In re Sigma Electric Manufacturing Corporation Pvt Ltd. (GST AAR Maharashtra)
The Authority for Advance Ruling, Maharashtra, examined whether deductions made by an employer from employees’ salaries towards canteen and transportation facilities, and notice pay recovery, attract GST. The applicant, a manufacturing company, provided canteen and transport services to employees through third-party vendors and recovered a nominal portion of the cost from employees, while bearing the balance. The canteen facility was provided pursuant to statutory obligations under the Factories Act, and transport services were provided under employment contracts due to the remote location of the factory.
The Authority analyzed whether such recoveries constitute “supply” under Section 7 of the CGST Act. It held that both canteen and transportation facilities provided by the employer to employees qualify as “supply of services,” as they are incidental or ancillary to business and involve consideration, even if subsidized. The Authority observed that two distinct transactions exist: supply by third-party vendors to the employer, and supply by the employer to employees. Since the employer recovers a portion of the cost, the element of consideration is satisfied, making the activity taxable.
On the argument that such facilities are perquisites under employment, the Authority clarified that only the portion provided free of cost qualifies as a perquisite not liable to GST. The portion recovered from employees constitutes consideration and is taxable. Accordingly, GST is applicable on the nominal amounts deducted from salaries for canteen and transportation services.
