In re Shriram Pistons & Rings Limited (GST AAR Rajasthan)
Introduction: Delving into the complexities of GST regulations, the case of Shriram Pistons & Rings Limited presents a scenario where the company, engaged in manufacturing automobile parts, sought an advance ruling on the tax implications of its canteen services. This article explores the questions raised, the findings, and the subsequent rejection of the advance ruling application.
Questions Raised: The company raised four critical questions related to its canteen services:
i. Whether providing subsidized food to employees falls outside the scope of “supply” as per Schedule III of the CGST and RGST Acts.
ii. Whether the subsidized deduction from employees’ salaries can be considered as consideration for the ‘supply of service.’
iii. If the answer to question 2 is yes, whether GST is applicable on the amount deducted from employees’ salaries.
iv. Whether the company is eligible for input tax credit on GST charged by the third-party canteen service provider.
Findings, Analysis & Conclusion: The advance ruling sought by Shriram Pistons & Rings Limited was rejected by the Authority for Advance Ruling (AAR) in Rajasthan. The rejection was based on procedural and jurisdictional grounds.
i. Procedural Grounds: The AAR noted that the applicant filed the application for advance ruling on 21.03.2023, much later than the execution of the canteen services contract. This raised concerns about the nature of the ruling sought, as it was related to transactions already undertaken and GST already paid. The AAR emphasized that advance rulings are intended for proposed transactions or those yet to be undertaken.
ii. Jurisdictional Grounds: The AAR highlighted the limited scope of its jurisdiction, which extends only to matters or questions specified in sub-section (2) of Section 97, in relation to the supply of goods or services being undertaken or proposed by the applicant. In this case, the canteen services were provided by a third-party contractor, and the applicant was the recipient of these services.
Conclusion: The AAR, considering the procedural and jurisdictional aspects, declared the application for advance ruling as not maintainable and rejected it under the provisions of the GST Act. This ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.
Significance: This case highlights the importance of understanding the procedural requirements and jurisdictional limits when seeking an advance ruling. It underscores the need to approach the AAR for matters that are proposed or yet to be undertaken rather than those already implemented.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING,RAJASTHAN
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being urder the “GST Act”.
The issue raised by M/S Shriram Pistons &Rings Limited, SP-1/892,893, Industrial Area Pathredi, Near Chopanki, Bhiwadi, Alwar, Rajasthan – 301707(hereinafter referred to as “applicant”). Applicant has entered a contract with a third-party canteen service provider for providing cooked food, drinks etc., to employees, in canteen area which is inside the factory of Applicant., in the name of M/s Shriram Pistons & Rings Limited. The Three Issues raised by applicant is fit to pronounce advance ruling & it falls under the ambit of the Section 97(2) (d),(e)& (g) given as under:
(d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services or both
(g) whether anything done by the applicant with respect to any goods and/or services or both amounts to or results In a supply of goods and/or services or both, within the meaning of that term.
A Submission of The Applicant: (in brief)
Applicant has entered a contract with a third-party canteen service provider for providing cooked food, drinks etc., to employees, in canteen area which is Inside the factory of Applicant. The canteen service provider Is raising its invoices on Applicant and Applicant is making recoveries at subsidized rate from the salary of its employees for canteen facility.
Applicant wishes to know whether the activity of providing food at subsidized price to employees, can be considered as supply of service by Applicant to its employees.
Applicant further wishes to know whether it Is eligible to take input tax credit of the GST charged by contractor for canteen services availed by it for its employees.
B Interpretation and understanding of applicant on question rose (in Brief) The applicant submitted his interpretation which Is under-
1. Shriram Pistons and Rings Limited (“Applicant”), is engaged in manufacture and supply of automobile parts (two wheelers and four wheelers) viz. engine parts such as pistons, piston rings, engine valves etc. at its manufacturing unit (factory) located at Pathredi, Rajasthan.
2. Applicant is a company incorporated under the Companies Act, 1956. it has various manufacturing, research and development centers and branch offices located In different states and accordingly Applicant has obtained GST registration in the respective locations. Applicant with GSTINO8AAACS0229612Pis registered with the Goods and Services Tax department in the state of Rajasthan and falls within the administrative jurisdiction of AC/CTO, Ward Circle-C, Bhiwadi, Rajasthan.
3. Employees are vital resources to carry out the day-to-day affairs of the factory. Applicant has more than 2000 employees working In its factory and copy of the supporting document viz. Form no. 23i.e.annual return filed by Applicant for year 2022, in compliance to Rajasthan Factories Rules, 1951, Is enclosed as Annexure-A.
4. As per Section 46 of the Factories Act, 1948 (“Factories Act”) read with Rule 69 of the Rajasthan Factories Rules, 1951 (“Rajasthan Factories Rules”), Applicant is under statutory obligation to provide canteen facility to its workers.
5. In order to provide canteen facility, Applicant has engaged a third-party canteen service provider (“canteen contractor”), for providing quality food and refreshments to its employees. Canteen contractor charges as per the agreed price per meal from Applicant. It is raising invoice under SAC 996333 and is charging GST @ 5% from Applicant. Copy of the invoices raised by canteen contractor, on sample basis, is enclosed as Annexure-B.
6. Further, in order to ensure administrative control, discipline and to avoid wastage of food, Applicant recovers a part (at subsidized rates) of the meal cost incurred by it from employees. Accordingly, the charges of the meals/snacks are deducted from the salary of the individual employee. Copy of relevant documents are enclosed as Annexure-C.
7. The said amount recovered from employees is paid to canteen contractor along with the remaining portion, which is paid by Applicant. It is pertinent to note here that Applicant does not retain any part of such amount and moreover, no profit is made by Applicant from such activity.
8. Under the aforesaid circumstances, Applicant is filing the present application seeking advance ruling to understand whether GST is payable on the amount recovered by Applicant from its employees for providing food in canteen. Also, whether Applicant is eligible to take Input Tax Credit (“ITC”) of GST charged by canteen contractor for canteen service availed by it for its employees.
APPLICANT’S EUGIBIUTY FOR ADVANCE RUUNG:
1. Section 97(2) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and Rajasthan Goods and Services Tax Act, 2017 (“RGST Act”), entails that an advance ruling may be filed by Applicant on the following questions:
a) Classification of any goods or services or both;
b) Applicability of a notification issued under the provisions of this Act;
c) Determination of time and value of supply of goods or services or both;
d) Admissibility of input tax credit of tax paid or deemed to have been paid;
e) Determination of the liability to pay tax on any goods or services or both;
f) Whether the applicant is required to be registered;
g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
2. At the outset, it is made clear that the provisions of both CGST Act and RGST Act and rules made there under are same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act and CGST Rules would also mean a reference to the same provisions under the RGST Act and RGST Rules and vice versa.
3. Applicant submits that the advance ruling sought in the instant matter relates to determination whether recovery of subsidized charges from employees amounts to or results in supply of services and whether there is liability on Applicant to pay tax on such amount recovered from employees towards provision of food facility in the factory. Further, whether ITC is available to Applicant on GST charged by charged by canteen contractor for canteen service availed by it for its employees.
4. The question relating to determination of the liability to pay tax on any service is eligible to be posed for advance ruling before the Advance Ruling Authority in terms of Section 97(2)(e) of the CGST Act. the other questions raised are also eligible to be posed for advance ruling before the Advance Ruling Authority in terms of Section 97(2)(g) and (d) of the CGST Act. Similar provisions are contained in Section 97 of RGST Act.
5. Further, Applicant is also registered in the state of Rajasthan. Hence, the present advance ruling application is maintainable before the Hon’ble Rajasthan Authority for Advance Ruling.
APPLICANTS UNDERSTANDING
6. Applicant’s Interpretation Is that the deductions made from the salary of employees for providing food facility does not qualify as ‘supply of goods or services’ in terms of Entry to Schedule III of the CGST Act and will not be subjected to GST. Further, such deductions are not in nature of consideration for any supply.
7. Further, Applicant is eligible to take ITC of GST charged by canteen contractor for canteen service received by it for Its employees as same is received in course or furtherance of Its business of manufacture in terms of Section 16(1) of the CGST Act.
8. The submissions in support of the aforesaid interpretation have been enunciated in the following paragraphs:
A. The food facility provided by Applicant to employees is excluded from the scope of ‘supply in terms of Clause (a) of Section 7(2) of the CGST Act.
9. It is submitted that the food facility provided by Applicant to its employees, is excluded from the purview of ‘supply in terms of clause (a) to Section 7 (2) of the CGST Act. The relevant provisions are reproduced below:
“SECTION 7. Scope of supply. —
(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;
(1A) where certain activities or transactions constitute a supply In accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.
(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.’
[Emphasis Supplied]
10. Section 7(2) of the CGST Act, 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’.
11. Entry 1 of Schedule-III covers, services provided by employee to Its employer in the course of employment or in relation to employment. It may be noted that any activity or transaction which is undertaken in the course of employment or in connection with employment has been specifically excluded from the ambit of supply.
12. The provisions of Section 7(2) of the CGST Act are non-obstante those of Section 7(1) and thus, activities/ transactions specified in Schedule-III shall not be treated as ‘supply’ for purposes of Section 7(1) and not liable to GST under Section 9.
13. The food facility is being provided by Applicant to its employees as a part and parcel of the employment terms and conditions. Therefore, the said food facility is clearly an activity, which is being undertaken in the course of employment only. The food facility has a direct nexus with the employment of employee with Applicant. On termination of employer-employee relationship, the concerned person cannot avail the said food facility. Therefore, by virtue of Section 7 (2) read with Entry 1 of Schedule III, the food facility does not amount to supply.
14. In the instant case, Applicant has made available food facility to its employees in the course or In relation to their employment whereby they can take a meal in the factory canteen. Further, as already stated above, the food facility is being provided in the factory of Applicant due to the mandatory requirement of Section 46 of the Factories Act read with Rule 69 of Rajasthan Factories Rules.
15. It is further submitted that the food facility is similar to the other facilities like providing workspace, air-conditioning, laptops, computers and photocopy machines etc., made available by employer, facilitating employees to contribute towards the business activities of employer.
16. These facilities are not for personal benefit of employees. Therefore, the food facility cannot be said to be an independent supply provided/made by employer to employees. Rather, it is statutory requirement of the Factories Act read with Rajasthan Factories Rules.
17. It is further submitted that the nominal amount recovered from employees is only towards recovery of part of the cost of food facility extended by Applicant. Bearing of part of cost by employees will not alter the nature of transaction. It is all part of one facility extended by employer, where the cost is partly borne by Applicant and partly by employees. Therefore, in absence of any supply by Applicant, no GST is payable on the recoveries made by Applicant from its employees.
18. Also, the press release issued by Central Board of Indirect Tax and Customs (CBIC’) on 10.7.2017, clarified the aspect with respect to taxability of perquisites supplied by the companies to their employees. In the last paragraph of the said press release, it was clarified that where free housing or membership of club, health centre etc. is provided to employees free of cost under the contract of employment and if cost of such services forms part of the CTC of employees, then no GST will be payable on such services provided by employer to employee. The relevant part of the said press release is reproduced below:
“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 there from 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 EST. Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health and fitness centre [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).”
[Emphasis Supplied]
19. Further CBIC, vide Circular No. 172/04/2022-GST dated 6.7.2022 (issued vide F. No. CBIC-20001/2/2022-GST), in SI. 5 clarified as following:
