, because, once the service tax is borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer." 12.7 The ratio laid down in the said case is also applicable to the present case where part of cost for providing canteen services is recovered by the Appellant from its employees. We find that the ITC on GST charged by the canteen service provider will be available only to the extent of cost borne by the Appellant, for providing the canteen services only to its direct em....
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....ms of the Notification ibid. The Appellant is also recipient of service when viewed in terms of definition of recipient of service, as defined in Section 2(93)(a) of the CGST Act, 2017, which is reproduced below:- "(93) "recipient" of supply of goods or services or both, means (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; " 12.12 So in the instant case, the flow of the transaction is that the Canteen Contractor is providing service to the Appellant, which is classifiable as Restaurant Service and the Appellant himself is also providing same service to its worker as mandated in the Factories Act, 1948 i.e. he is also providing a Restaurant Service to its worker. As already mentioned in para 12.10, the Restaurant Service compulsorily attracts rate of 5% without ITC' in a non-specified premises and the Appellant's premises is not a specified premises in terms of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017. Therefore, though the Section 17(5) of the CGST Act. 2017 does not debar availment of ITC in entirety, however, in the present case availment of ITC is deba....