In re Kothari Sugars and Chemicals Limited (GST AAAR Tamilnadu)
The appellant seeks to set aside or modify the ruling passed by the Authority for Advance Ruling (AAR), contending that the recovery of a nominal amount from employees for payment to a third-party service provider, supplying food in the canteen, should not attract GST. The crux of the matter revolves around two distinct transactions: the supply of food/beverages by the caterer/service supplier to the employer (appellant) and the subsequent supply of food/beverages by the employer to their employees.
The appellant argues that the perquisites provided to employees, including subsidised canteen services, are excluded from GST as per a circular issued by the Central Board of Indirect Taxes and Customs (CBIC). However, it is determined that the provision of the canteen facility does not fall under the category of perquisites mentioned in the circular, as there is no explicit contractual agreement between the appellant and their employees regarding the canteen facility.
Moreover, the appellant claims that the consideration collected from employees is a mere cost-sharing arrangement. However, it is established that the supply of food/beverages by the appellant to employees qualifies as a separate transaction and is liable to GST.
The appellant also cites various judgments and rulings to support their arguments. However, upon careful examination, these citations are deemed non-binding and are not applicable to the specific case at hand.
AAAR held that 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.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING,TAMILNADU
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 in pari materia and have the same provisions in like matter and differ from each other only on few specific provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act, 2017 would also mean a reference to the same provisions under the Tamil Nadu Goods and Service ‘Tax Act, 2017.
The subject appeal was filed under Section 100 (1) of the Tamil Nadu Goods and Services Tax Act. 2017 / Central Goods and Services Tax Act, 2017 (hereinafter referred to ‘the Act’) by M/s Kothari Sugars and Chemicals Limited (hereinafter referred to as ‘Appellant’). The Appellant is registered under the GST Act vide GSTIN 33AABCK2495TTZP. The appeal was filed against the Order No.20/AAR/2022 dated 31.05.2022 passed by the Tamil Nadu State Authority for Advance ruling on the Application for Advance ruling filed by the Appellant.
2.1 The Appellant 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. As per Section 46 of the factories Act, 1948. where more than two hundred and fifty workers are ordinarily employed, a canteen have to be provided and maintained by the specified factory for the use of the workers. Accordingly, Appellant had set up canteen facility at both the units, for the benefit of its employees and workers. The Appellant had filed an application before the Hon’ble Authority for Advance Ruling, seeking clarification on the following questions:
‘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?’
3. The Original Authority had vide Order No.20/AAR/2022 dated 31.05.2022 ruled as follows: “Answered in the Affirmative for the reasons stated in Para 8”
“”8.4 To sum up. in the ease 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.”
4. Aggrieved of the decision of AAR in the order no:20/AAR/2022 dt. 31.05.2022. M/s Kothari Sugars and Chemicals Limited preferred the subject appeal, the grounds of appeal, inter alia were as follows:
> that perquisites forming part of employment contract were excluded from GST as per Circular No. 172/04/2022-GST; the employment appointment order shows the starting basic pay and it is also stated that “they will be eligible for only those benefits as applicable to others of the cadre”;
> that under Section 17(2) of the Income Tax Act, 1961 provides an inclusive definition for the term “perquisites’ wherein sub clause (viii) provides that the value of any other fringe benefit or amenity may be prescribed;
> that recovery of canteen cost from employees was a mere cost sharing arrangement between the employees and the Appellant as per factories Act and does not amount to consideration; that the provision of canteen facility was not covered under the scope of supply; the provision of canteen facility was due to the mandate prescribed in the factories Act. 1948;
> they furnished the following ease laws in their support;
(i) Bhimas hotels P Ltd 12017 (3)GSTL 30 (A.P)|
(ii) CCE V Rattan Melting & wire Industries 12008 (231 )122(SC7)|
(iii) UOI Vs Arviva Ind (I) Ltd [2007 (209) ELT 5 (SC) ]
(iv) Jotun India P Ltd 12019- TIOL-312-AAR-GST
(v) Ranadcy Micronutrients Vs CCE 11996(87)ELT 19 (SC)
(vi) Gujarat state fertilizers & Chemicals ltd vs CCL 12016(45) STR 489 (SC)
(vii) Posco India Pune processing center private limited [2019 (21) G.S.T.L. 351 (A.A.R. – GST)].
(viii) Glaxo smithkline pharmaceuticals ltd vs Commr. of ST Mumbai [2014(360ST R349(tri-Mum)]
(ix) Ion trading india private limited [2020 (32) G.S.T.L. 608 (A.A.R.-GST-U.P.)]
(x) Historic resort hotels Vs CCE Jaipur II [2018(9)GSTL 422]
(xi) AAAR -Bharat Oman refineries ltd [2021-TIOL-36-AAAR-GST]
(xii) AAR-Dakshina kannada Coop Milk Producers union ltd [2021 (55)GSTL (AAR-GST-KAR)]
(xiii) AAR-Emeure Pharmaceuticals ltd [2022-TIOL-10-AAR-GST]
(xiv) AAR-Dishman Carbogen ameis ltd [2022(62) GSTL 245(AAR-GST-Guj.)]
(xv) AAAR- Amneal Pharmaceuticals pvt ltd [TS-569-AAAR(Guj)2021 -GST]
Personal Hearing:
5. The Authorized Representative (AR) appeared for the personal hearing, along with Shri J.Janarthanan. AGM, Taxation. and reiterated the facts and grounds of appeal, They furnished additional submissions vide letter dated 24.08.2022 wherein the AR had submitted judgement copy of all the eases cited in the appeal memorandum, They have also filed additional submissions through e-mail dated 22-11-2022.
5.1 In response to the query, whether the catering service provider has been issuing any supply invoice directly to the employees of the company, AR stated that supplier of service was raising two separate monthly invoices in favour of the company/employer. but not to the employees of the company. Of the two invoices, one invoice was being issued to the extent of the value of the supply being recouped from the employees by the company/employer: and the other invoice to the extent of the balance amount which was borne by the company/employer.
5.2 Further, in response to the query whether the amount paid by the employees, although at subsidized rates, was/is being received by the vendor caterer or the employer, the AR submitted that it is received by the company/employer: but it is ultimately paid to the vendor caterer against the relevant invoice, received from the supplier of the service.
5.3 It was submitted that there is only a single service transaction in the said ease and the aspect of recovery from employees is merely a passthrough activity and not a separate transaction, Hence the levy under GST should be applicable only on the element of service provided by the vendor caterer to the company.
5.4 In response to the query as to how the charges collected from the employees by the company towards canteen facility/food & beverages provided to the employees, would form part of salary/remuneration of the employees, the AR drew attention to various ease laws and the rulings of AAR/AAAR of other states, cited in the additional submissions; and requested to adopt the ratio of the same; and decide the matter in their favour.
5.5 The AR/ Company’s representative were offered three working days to submit further submissions, if any.
5.6 The AR has submitted further submissions as follows:
i. The appellant relied on ruling of the Gujarat Authority for Advance Ruling in the case of M/S. ZYDUS LIFE SCIENCES LTD. [2022-TIOL-118-AAR-GST], wherein it ruled in favor of the assesse on transport and canteen facilities extended by the assesse and the consequent recoveries made from them.
ii. Further, the Appellant also relied on the recent case of HAZIRA LNG PVT LTD [FINAL ORDER No. A/11349/2022 DATED 02.11.2022], wherein it has been ruled that there would be no tax implications in ease of mere cost sharing agreements.
iii. Accordingly, in the instant case where the Appellant recovers from the employees a portion of’ canteen charges on account cost sharing arrangement between the employees and the Appellant as per Factories Act and docs not amount to consideration.
iv. Further. the Appellant further stated that that there are no two separate transactions and there is only one service transaction for provision of canteen services and hence the appellant / representative modified the record of PH by deleting the said para 4 of the record of Ph. The above modification was made as per S.No.(viii) of the instruction provided in board Circular (Central Board of Indirect Taxes & Customs) Number ENo.390/MISC//2019-JC dated 27th April, 2020.
v. The AR prayed to consider the Appeal Memorandum already submitted and pass appropriate ruling and set aside the ruling of the AAR.
Discussion and Findings:
6. We have carefully considered all the material on record and the relevant provisions of Law. The Appellant is before this authority seeking to set aside/modify the ruling passed by the AAR and hold that 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 not attract tax under GST.
7. the Appellant had set up a canteen facility at their two manufacturing units located at Kattur and Sathamangalam in Tamil Nadu, for the benefit of its employees and workers. The Appellant supplies food at a nominal cost, either directly or through third-party vendor. The ruling sought is. whether GST is liable to be paid on that part of the amount collected from their employees towards provision of food. It is pertinent to note that the subject matter is not with regard to that part of the cost of food/beverages borne by the employer (Appellant). The subject Appeal is only with regard to the levy of GST on the subsidized amount charged by Appellant / employer from their employees for the supply of food/beverages.
7.1 Thus, fundamentally, the subject issue pertains to the transaction between the Appellant/ employer and employees, i.e., with respect to the food/beverages being supplied by Appellant/ employer to employees for a consideration, although at subsidized rates: but not with regard to the transaction between the caterer (third party vendor/service supplier) and the Appellant/employer. This aspect is also evidenced by the fact that the employer pays the total consideration for the supply of food/beverages to the caterer/service supplier; and the Appellant/employer in turn supplies the above said food/beverages to their employees.
7.2 It is an undisputed fact that the money consideration charged, although at subsidized prices, for the supplying of food/beverages from their employees is being collected by the Appellant/employer but not by the caterer/third party service supplier.
7.3 There fore, it is evident on record that there are two distinct and totally different transactions in the gamut of supply of food/beverages to the employees of the Appellant. They are:-
i) Supply of food/beverage by the caterer/service supplier to employer; and
ii) Supply of food/beverages by the Appellant/employer to their employees.
7.4 In respect of the first transaction, the caterer/ third party service supplier has been supplying food/beverage to the Appellant/employer for which the caterer/third party service supplier receives a consideration from the Appellant; on which admittedly the Appellant has been paying GST at the applicable rates.
7.5 Similarly, in the second transaction the Appellant/employer is supplying the service of providing food/beverages to their employees for which the Appellant is receiving consideration, although at the subsidized rate, from their employees.
7.6 It is not the case of the Appellant that they merely provide a place /shelter in their factory premises to facilitate the caterer/third party service supplier to provide food/beverages by the Appellant/employer to their employees; nor that the caterer/third party service supplier has been supplying the food/beverages to the employees of the Appellant for a consideration being charged directly by the caterer/third party service supplier.
7.7 The main contention of the Appellant was that the perquisites forming part of employment contract were excluded from GST as per the Circular no. 172/04/2022-GST dated 06.07.2022 of CBIC. The relevant extract of the said circular is reproduced hereunder for ease of reference:
