In re Emcure Pharmaceuticals Limited (GST AAR Gujarat)
Q1. Whether the recoveries made by the Applicant from the employees for providing canteen facility to its employees are taxable under the GST laws?
A1. GST, at the hands of M/s Emcure, is not leviable on the amount representing the employees portion of canteen charges, which is collected by M/s Emcure and paid to the Canteen service provider.
Q2. Whether the free of cost bus transport facilities provided by the Applicant to its employees is taxable under the GST laws?
A2. GST, at the hands of M/s Emcure, is not leviable on free bus transportation facility provided to its employees.
Q3. Without prejudice, even if GST is applicable in respect of employee recovery towards bus transportation facility, whether the Applicant would be exempted under the Sl. No. 15 of Notification No. 12/2017 – Central Tax (Rate) dated 28 June 2017?
A3. ITC on GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) CGST Act and inadmissible to M/s Emcure.
Q4. Whether input tax credit is admissible to the Applicant for the GST charged/paid to the vendors on procurement of such services in terms of Sec 16 of CGST Act, as the same are used in relation to furtherance of business? If yes, would the same be restricted to the portion of cost borne by the Applicant?
A4. ITC on GST paid on hiring of Bus, having approved seating capacity of more than 13 persons used for transportation of passengers, is admissible.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, GUJARAT
M/s. Emcure Pharmaceuticals Limited, hereinafter referred to as M/s. Emcure for the sake of brevity, submits that it provides canteen and bus transportation facility to its employees and that the canteen and bus transportation facility are part and parcel of the employment arrangement with the employees. M/s. Emcure submits that it provides the canteen and bus transportation facility to its employees based on the Human Resource (HR) Policy. Based on the agreed terms of the HR Policy, M/s. Emcure is entitled to make recoveries at subsidized rates for facility provided by them at its factory. The relevant clauses of the HR Policy are as follows:
Policy on Employee Benefits – Transportation
Transportation policy benefits are as follows:
i. Ahmedabad has skilled pharmaceuticals talent which is required to run the business operations smoothly. The plant is about 35 kms away from Ahmadabad and most of our employees are travelling to various part of Ahmedabad.
ii. All company employees shall be eligible to avail the transportation facility.
iii. The transportation benefits will be provided with no cost to employees/travellers.
iv. All cost related to this benefit shall be borne by the company.
Canteen Facility and Deduction
Canteen Facility details are as follows:
Nutritious food is provided in the canteen at a subsidised rate. These subsidized rates are subject to revision at the discretion of Management. The rates so fixed are for the month irrespective of number of days on which the canteen facilities are availed. Canteen facilities are not available in third shift. Snacks are catered for the employees working in the Third shift.
2. M/s. Emcure submitted that in order to provide the said canteen and bus transportation facility, it engaged third party service providers who are in turn providing the said canteen and bus transportation facilities to the employee. Since, the said services are provided by the third-party service providers, the service providers are raising their invoices with applicable GST to M/s. Emcure. They recover certain portion (i.e. subsidized amount – fixed amount deducted from Salary on monthly basis) from the employees towards the self-consumption of food provided in the canteen area.
3. M/s. Emcure submitted that Bus transportation service is provided on free of cost to its employees and they do not make any recoveries. The buses provided by the Bus Contractor for transportation of the employees are Non-Air-conditioned (Non-AC) buses having the seating capacity of more than 13 seats. Both the facilities i.e. canteen and bus transportation facilities are provided to the employees without any profit motive. In fact, the said facilities are provided at subsidized rate / amount and also as a part and parcel of the HR policy.
4. M/s. Emcure submitted that the employee recoveries for providing canteen facility is not covered under the ambit of supply under Clause (a) of Section 7 (1) of the CGST Act. 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––
(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 be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
4.1 Section 7 (1) (a) of CGST Act defines the term supply widely to include all forms of supply of goods or services or both such as sale, transfer, disposal, etc. made or agreed to be made for a consideration in the course or furtherance of business. Therefore, in order to constitute supply under Section 7 (1) (a) of the CGST Act, the following key elements are required to be satisfied:
(a) Supply of goods or/and services;
(b) Consideration;
(c) Course of furtherance of business.
4.2 M/s. Emcure submitted that in order to constitute supply under Section 7, the supply should be in the course of business or furtherance of business. The term in the ‘course of business’ or ‘furtherance of business’ is not defined under the CGST Act. However, the term Business has been defined under Section 2 (17) of the CGST Act and reads as –
Section 2 (17) “business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied 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 totalisator 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;
4.3 A bare reading of the above clause (a), (b) and (c) provides that business includes any activity in the nature of trade, commerce, manufacture, etc. and business means any activity in the nature of trade, commerce, manufacture, etc. M/s. Emcure submitted that it is engaged in the business of sales, distribution and promotion of pharmaceutical products only.
4.4 M/s. Emcure submitted that in order to comply, the provision of Section 46 of the Factories Act, 1948, they provide canteen facility to its employees. It is not engaged in the business of providing food in the canteen facility to its employees as business activity. The canteen facility is provided by a third-party service provider for which the third party is raising an invoice to M/s. Emcure and charging applicable GST on the same. Therefore, the canteen services are being provided by the third-party service provider only. M/s. Emcure is merely acting as a conduit to provide the canteen facility. M/s. Emcure submits that providing/ non-providing such canteen facility will not affect its business in any way. Hence, the canteen facility cannot be said to be a business activity of M/s. Emcure and hence, the provision of canteen facility to the employees cannot qualify as supply.
4.5 In this regard M/s. Emcure has placed reliance in the case of State of Gujarat vs. Raipur Manufacturing Co. Ltd. (Civil Appeal No. 603 of 1966).
4.6 M/s. Emcure submitted that as per clause (b) of Section 2 (17), 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. The activities which are having direct nexus with the main business can be said to be ancillary or incidental. However, canteen facility is not related to or connected with the principle business of supply of pharmaceutical goods in that manner. Hence, the same cannot be construed as incidental or ancillary to the main business of M/s. Emcure.
4.7 In this regard M/s. Emcure cited the following cases :
(i) Deputy Commissioner of Commercial Taxes vs. Thirumagal Mills Ltd. [1967 (20) STC 287 Mad].
(ii) In the case of Panacea Biotech Limited vs. Commissioner of Trade and Taxes [(2013) 59 VST 524 (Del.)]
5. M/s. Emcure submitted that without prejudice to the above, the canteen facility provided by it is excluded from the scope of supply in terms of Clause (a) of Section 7 (2) of the CGST Act. Clause (a) of Section 7 (2) of the CGST Act which reads as below:
“Section 7 (2) Notwithstanding anything contained 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 be treated neither as a supply of goods nor a supply of services”
“SCHEDULE III
[See section 7]
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his employment.”
5.1 It is submitted that Section 7 (2) begins with a non-obstante clause and overrides Section 7 (1) of the CGST Act. A plain reading of above section provides that even in case where any activity may be treated as ‘supply’ in terms of Section 7 (1), certain activities/ transactions would still be excluded from the scope of ‘supply’.
5.2 M/s. Emcure submits that it is providing these facilities to the employees due to their agreed terms. It recovers the subsidized amount of canteen facility to the employee in terms of the HR Policy. Therefore canteen facility is directly in connection with the employment of the employees.
5.3 M/s. Emcure submits that the Press release issued by the Ministry of Finance dated 10th July 2017, reads as follows:
“Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that 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. Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health and fitness center [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C)”.
5.4 M/s. Emcure has submitted that as per press release, it is clear that any services provided by the employer to the employees in terms of the contractual agreement entered into between the employer and employee will not be subjected to the GST. As mentioned above, in the present case M/s. Emcure is providing canteen facility to its employees as per the HR Policy. Further, the amount charged from the employee is fully paid to the third-party contractor and no profit or pecuniary benefit is involved in this activity. Hence, M/s. Emcure is of the view that the provision of canteen facility is excluded from the purview of supply.
5.5 M/s. Emcure submitted that without prejudice to the above, it is settled position under GST regime that an employee recovery does not amount to ‘supply’. In this regard they have relied upon the following rulings of the Hon’ble Advance Ruling Authorities, wherein it is held that no GST is to be included on the recoveries made by a company on canteen facility provided through a third party to their employees:
