AAAR UTTARAKHAND -WHETHER CANTEEN FACILITY PROVIDED BY EMPLOYER TO EMPLOYEES BY RECOVERING NOMINAL COST IS “SUPPLY” UNDER GST ACT, 2017

BRIEF FACTS:
The applicant recovers nominal amount from the employees for canteen facility – The applicant discharge GST @5% on the taxable value which is sum total of the cost of the canteen service provider plus 10% notional mark up.

QUESTIONS RAISED

1. Whether the nominal amount of recoveries made by the applicant from the employees constitutes “Supply” by the applicant under the precisions of Section 7 of CGST Act, 2017 ?

2. Whether GST is liable to be paid on that part of the amount collected from their employees towards provision of food? and

3. Whether ITC is available on the GST paid by them on the taxable value of the canteen service ?

APPLICABLE PROVISIONS;
SECTION 2(31): MEANING OF CONSIDERATION
Consideration in relation to the supply of goods or services or both includes-
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.

SECTION 2(83): MEANING OF OUTWARD SUPPLY
Outward Supply in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.

SECTION 17(5)(b)- ITC IS NOT AVAILABLE IN SOME CASES AS MENTIONED IN SECTION. ( b). goods and/or services provided in relation to:
i). Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances;
ii). Membership of a club, health and fitness center;
iii). Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;
iv). Travel benefits extended to employees on vacation such as leave or home travel concession;

SECTION 7- SCOPE OF SUPPLY.
(1) For the purposes of this Act, the expression “supply” includes––
ii) 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 be made for a consideration by a person in the course or furtherance of business;
iii) the activities specified in Schedule I, made or agreed to be made without a consideration; and
iv) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),––
i) activities or transactions specified in Schedule III; or
ii) 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 be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as—
i) a supply of goods and not as a supply of services; or
ii) a supply of services and not as a supply of goods.

HELD BY AAAR
1. As per Sl. No (1) of Schedule III of the CGST Act, 2017, only services by an employee to the employer in the course of or in relation to his employment are neither a supply of goods nor a supply of service.

2. But in this case supplies are provided by the employer to the employees for a consideration, though nominal – supply made by a taxable person in the course or furtherance of business is an ‘Outward supply.

3. Establishing canteen is in the furtherance of business of the applicant and supply of food to the employees when the same is not contractually agreed, is not an allowance as a part of the employment.

4. Thus, the provision of food in the canteen for a nominal cost is a ‘Supply’ for the purposes of GST.

5. Schedule II to the CGST Act, 2017 describes the activities to be treated as supply of goods or supply of services – the supply of food is a ‘Supply of Service’ by the applicant to their employees as the same is not a part of the employment contract.

6. The nominal cost, which is recovered from the salary as deferred payment is ‘consideration’ for the supply and GST is liable to be paid on the same.

7. Input Tax Credit on Canteen Facility is barred credit u/s 17(5)(b)(i) of the CGST Act, hence, ITC is not admissible on canteen charges even though it is obligatory under any other law.

CONCLUSION: as discussed services provided by employee to their employer under contract of service is exempted from the GST Act,2017. If an employer providing canteen services to its employees and collecting nominal fees from them , then this is Outward Supply done in the course and furtherance of its business and hence taxable accordingly. In this case the ITC on canteen or catering services has been blocked and hence employer is not able to claim ITC on canteen services.

DISCLAIMER: the case law presented here is only for sharing knowledge and information with the readers. The views are personal. In case of necessity do consult with tax professionals.

Posted on: January 7th, 2023