In re Tube Investment of India Limited (AAR GST Uttarakhand)
A. Whether the nominal amount of recoveries made by the Applicant from the employees who are provided food in the factory canteen would be considered as a “Supply” by the applicant under the provisions of Section 7 of Central Goods and Service Tax Act, 2017?
Answer: Yes, it is a “Supply” under the provisions of Section 7 of the CGST Act, 2017.
B. Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the Applicant to the Canteen Service Provider?
Answer: Yes, GST is applicable on both the amounts i.e. amount paid to the canteen service provider and also on the nominal amount recovered from the employees.
C. Whether input tax credit (ITC) is available on the GST charged by the Canteen Service Providers for providing the catering services at the factory where it is obligatory for the Applicant to provide the same to its employees as mandated under the Factories Act, 1948; even if the answer to question (a) is “No”?
Answer: Input Tax Credit will not be available on GST charged by the canteen service provider, in terms of provisions of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 20/2019-C.T. (Rate) dated 30.09.2019.
D. Whether input tax credit (ITC) can be availed on GST charged by the Canteen service providers, the answer to the question (b) is “Yes”?
Answer: No, Input Tax Credit is not available in terms of provisions of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 20/2019-C.T. (Rate) dated 30.09.2019.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, UTTARAKHAND
These proceedings emanate from the Order No. 05/2022-23 dated 13.03.2023 of the Appellate Authority for Advance Ruling, Goods 85 Service Tax, Uttarakhand, passed in appeal No. UKGSTARA02/03/23-12-22/2022-23 against Ruling No: 12/2022-23 dated 24.11.2022 of Authority for Advance Ruling, Goods &, Service Tax, Uttarakhand passed in an application under Sub-Section (1) of Section 97 of the Central Goods & Service Tax Act, 2017 and Uttarakhand State Goods & Service Tax Act, 2017 (hereinafter referred to as CGST/SGST Act) and the rules made there under filed by M/s Tube Investment of India Limited, 230 86 231, Gangnouli, Laksar, Haridwar, Uttarakhand-247663(herein after referred to as the “applicant”) and registered with GSTIN 05AADCT1398N1ZW under the CGST Act, 2017 read with the provisions of the UKGST Act, 2017.
2. In the application dated 26.08.2022, the applicant submitted that:
(a) That they are a leading engineering company engaged in manufacture of precision steel tubes and strips, automotive, industrial chains, car door frame and bicycles. And they have a factory in the state of Uttarakhand where in more than 500 workmen (both direct and indirect) are employed.
(b) They have entered into agreement with the contractors to operate canteen within the factory premises to provide food to their employees.
(c) They recover nominal amount from the employees on monthly basis and such recoveries are shown as a deduction in the monthly slip of the employees.
(d) They do not avail input tax credit (ITC) on the expenses incurred on the services provided by the canteen service provider and are absorbing the GST charged by the canteen service provider as a cost in the books of accounts.
(e) They discharge GST @5% on the cost of the canteen service provider total taxable value plus 10% notional mark up.
In view of the above facts, ‘the applicant’ is sought advance ruling as to;
a. “Whether the nominal amount of recoveries made by the applicant from the employees who are provided food in the factory canteen would be considered as a “Supply” by the applicant under the precisions of Section 7 of Central Goods and Service Tax Act, 2017,
b. In case answer to the above is “Yes”,
– Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the applicant to the Canteen Service Provider?
c. Whether input tax credit (ITC) is available to the applicant on GST charged by the Canteen Service Providers for providing the catering services of the factory where it is obligatory for the applicant to provide the same to its employees as mandated under the Factories Act, 1948, even if the answer to question (a) is “No”?
Whether indput tax credit (ITC) can be availed on GST charged by the Canteen service providers, the answer to the question (b) is “Yes”?”
On the basis of the facts and circumstances, the Authority ruled as under:
“a. Whether the nominal amount of recoveries made by the Applicant from the employees who are provided food in the factory canteen would be considered as a “Supply” by the applicant under the precisions of Section 7 of Central Goods and Service Tax Act, 2017 -Yes, it is a supply.
b. Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the Applicant to the Canteen Service Provider – GST is applicable on both the amount i.e. amount paid to the canteen service provider and also on the nominal amount recovered from the employees.
c. Whether input tax credit (ITC) is available to the on GST charged by the Canteen Service Providers for providing the catering services at the factory where it is obligatory for the Applicant to provide the same to its employees as mandated under the Factories Act, 1948, even if the answer to question (a) is “No”? – Benefit of ITC is not admissible on the GST on the amount paid to the canteen service providers and also on the amount recovered from the employees.
d. Whether input tax credit (ITC) can be availed on GST charged by the Canteen service providers, the answer to the question (b) is “Yes”? – No, ITC is not admissible on the GST on the amount paid to the canteen service providers.”
Not satisfied with the ruling of the Advance Ruling, Goods 86 Service Tax, Uttarakhand, the applicant filed an appeal with the Appellate Authority for Advance Ruling, Goods 86 Service Tax, Uttarakhand, under section 100 of the CGST Act, 2017 and UKGST Act, 2017 and while deciding the said appeal, the Appellate Authority for Advance Ruling, Goods 86 Service Tax, Uttarakhand vide Order No. 05/2022-23 dated 13.03.2023, at Para
10.4 and 11 made following observations:
“10.4. However, as is evident from the case records available before us, we find there was a recent CBIC Circular No.172/04/2022-GST dated 06.07.2022 upon which the applicant had relied heavily upon at the time of filing advance ruling application before the Authority. We find that, prima-facie; this Circular appears to have relevance and significant force in deciding the instant issue in the context of this case. Since CBIC Circulars are binding in nature, the Authority for Advance Ruling was obligated to give it its due consideration. Even if the Authority had doubts about the applicability of the said Circular to the facts of the instant case, principles of natural justice required it to elaborate upon the said reasons. But for some reason no cognizance of the said Circular was taken by the said Authority in its Order No. 12/2022-23 dated 24.11.2022 and the same was not discussed at all.
11. In view of our findings as at paras 9 to 9.3 and 10 to 10.4 above, I find that the Order No. 12/2022-23 dated 24.11.2022issued by Authority for Advance Ruling suffers from fatal flaws that warrants its remand back to the Authority for giving its findings by considering CBIC Circular No.172/04/2022-GST dated 06.07.2022“.
And thereafter, the Appellate Authority for Advance Ruling, Goods & Service Tax, Uttarakhand, remanded the matter back for issuing a fresh self -contained and reasoned order. Hence, this proceeding and order.
We find that in the Order No. 05/2022-23 dated 13.03.2023, the Appellate Authority for Advance Ruling, Goods & Service Tax, Uttarakhand, has observed that no cognizance of the Circular No. 172/04/2022-GST dated 06.07.2022 had been taken by the Authority for Advance Ruling, Goods 86 Service Tax, Uttarakhand and hence remanded the matter with limited point of deciding the application afresh considering Circular No. 172/04/2022-GST dated 06.07.2022. Hence following the order dated 13.03.2023, we are taking up the matter again in the light of Circular No. 172/04/2022-GST dated 06.07.2022.
3. At the outset, we would like to state that the provisions of both the CGST Act and the SGST 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 provisions under the SGST Act.
4. The Advance Ruling under GST means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub section (1) of section 100 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.
5. As per the said sub-section (2) of Section 97 of the Act advance ruling can be sought by an applicant in respect of:
(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.
5.2 In the present case applicant has sought advance ruling on the determination of the liability to pay tax on services, therefore, in terms of said Section 97(2) ( c), (d), (e) & (g) of CGST/SGST Act, 2017, the present application is hereby admitted.
5.3 Accordingly opportunity of personal hearing was granted to the applicant on 12.09.2023 Sh. K Sivarajan, Chartered Accountant and Sh. K Karthikeyan, Company Representative, on behalf of the applicant appeared for personal hearing on the said date and re-iterated the submission already made in their application. Sh. Deepak Brijwal, Deputy Commissioner, Concerned Officer from the State Authority was also present during the hearing proceedings. He presented the facts and requested the authority to decide the case on merits.
6. From the record submitted by the applicant we find that applicant is registered in Uttarakhand with GSTIN bearing No. 05AADCT1398N1ZW. Before proceeding in the present case, we first go through the submissions made by the applicant at various stage, which are as under:
i. That they are a company incorporated under Companies Act, 1956 manufacturing precision steel tubes and strips, automotive, industrial chains, car door frame and bicycles in the state of Uttarakhand where in 520 workmen (both direct and indirect) are employed. And in compliance with the provisions of the Factories Act, 1948 they provide canteen facility to those employees.
ii. They have entered into agreement with the contractors to operate canteen within the factory premises to provide food to their employees and the amount raised by the canteen operator is booked as expenses in the P 86 L account without taking the benefit of ITC of the GST paid by them.
iii. They recover nominal amount from the employees on monthly basis and such recoveries are shown as a deduction in the monthly slip of the employees and the recoveries made is credited to the expense account.
iv. Under the provisions of the Factories Act, 1948 they are obligated and mandated to provide canteen facility to its employees at the factory and considering the large number of employees working at the factory. And to cater to the above-mentioned obligations, the Applicant has set up the canteen facility in a demarcated area within its factory premises wherein tables, chairs, utensils, washrooms, wash basins, storage rooms for keeping the cooked food, washing the utensils etc. have been provided and the applicant is responsible for electricity supply essentials and other equipment for running the canteen. This facility is available to all of the employees and it is agreed that the Applicant shall contract and pay in full to the service provider for the food served during a prescribed period on behalf of the employees and nominal amount is recovered from the employees on monthly basis and the balance amount is borne by the Applicant.
7. In the present case we are not deciding any wider question but restricting our conclusion to the facts and circumstances which were filed by the applicant for our consideration. We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by applicant and his authorized representatives during the hearing. We have also considered the issue involved on which advance ruling is sought by the applicant, relevant facts and the applicant’s interpretation of law. Now we proceed by taking up the issue:
8. We have carefully considered all the submissions made by the Applicant. The applicant is a leading engineering company engaged in manufacture of precision steel tubes and strips, automotive, industrial chains, car door frame and bicycles and wherein in a factory in the state of Uttarakhand more than 500 workmen (both direct and indirect) are employed. The applicant recover nominal amount from the employees on monthly basis to provide food to them and for same they have engaged contractors, who operates canteen within the factory premises. 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. It has also been submitted by the applicant that they do not avail input tax credit (ITC) on the expenses incurred on the services provided by the canteen service provider and are absorbing the GST charged by the canteen service provider as a cost in the books of accounts.
It is seen that the Applicant had set up a canteen facility, for the benefit of its employees and workers. The clarification sought is as to whether GST is liable to be paid on that part of the amount collected from their employees towards provision of food and also that whether ITC is available on the GST paid by them on the taxable value of the canteen service. We find that the applicant has contended that since the supply of food in canteen is part of employment contract, the same shall be ousted from the scope of supply vide the Entry 1 in Schedule III of the CGST Act, 2017 and that there is no supply between the Applicant and the employees and the Applicant is not engaged in the business of provision of canteen services. Further, the amount received from the employees is in the nature of recovery and not consideration.
We observe that since the Appellate Authority for Advance Ruling, Goods &, Service Tax, Uttarakhand in the Order dated 13.03.2023 observed that no cognizance of the Circular No. 172/04/2022-GST dated 06.07.2022 had been taken by the Authority for Advance Ruling, Goods & Service Tax, Uttarakhand and hence remanded the matter with limited point of deciding the application afresh considering Circular No. 172/04/2022-GST dated 06.07.2022.
We find that Circular No. 172/04/2022-GST dated 06.07.2022 with the subject “Clarification on various issue pertaining to GST’ has been issued on various issues. For better perspective, the relevant portion is reproduced as under:
“Clarification on various issues of section 17(5) of the CGST Act;
Whether the proviso at the end of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the entire clause (b) or the said proviso is applicable only to sub-clause (iii) of clause (b)?
1. Vide the Central Goods and Service Tax (Amendment Act) 2018, clause (b) of subsection (5) of section 17 of the CGST Act was substituted with effect from 01.02.2019. After the said substitution, the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act provides as under:
“Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”
2. The said amendment in sub-section (5) of section 17 of the CGST Act was made based on the recommendations of GST Council in its 28th meeting. The intent of the said amendment in subsection (5) of section 17, as recommended by the GST Council in its 28th meeting, was made known to the trade and industry through the Press Note on Recommendations made during the 28th meeting of the GST Council, dated 21.07.2018. It had been clarified “that scope of input tax credit is being widened, and it would now be made available in respect of Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force.”
3. Accordingly, it is clarified that the proviso after sub-clause (iii) of clause (b) of subsection (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of subsection (5) of section 17 of the CGST Act.”
The contention by the applicant is that the supply of food at subsidized rate is not liable to GST in terms of Circular No. 172/04/2022-GST dated 06.07.2022 of CBIC, the relevant extract of the said circular is reproduced hereunder for case of reference:
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