AI Drafter 
TaxTMI 
TaxTMI 
2024 (1) TMI 170
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....ed by M/S Shriram Pistons & Rings Limited, SP-1/892,893, Industrial Area Pathredi, Near Chopanki, Bhiwadi, Alwar, Rajasthan - 301707 (hereinafter referred to as "applicant"). Applicant has entered a contract with a third-party canteen service provider for providing cooked food, drinks etc., to employees, in canteen area which is inside the factory of Applicant., in the name of M/s Shriram Pistons & Rings Limited. The Three Issues raised by applicant is fit to pronounce advance ruling & it falls under the ambit of the Section 97(2) (d),(e)& (g) given as under: (d) admissibility of input tax credit of tax paid or deemed to have been paid; (e) determination of the liability to pay tax on any goods or services or both (g) whether anything done by the applicant with respect to any goods and/or services or both amounts to or results in a supply of goods and/or services or both, within the meaning of that term. A Submission of The Applicant: (in brief) Applicant has entered a contract with a third-party canteen service provider for providing cooked food, drinks etc., to employees, in canteen area which is Inside the factory of Applicant. The canteen servic....
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....osed as Annexure-B. 6. Further, in order to ensure administrative control, discipline and to avoid wastage of food, Applicant recovers a part (at subsidized rates) of the meal cost incurred by it from employees. Accordingly, the charges of the meals/snacks are deducted from the salary of the individual employee. Copy of relevant documents are enclosed as Annexure-C. 7. The said amount recovered from employees is paid to canteen contractor along with the remaining portion, which is paid by Applicant. It is pertinent to note here that Applicant does not retain any part of such amount and moreover, no profit is made by Applicant from such activity. 8. Under the aforesaid circumstances, Applicant is filing the present application seeking advance ruling to understand whether GST is payable on the amount recovered by Applicant from its employees for providing food in canteen. Also, whether Applicant is eligible to take Input Tax Credit ("ITC") of GST charged by canteen contractor for canteen service availed by it for its employees. APPLICANT'S ELIGIBILITY FOR ADVANCE RULING: 1. Section 97(2) of the Central Goods and Services Tax Act, 2017 ("CGST Act") and Rajasthan Goods a....
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.... salary of employees for providing food facility does not qualify as 'supply of goods or services' in terms of Entry to Schedule III of the CGST Act and will not be subjected to GST. Further, such deductions are not in nature of consideration for any supply. 7. Further, Applicant is eligible to take ITC of GST charged by canteen 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. 8. The submissions in support of the aforesaid interpretation have been enunciated in the following paragraphs: A. The food facility provided by Applicant to employees is excluded from the scope of 'supply in terms of Clause (a) of Section 7(2) of the CGST Act. 9. It is submitted that the food facility provided by Applicant to its employees, is excluded from the purview of 'supply in terms of clause (a) to Section 7 (2) of the CGST Act. The relevant provisions are reproduced below: "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 su....
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....mployee with Applicant. On termination of employer-employee relationship, the concerned person cannot avail the said food facility. Therefore, by virtue of Section 7 (2) read with Entry 1 of Schedule III, the food facility does not amount to supply. 14. In the instant case, Applicant has made available food facility to its employees in the course or in relation to their employment whereby they can take a meal in the factory canteen. Further, as already stated above, the food facility is being provided in the factory of Applicant due to the mandatory requirement of Section 46 of the Factories Act read with Rule 69 of Rajasthan Factories Rules. 15. It is further submitted that the food facility is similar to the other facilities like providing workspace, air-conditioning, laptops, computers and photocopy machines etc., made available by employer, facilitating employees to contribute towards the business activities of employer. 16. These facilities are not for personal benefit of employees. Therefore, the food facility cannot be said to be an independent supply provided/made by employer to employees. Rather, it is statutory requirement of the Factories Act read with Rajasthan....
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....reement 5. Whether various perquisites provided by the employer to its employees in terms of contractual agreement entered between the employee and the employee are liable for GST? 1. Schedule III to the CGST provides that "services by employee the employer in the course of relation to his employment" will as supply of goods or services hence GST is not applicable employer provided they are employment. 2. Any perquisites provided by employer to its employees in terms contractual agreement entered between the employer and the employee lieu of the services provided employee to the employer in relation his employment. It follows there that perquisites provided by employer to the employee in terms contractual agreement entered between the employer and employee, will not be subjected to GST when the same are provided in terms the contract between the employer employee. (Emphasis Supplied] 20. In view of the above, it is submitted that the food facility provided by Applicant to Its employees would not amount to 'supply' under GST. Accordingly, GST is not payable on the amount recovered from employees' portion of canteen charges, which is collected by Applicant and paid ....
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....om its employees towards canteen facility is collected by applicant and paid to canteen service provider, without retaining any portion thereof. Therefore, such canteen facility provided by applicant to its employees cannot be deemed to be an activity made In the course or furtherance of business to qualify as supply vis-à-vis applicant. c. In Re: North Shore Technologies Private Limited, 2021 (49) G.S.T.L. 315 (A.A.R. - GST - U.P.), wherein it was held that the subsidized amount collected from employees for usage of transportation facility is paid to the third-party vendor, without retaining such collected amount towards provision of such transportation facility. Therefore, the arrangement of transportation for employees and recovery from employees towards such transport facility, under the terms of the employment contract, cannot be considered as supply of service in the course of furtherance of business. d. Dakshina Kannada Co-Op. Milk Producers Union Ltd., 2021 (55) G.S.T.L. 574 (A.A.R. - GST - Kar.), wherein applicant was providing lunch and refreshments to Its employees by engaging a canteen contractor. The bill for the supply of food to employees was....
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....y canteen contractor and relevant documents, is already enclosed as Annexure-Band Annexure-C respectively. 31. Hence, the provision of food facility by Applicant to its employees through canteen contractor cannot be said to be canteen services provided by Applicant to its employees. 32. In light of above, it is submitted that it is not involved in providing any supply and, accordingly no GST is payable on the part amount recovered from the salary of employees. Without prejudice, the subsidized deduction made by Applicant from the salary of employees, who are availing food facility in the factory, does not constitute 'supply per se in terms of Section 7 read with Schedule I of the CGST Act, as it Is not in furtherance of business of Applicant. 33. It is submitted that the subsidized amount recovered from employees, by Applicant, for providing food facility is not covered within the ambit of "supply" under clause (a) of Section 7(1) of the CGST Act. 34. In order to analyses the present issue, reference is made to Section 7(1) of the CGST Act, which defines the term 'supply as under: "7. (1) For the purposes of this Act, the expression "supply" Includes- ....
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....ed by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) services provided by a race club by way of to tallest or or a licence to book maker in such club; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;" [Emphasis Supplied] 37. A bare reading of the above clause (a) provides that the term "business" includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for pecuniary benefits. Also, as per clause (b) any activity ancillary or incidental to the activities covered under clause (a) are also treated as business. 38. Further, clause (c) also states that any activity or transaction falling in the above categories would be business whether or not there is volume, frequency, continuity or regularity in transactions. Hence, the above definition provides that business includes any activity in the nature of trade, commerce, manufacture, etc. 39. It is reiterated that 'supply' can come I....
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....g of automotive components. It is not providing canteen facilities to its employees in course or in furtherance of the business. 48. Canteen facilities are provided by canteen contractor, for which it is raising an invoice on Applicant along with GST. Therefore, canteen services are being provided by the third-party service provider only. Applicant Is merely acting as a facilitator to provide canteen facility to its employees. 49. Thus, Applicant is not in the business of providing canteen facility or food services. It is only the statutory requirement due to which Applicant is providing the food facility to its employees. Hence, canteen facility cannot be said to be a business activity of Applicant and the provision of canteen facility to employees cannot qualify as, supply. 50. It is also submitted that the business of manufacturing, cooking, packing, supplying food items Is strictly regulated under the Food Safety and Standard Act, 2006 ("FSSAI Act"). Canteen contractor may be complying with the conditions of FSSAI Act. However, Applicant is receiving canteen facilities for its employees. Therefore, Applicant does not hold a license to carry out food related business. ....
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....Any activity which is towards providing any support or service such as helping, aiding or assisting own employees cannot be treated at par with business. In the present case, the provision of canteen facility Is merely a support function extended by Applicant to its employees. Hence, the said activity cannot be equated with business. 57. It is pertinent to note that the expression "in the course or furtherance of has nowhere been defined or elucidated under the CGST Act. In the absence of clarification on the expression, reliance is to be placed on the general principles of interpretation for understanding the same. Based on the plain reading of the expression, it is generally construed that activities undertaken by a person in connection with or having a proximate and close nexus to its business is in the course or furtherance of business. 58. It Is also submitted that as per clause (b) of Section 2(17) of the CGST Act, business also includes any activity which is In connection with or incidental or ancillary to the activities covered under clause (a) of Section 2 (17) of the CGST Act. Hence, one may question as to whether the provision of canteen facility can be said to be ....
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....P ADRG - 16/2022 dated 5.12.2022. It was ruled by Hon'ble UPAAR that Applicant is not making any supply and GST is not applicable on the amount deducted from the salaries of employees. It has also been ruled that Applicant is eligible to take input tax credit on GST paid on the food supplied to employees of the company subject to the condition that burden of GST has not been passed on to the employees of the company. The relevant portion of the ruling is reproduced as under: "17. We are not inclined to accord these activities provided by M/s Shriram Pistons and Rings Limited to its employees to be an activity made in the course or furtherance of business to deem it a Supply by M/s Shriram Pistons and Rings Limited to its employees in view of the above clarification and therefore amount collected by M/s Shriram Pistons and Rings Limited from employees towards canteen charges in terms of the contractual agreement in lieu of providing canteen service i.e. food is not liable to GST. We, therefore observe that the applicant is not liable to pay GST on the amount deducted/recovered from the employees. Further the applicant is recipient of canteen service to facilitate t....
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....y Applicant for furtherance of Its business. Therefore, Applicant is eligible to avail the ITC in terms of Section 16(1) of the CGST Act. Further, the requirements under Section 16(2) also stand fulfilled by Applicant. ITC is available in terms of the second proviso to section 17(5)(b) of the CGST Act. 71. Section 17(5) of the CGST Act provides that notwithstanding anything contained in Section 16(1) of the CGST Act, ITC in respect of goods or services mentioned therein will not be available. 72. Thus, even if ITC is available as per Section 16(1) of the CGST Act, the same 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 h....
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....e 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 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)." [Emphasis Supplied) 77. In exercise of the powers conferred tinder the Factories Act, the State Gov....
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....as made known to the trade and Press Note on Recommendations made during the 28th meeting dated: 21.07.2023. It had been clarified "that" scope of input widened, and it would now be made available in respect of Goods are obligatory for an employer to provide to its employees, under time being in force." 3. Accordingly, it is clarified that the proviso after sub-clause sub-section (5) of section 17 of the CGST Act is applicable to (b) of sub-section (5) of section 17 of the CGST Act. 80. 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 Applicant to have canteen in its factory in terms of Section 46 of the Factories Act due to more than 250 workers. Therefore, Applicant has engaged canteen contractor to provide canteen service to fulfill its obligation under the Factories Act and Rajasthan Factories Rules. Accordingly, Applicant is eligible to avail ITC of GST paid against the invoice raised by canteen contractor and such credit is not subject to the rigor of Section 17(5)(b)(i) of the CGST Act. 81. As a settled law, circulars issued by the CBIC are binding on the department. ....
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....ce of any supply made by Applicant, the subsidized deduction from the salary of employees, shelf not be considered as consideration for 'supply of service'. 3) Since there is no supply of goods or services, no GST is payable on the deductions made by Applicant from the salary of its employees for canteen facility. 4) Applicant is eligible to take ITC of GST charged by canteen contractor for canteen service received by Applicant for its employees, in terms of Section 16(1) of the CGST Act read with the second proviso to Section 17(5)(b) of the CGST Act. C QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT: - (i) Whether providing food to employees at subsidized price falls outside the scope of "supply" as the same Is covered by Entry 1, Schedule III of the Central Goods and Services Tax Act, 2017 and Rajasthan Goods and Services Tax Act, 2017? (ii) Whether the subsidized deduction made from the salary of employees, who are availing facility of food in the factory, can be considered as consideration for 'supply of service' by Applicant to Its employees, in furtherance of business, as per Section 7 read with Schedule I of the Central Goods and Services Tax Act, 2017 and Ra....
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.... facility of food in the factory will be considered as consideration for supply of services by the applicant to its employees in furtherance of business. Q3. In case answer to (b) Is yes, whether GST is applicable on the amount deducted from the salaries of employees? Ans- Yes, GST Is applicable on both the amount, Amount recovered from the salaries of employees and amount paid by the Applicant to the canteen service provider. Q4. Whether 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? Ans- No, -Credit of ITC is not admissible on the GST on the amount paid to the canteen service providers and on the amount recovered from the employees, because that the input Tax Credit on Good and Service Tax paid on Canteen Facility is barred credit ti/s 17(5)(b)(i) of the Central Good and Service Tax Act, 2017/ Rajasthan Good and Service Tax Act, 2017. Section 17. Apportionment of credit and blocked credit-(5) Not withstanding anything contained in Sub-section (1) of section 18, input tax credit shall not be available In respect of the following, namely:- (b) [the (Wowin....
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....t, 2017 and Rajasthan Goods and Services Tax Act, 2017? (iii) In case answer to (b) is yes, whether GST is applicable on the amount deducted from the salaries of employees? (iv) Whether 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? 4. On Examine of the application submitted by the applicant, it revealed that applicant is Involved providing Canteen Services to its workers/ employees through contractual agreement with third party contractor and recover subsidized deduction from workers. The applicant submitted that to provide canteen facility, Applicant has engaged a third-party canteen service provider ("canteen contractor), for providing quality food and refreshments to its employees. Canteen contractor charges as per the agreed price per meal from Applicant. It is raising invoice under SAC 996333 and is charging GST @ 5% from Applicant. Further, in order to ensure administrative control, discipline and to avoid wastage of food, Applicant recovers a part (at subsidized rates) of the meal cost incurred by it from employees. Accordingly, the charges of the meals....
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....lier(s) to the applicant. This supplier, contractor of canteen service is distinct persons as per the provisions of the GST Act and GST is being paid since implementation of GST law. 9. From the above-mentioned provision, it is seen that this authority is constituted to decide on matters or questions specified in sub-section (2) of Section 97, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. Thus, we find that the applicant is not a supplier in the present case, the applicant as per the contract is a receiver of services supplied by the canteen service provider also. 10. Further, We observe that purpose of Advance ruling is to provide certainty of tax liability in advance in relation to a future activity to be undertaken by the applicant and help the applicant in planning about GST liability on activities well in advance along with proper interpretation and understanding of tax laws. Advance rulings can be given only for a proposed transaction & matters related to qualifies for advance ruling whether it will be undertaken or proposed to be undertaken. We also observe that advance ruling under GST can be obt....