Gujarat Authority for Advance Ruling: The two-member bench Milind Kavatkar and Amit Kumar Mishra has ruled that Goods and Service Tax (GST) is not leviable on the amount representing the employees portion of canteen and transportation charges, which is collected by the applicant and paid to the third party, and as the provision of services of transports and canteen facility to its employees is as per the contractual agreement between the employee and the employer in relation to the employment, thus such provision cannot be considered as supply of goods or services, and hence, cannot be subjected to GST.
The applicant has raised two questions:
1) Whether the GST would be payable on recoveries made from the employees towards providing canteen facility at subsidised rates in the factory and office?
The Authority noted that in terms of section 7 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’), for a transaction to qualify as supply, it should essentially be made in the course or furtherance of business, and it was observed that the applicant is engaged in the business of developing, manufacturing and marketing a broad range of pharmaceutical products from its various manufacturing units, research and development centres and branch offices. Further, the provision of canteen facility to the employees is a welfare measure, mandated by the Factories Act and is not at all connected to the functioning of their business of developing, manufacturing and marketing pharmaceutical products, also the said activity is not a factor which will take the applicant’s business activity forward.
The Authority also noted that the applicant is not supplying any canteen service to its employees and such services are not the output service of the applicant, since it is not in the business of’ providing canteen service, and this canteen facility is provided by third party vendor, thus, the applicant is the receiver of such services.
The Authority referred to the ruling in Dishman Carbogen Amcis Ltd., In re, 2021 SCC OnLine Guj AAR-GST 21, wherein it was held that “GST, at the hands of the applicant, is not leviable on the amount representing the employees’ portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider”. Further, it relied on the ruling in Bharat Oman Refineries Limited, In re bearing no. MP/AAAR/07/2021, wherein it was held that “GST is not applicable on the activity of collection of employees’ portion of amount by the appellant, without making any supply of goods or service by the appellant to its employees”
Thus, the authority ruled that the canteen services provided by the applicant to its employees cannot be considered as a “supply” under the relevant provisions of the Central Goods and Services Tax (GST) Act, 2017 and therefore, the applicant is not liable to pay GST on the recoveries made from the employees towards providing canteen facility at subsidized rates, since the provision of canteen facility by the applicant to its employees is not a transaction made in the course or furtherance of business, and since in terms of section 7 of the CGST Act, 2017, for a transaction to qualify as supply, it should essentially be made in the course or furtherance of business.
2) Whether the GST would be payable on the recoveries made from the employees towards providing bus transportation facilities? If yes, whether the applicant is exempted under Notification No. 12/2017 Central Tax (Rate)?
The Authority observed that the applicant does not supply any bus transportation service to its employees, and such service is also not the output service of the applicant since they are not in the business of providing transport service, rather, the bus transportation facility is provided to employees by the third porty vendors, and the amounts recovered by the applicant from its employees in respect of use of such bus transportation facility are a part of the amount paid to the third-party vendors which has already suffered GST.
The Authority referred to the ruling in Tata Motors Ltd., In re, 2021 SCC OnLine Guj AAR-GST 36, wherein it was held that GST is not applicable on such nominal amounts recovered from its employees for usage of employee bus transportation facility. Further, it referred to the ruling in North Shore Technologies (P) Ltd., In re, 2020 SCC OnLine UP AAR-GST 9 wherein it was held that “the facility provided to their employees was not integrally connected to the functioning of their business and therefore, providing transport facility to its employees cannot said to be in furtherance of business”
The Authority also referred to the ruling in Integrated Decisions & Systems India (P) Ltd., In re, 2021 SCC OnLine Mah AAR-GST 37 wherein it was held that “part recovery of amounts from employees in respect of the transport facility provided to them would not be treated as ‘supply’as per provisions of GST Laws, therefore, GST would not be leviable on the same”.
Thus, the Authority ruled that arranging transport facilities for its employees is neither a supply of service or an activity which is incidental or ancillary to the activity of manufacturing the industrial and specialty intermediates and nor can it be called an activity done during or in furtherance of applicant’s business, as it is not integrally connected to the business in such a way that without this the business will not function.
[SRF Limited, In re, 2022 SCC OnLine Guj AAR-GST 20, decided on 28.09.2022]
Advocates who appeared in this case:
Present for the Applicant: DGM Taxation Shushanta Dutta
Senior V. P. Taxation Anandi Prasad.