In re Kothari Sugars and Chemicals Limited (GST AAR Tamilnadu)
‘Whether 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 attract tax under GST?’
In the case at hand, the applicant has established canteen facilities as mandated under Section 46 of the Factories Act, 1948 and supplies food at a nominal cost either directly or through third-party-vendor. The supply of food by the applicant is ‘Supply of Service’ by the applicant to their employees as the same is not a part of the employment contract and the canteen facility is provided as mandated under Factories Act. The nominal cost, which is recovered from the salary as deferred payment is ‘consideration’ for the supply and GST is liable to be paid.
Read AAAR Order: GST on Subsidized Canteen Services for Employees
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section |1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
M/s. Kothari Sugars and Chemicals Limited, 115-117, Kothari Buildings, Mahathma Gandhi Road, Nungambakkam, Chennai, Tamil Nadu, 600 034 (hereinafter called the ‘Applicant’) is registered under the GST Vide GSTIN 33AABCK2495F1ZP. They have sought Advance Ruling on the following question:
Whether 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 attract tax under GST?’
The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules, 2017 and SGST Rules 2017.
2.1 The applicant has stated to be engaged in the manufacture of sugar, molasses, Denatured ethyl alcohol, and ethyl alcohol. They have stated that they have two manufacturing units located at Kattur and Sathamangalam, wherein around 300 workers have been employed. Section 46 of the Factories Act, 1948, prescribes for the operation and maintenance of canteen for the use of the workers, where more than two hundred and fifty workers are ordinarily employed. Accordingly, they had set up canteen facility at both the units, for the benefit of its employees and workers. Specifically, at the Sathamangalam unit, they have engaged a third party for the purpose of supply of food to the workers in the manufacturing unit. The consideration for provision of such service by the external service provider is agreed at Rs. 113.33. With regard to the Kattur unit, they had appointed a third party to prepare the food at their unit, where the required inputs are procured by them. In this regard, they recover a concessional rate of Rs.35/-from each of the employees for the supply of food in the canteen. The balance cost per meal incurred is borne by them as cost to the employer. In respect of the recoveries made from employees, they are currently discharging GST as an abundant caution.
2.2 On the interpretation of the law, the applicant has stated that since the provision of food in canteen is as per the employment contract and the same is on account of the mandate prescribed in the Factories Act, 1948, it would be covered under Entry 1 in Schedule III of the CGST Act, 2017. The Applicant is of the view that the amount collected from the employees for provision of canteen facility at its Sathamangalam unit, would not be taxed under GST for the following reasons:
> There is no supply between them and the employees and they are not engaged in the business of provision of canteen services.
> The amount received from the employees is in the nature of recovery and not consideration. The recovered amount is directly paid to the third-party vendor without any profit element in their hands.
> The provision of canteen facility is as per the employment contract and therefore covered under Entry 1 of Schedule III of the CGST Act, 2017
Further, Section 46(1) of the Factories Act, 1948 mandates every factory establishment to maintain canteen facility for the use of the workers in the factory. In order to comply with the above-stated statutory obligation, they have established a canteen facility for the benefit of the workers in the factory. They have outsourced the operation of canteen to a third-party vendor and are not engaged in the provision of canteen services. The same is provided to the workers since there is a mandate in the statue and it is an obligation bestowed on them by the Government. In the absence of such obligation, they would not provide such canteen facility to their employees working in the factory.
2.3 For any transaction to be taxed under GST, the same should fall within the scope of supply as envisaged in Section 7 of the CGST Act, 2017. As per Section 7(1) of the CGST Act, 2017 any transaction to be covered within the scope of supply should satisfy the following conditions- There should be supply of goods or services or both; There should be consideration;It should be in the course or furtherance of business. In the instant case, there is no aspect of supply between them and the employee in respect of canteen services. They have engaged a third-party vendor for the provision of canteen services and the canteen service is actually provided by the third-party vendor. They merely facilitate the provision of such service by the third-party vendor for the use of the employees. Therefore, there is no scope for supply of services between them and their employees in the instant case. Further, they are engaged in the business of manufacture of sugar, molasses, Denatured ethyl alcohol, and ethyl alcohol and not in the provision of canteen facility. Section 2(17)(b) of the CGST Act, 2017 pertains to any activity which has direct correlation with the activity of business. The provision of canteen facility by them has no nexus with their business i.e., manufacture of sugar, molasses, Denatured ethyl alcohol, and ethyl alcohol. The activity of provision of canteen facility is only on account of obligation bestowed by the Government on them and the same cannot be termed as their business. In this regard, they have placed reliance in the ruling of Advance Ruling Authority
