Case Law Details
In re Thyssenkrupp Industries India Pvt. Ltd. (GST AAR Maharashtra)
The Authority for Advance Ruling (AAR), Maharashtra examined whether GST is applicable on recoveries made by an employer from employees towards canteen facilities, bus transportation services, and notice pay deductions. The applicant, a company engaged in manufacturing and engineering services, provides canteen and transportation facilities to employees through third-party service providers and recovers part of the cost from employees.
The AAR analysed the scope of “supply” under Section 7 of the CGST Act, which requires the existence of goods or services, consideration, and that the activity be in the course or furtherance of business. It also examined the definition of “business” under Section 2(17), which includes activities incidental or ancillary to the main business. The authority held that providing canteen and transportation facilities to employees is incidental and ancillary to the principal business, as such services support employees who are essential to business operations. Therefore, these activities fall within the scope of “business.”
The AAR observed that there are two distinct transactions: first, the supply of services by third-party vendors to the employer; and second, the supply of such services by the employer to employees. Since the employer collects consideration, albeit at subsidized rates, from employees, the essential elements of “supply” are satisfied. Accordingly, the recoveries made from employees towards canteen and transportation services constitute taxable supplies under GST.
The authority further examined whether such services could be treated as perquisites falling outside GST under Schedule III. Referring to CBIC Circular No. 172/04/2022-GST, it clarified that only the portion of benefit provided free of cost or at concession qualifies as a perquisite and is not taxable. However, the portion recovered from employees constitutes consideration and is therefore taxable. Thus, GST is applicable only on the amount recovered from employees, while the balance amount borne by the employer is treated as a non-taxable perquisite.
The AAR also clarified that employer-employee relationships fall under “related persons,” and transactions between them can qualify as supply even without consideration. However, exemption from GST applies only in limited cases, such as services provided by employees to employers or perquisites forming part of employment contracts. Since recoveries involve consideration, they are not covered by such exclusions.
Regarding input tax credit (ITC), the AAR held that no ITC is available on such supplies, though the ruling does not elaborate further on this aspect.
On the issue of notice pay recovery, the AAR relied on CBIC Circular No. 178/10/2022-GST, which clarified that such recoveries are not consideration for any service. Instead, they are in the nature of compensation or penalty for breach of employment contract and do not involve any supply. Therefore, GST is not applicable on notice pay recoveries.
The AAR rejected reliance on earlier rulings cited by the applicant, noting that advance rulings are binding only on the applicant and jurisdictional officers concerned.
In conclusion, the AAR held that recoveries from employees towards canteen and transportation facilities constitute taxable supplies under GST to the extent of the amount recovered, while notice pay recoveries are not taxable. The classification depends on whether consideration exists and whether the activity falls within the scope of “business” under GST law.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, MAHARASHTRA
The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by M/s. THYSSENKRUPP INDUSTRIES INDIA PVT. LTD., the applicant, seeking an advance ruling in respect of the following questions.
1. Whether the GST would be payable on recoveries made from the employees towards providing canteen facility at subsidized rates in the factory and offices?
2. Whether the GST would be payable on the recoveries made from the employees towards providing bus transportation facility?
3. Whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.
1. FACTS AND CONTENTION – AS PER THE APPLICANT:
1.1 QUESTION :1
Whether the GST would be payable on recoveries made from the employees towards providing canteen facility at subsidized rates in the factory cum office?
1.1.1 M/s Thyssenkrupp Industries India Pvt. Ltd. (hereinafter referred to as “the Applicant”) is having its registered office at 154-C, Mittal Tower, 151 Floor, 210 Nariman Point, Mumbai – 400021 and having manufacturing plant cum office at Station Road Pimpri, Pune – 411018. The Applicant is engaged in the field of design, manufacture, supply, installation and commissioning of a wide range of Steam and Power Generation Plants for various industrial applications. The Applicant is one of the most trusted names in the field of Sugar Plants & Machinery, Open Cast Mining & Bulk Material Handling Systems, Cement Plants & Machinery and Boilers & Power plants.
1.1.2 There are more than two thousand employees working at Applicant’s factory cum office. Section 46 of the Factories Act, 1948 states that every employer having more than 250 workers is required to provide canteen facilities for workers. Non-provision of canteen facility would lead to penal action by the State Government under the Factories Act.
1.1.3 Considering the above mandatory legal provision, the Applicant provides canteen facility in its factory cum office premise.
1.1.4 In order to provide canteen facility, the Applicant has engaged third party service provider to provide the said facilities and such service provider raises invokes with applicable GST. As a company policy, the Applicant recovers a certain portion of the consideration paid to such third-party service providers from its employees. Thus, certain portion of canteen expenses is recovered from the workers/employees and remaining portion is borne by the Applicant. Copy of relevant HR Handbook regarding clause related to recovery from employee, sample canteen service recovery invoke and sample pay-slip of employee for recovery are attached with this application.
1.1.5 The Applicant would like to know whether the GST would be payable on recoveries made from the employees as a facilitator towards providing subsidized canteen facility in the factory cum office.
1.2 QUESTION – 2
Whether the GST would be payable on the recoveries made from the employees towards providing bus transportation facility?
1.2.1 The Applicant provides transportation facility to its workers / employees for commuting to the office every day. In order to carry out the said function, the Applicant has engaged third party service provider to provide the said transport facilities and such service provider raises tax invoices with applicable GST. As a company policy, the Applicant recovers a certain portion of the consideration paid to such third-party service providers from its employees using the bus facility. Thus, remaining certain portion of the bus facility cost is borne by the Applicant. Copy of relevant HR Handbook regarding clause related to recovery from employee, sample bus transport recovery invoice and sample pay-slip of employee for recovery are attached with this application.
1.1,2 The Applicant would like to know whether the GST would be payable on the 5E4 recoveries made from the employees as a facilitator towards providing bus transportation facility.
UESTION – 3
Whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period?
1.3.1 As a company employment policy, employees are required to serve notice period of three months However, there are instances where employees resign and leave the employment without serving the mandated notice period, in part or in full. Accordingly, as a company employment policy, the Applicant is entitled to monetary compensation (“Notice Pay Recovery”). In such cases, the Applicant deducts salary for the tenure of notice period not served as a compensation for breach of the terms of the Employment Agreement by the employees.
1.3.2 The Applicant would like to know whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period.
2. STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW
2.1 As per Schedule-Ill of the CGST Act, 2017, services by an employee to employer in the course of or in relation to his employment are not treated as a supply of service. However, since the Applicant recovers certain amount from its employees against canteen facility and employee bus transport facility, doubt is raised whether the same will result in “supply of service” by the Applicant to its employees under Section 7 of the CGST Act, 2017 and whether GST will be required to be paid on the same.
term “supply” is defined under Section 7 of the CGST Act, 2017 which is oduced below for your ready reference:
7. (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, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
b. import of services for a consideration whether or not in the course or furtherance of business, and
c. the activities specified in Schedule 1, made or agreed to be made without a consideration.
“(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.
(3) Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specifij, by notification, the transactions that are to be treated as
(a) a supply of goods and not as a supply of services, or
(b) a supply of services and not as a supply of goods
2.3 Thus, in order to constitute a “supply’, the following elements are required to be satisfied:
i. there should be supply of “goods” and / or “services”.
ii. supply is for a “consideration”.
iii. supply is made “in the course or furtherance of business”.
2.4 From the above, it is clear that any activity done against “consideration” is treated as “supply” however, such an activity must be in the course of business or for the furtherance of business.
2.5 The term “in the course of business” or “furtherance of business” is not defined under CGST Ad. However, the term business has been defined in Section 2(17) of CGST Act, 2017 which is reproduced below for your ready reference:
isiness” includes
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any ter similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub
clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(1) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker in such club; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
2.6 From the above definition, the term “business” broadly means any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for pecuniary benefits. Further, any activity ancillary or incidental to these activities are also covered as business. It is also mentioned that any activity or transaction falling in above categories would be business whether or not there is volume, frequency, continuity or regularity in transactions.
2.7 The Applicant is engaged in the field of design, manufacture, supply, installation and commissioning of a wide range of Steam and Power Generation Plants for various industrial applications. Providing canteen and bus transport facility service is not the business of the Applicant. The service canteen and bus transport facility are actually provided by the respective service providers for which such service providers are charging GST. The Applicant is just paying the canteen and bus transport amount to the respective service providers and recovering certain amount from the employees. Further, canteen recovery is done by the applicant irrespective of whether employee really uses the canteen facility or not. Copy of Memorandum of Association for “Object Clause” is attached with this application.
2.8 Secondly, even if the said canteen and bus transport facility were not provided, the main business of the Applicant would still be continuing. Further, the said activity is not a factor which will take the applicant’s business activity forward.
2.9 Further, as per clause (b) of Section 2 (17), business also includes any activity which is in connection with or incidental or ancillary to the activities covered under clause (a) of Section 2 (17) of the CGST Act. In this regard, activities which are wing direct nexus with the main business can be said to be ancillary or incidental. wever, canteen and employee bus transport facility are not related to or connected with the principal business of supply of design, manufacture, supply, installation and commissioning of a wide range of plant and machinery. Therefore, the same is not incidental or ancillary to the main business of the Applicant.
2.10 In this connection, reliance can be placed in the following advance rulings:
a. M/s Emcure Pharmaceuticals Ltd. reported in 2022-TIOL-10-AAR-GST (Mumbai Bench) wherein it was held that –
Tax would NOT be payable on recoveries made from the employees towards providing canteen facility at subsidized rates in the factory and office; Tax is NOT payable on the recoveries made from the employees towards providing bus transportation facility & Tax is NOT payable on the notice pay recoveries made from the employees on account of not serving the full notice period.
b. M/s Integrated Decisions and Systems India Pvt. Ltd. reported in 2022-TIOL-06 AAR-GST (Mumbai Bench) wherein it was held that –
GST is not applicable on nominal amounts recovered from its employees for usage of bus transportation facility – Held, therefore, that Part recovery of charges for ‘renting of motor vehicles services’ / ‘cab services’ from employees in respect of the transport facility provided to them would NOT be treated as ‘supply’ as per provision of GST – . no tax payable
c. M/s Tata Motors Ltd. reported in 2020-TIOL-245-AAR-GST wherein it was held that —
GST is not applicable on the nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air-conditioned bus
d. M/s Bharat Oman Refineries Ltd. reported in 2021-TIOL-36-AAAR-GST wherein the Appellant Authority for Advance Ruling (AAAR) held that various recoveries made from salary of employees is not “supply” and no GST is payable. The relevant text related to present recovery is reproduced below:
GST is not payable by the employer on recovery of “nominal” amount for availing the facility of canteen as it is only a facility provided to employees, without making any profit and working as mediator between employees and the contractor / Canteen Service Provider – GST is not applicable on the collection, by the appellant, of employees’ portion of amount towards foodstuff supplied by the third party/Canteen Service Provider
Copy of decisions are enclosed with this application.
2.11 Further, similar issue was before the Gujarat Advance Ruling Authority in an ication filed by M/s Amneal Pharmaceuticals Pvt. Ltd., wherein the applicant ueried whether GST was applicable on amount recovered from employee on nt of third-party canteen service which is obligatory under section 46 of the ries Act. On this point the Ld. AAR held that GST is payable. M/s. Amneal harmaceuticals Pvt. Ltd., preferred an appeal before the Gujarat Appellate Authority for Advance Ruling against the order of the AAR, Gujarat. The Appellate Authority observed that the appellant was collecting the portion of employees’ share and paying to Canteen Service Provider, a third party, which was nothing but the facility provided to employees, without making any profit and working as mediator between employees and the contractor/Canteen Service Provider. Under these circumstances, the Gujarat Appellant Authority held that the GST is not applicable on the activity of collection of employees’ portion of amount by the appellant, without making any supply of goods or service by the appellant to its employees. Copy of decision is enclosed with this application.
2.12 Accordingly, based on the reading of Section 7 and Section 2(17) of the CGS11 Act, 2017, the Applicant is of the view that recovery of certain amount towards canteen and employee bus transport facility is not in the course or furtherance of business and therefore, cannot be considered as “supply of service”.
2.13 At the time of appointing any employee, the Applicant enters into an Employment Agreement (Appointment Letter) wherein it is mentioned that, either parties shall serve a certain time period’s mandatory notice to terminate the said Agreement.
As per the relevant clauses of the Employment Agreement, the employee shall have a right to resign by serving prior written notice of three months applicable to the Employee’s grade, as per company policy or upon payment of money compensation in lieu of the notice period as mentioned in the company policy as per Employee’s Grade at the time of separation. Thus, three months’ notice is mandatory for all employees/employer. In case, if any employee doesn’t serve the notice period after tendering the resignation, then as per contract (Appointment Letter) condition, company is entitled to recover the notice pay from the agreed portion of salary to compensate the loss to company. Thus, employees who resign from their job are expected to serve notice period as mentioned in the appointment letter. If the employees do not serve such notice period, the salary of the unserved portion of notice period is recovered by the employer, which is called as “Notice Pay Recovery”. Copy of sample Appointment Letter and relevant clause in HR Handbook is attached with this application.
2.14 Similar issue was before the Madhya Pradesh Advance Ruling Authority in an application filed by M/s Bharat Oman Refineries Limited, wherein the applicant had queried whether GST was applicable on payment of notice pay by an employee to the applicant-employer in lieu of notice period under clause 5 (e) of hedule II of GST Act. On this point the Ld. AAR found that the applicant Toyer was tolerating the act by relieving the employee without following the ice period clause upon payment of an amount and therefore the situation was vered under clause 5(e) of the Schedule Hof the CGST Act i.e. (e) agreeing to the S’o” obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; which is liable to GST. M/s. Bharat Oman Refineries Limited, preferred an appeal before the Madhya Pradesh Appellate Authority for Advance Ruling (MPAAAR) against the order of the AAR, Madhya Pradesh. The Appellate Authority held that
GST is not applicable on payment of notice pay by an employee to the applicant employer in lieu of notice period since merely because the employer is being compensated it does not mean that any services have been provided by him or that he has ‘tolerated’ any act of the employee for premature exit – Ratio of Madras High Court decision in GET & D India Ltd. j 2020-TIOL-183-HC-MAD-ST] is squarely applicable to the present case: AAAR
Copy of decision is attached with this application.
2.15 Further, in the case of M/s Emcure Pharmaceuticals Ltd. reported in 2022-TIOL-10-AAR GST (Mumbai Bench) held that Tax is NOT payable on the notice pay recoveries made from the employees on account of not serving the full notice period. The concluding para of ruling by the same bench is reproduced below:
5.5.6 So, by taking into account the decisions as well as analysis, made in detail as above, it may be concluded that, recovery of notice pay from dues of employee / payment of notice pay by the employee who could not serve the notice for the period as per contractual agreement/appointment letter does not amount to supply and therefore as per Section 7 (1A) of the CGST Act, 2017, the provisions of Schedule 11 does not come into play. Thus, also relying on the reasoning and decision given by the MPAAAR, mentioned above and the decision of the Hon’ ble Madras High Court in W.P. Nos 35728 to 35734 of 2016 in the case of GE T&D India Lid Vs Case Deputy Commr. of Central Excise, LTU, Chennai – 2020-V1L-39-MAD-ST, we hold that, the notice pay recovered by the applicant from its employees is not liable to GST.
Copy of decision is enclosed with this application.
2.16 Considering above submissions and rulings by the same bench in similar matters, the Applicant is of the view that GST is not payable on the notice pay recoveries made from the employees on account of not serving the full notice period.
3. CONTENTION – AS PER THE CONCERNED OFFICER:
application was forwarded to the concerned jurisdictional officer in terms of 1) of the CGST Act, 2017 read with Rule 104 of the CGST Rules, 2017, calling comments on the issues raised by the applicant. However, no written ion or record have been furnished by the concerned jurisdictional officer
despite sufficient opportunity. In the absence of any response from the department, the authority proceeds to decide the application on the basis of facts, documents and submissions made by the applicant and the provisions of law there to.
4. HEARING
Virtual Preliminary hearing in the matter was held on 15.10.2024. Mr. Manas Joshi, Advocate and The Jurisdictional Officer Mr. B.G. Nandkumar, Assistant Commissioner of CGST also appeared.
The application was admitted and called for final hearing on 19.11.2025. Mr. Manas Joshi, Advocate authorized representative appeared and made oral & written submissions. Jurisdictional Officer Mr. Harish Chandra Yadav, Assistant Commissioner of CGST appeared. We heard both the sides.
5. OBSERVATIONS AND FINDINGS:
5.1 Taxation of recovery of canteen services and transportation services made from employees.
5.1.1 We have carefully considered all the material on record and the relevant provisions of Law. The Applicant is before this authority for seeking clarification as to whether the recoveries made by the Applicant from the employees for providing canteen facility and transportation service to its employees is taxable under the GST laws.
1. M/s. Thyssenkrupp Industries India Pvt. Ltd. (hereinafter referred to as ‘Applicant’) is a company having its registered office at 154-C, Mittal Tower, 15th Floor, 210 Nariman Point, Mumbai-400021 and having manufacturing plant cum office at Station Road, Pimpri, Pune, Maharashtra 411018.
2. We observe that, in order to comply with the obligation under Factories Act 1948, Applicant provides canteen facility to all the workers through a third-party Canteen Service Provider.
3. In order to provide the said canteen and bus transportation facility, the Applicant has engaged third party service providers who are providing the said canteen and bus transportation facilities to the Applicant. Since, the said services are provided by the third party service providers to the Applicant, the service providers are raising their invoices with applicable GST to the Applicant. The Applicant pays the consideration to the third-party service providers for the said canteen and transportation facilities. Thereafter, the Applicant recovers certain portion (i.e., subsidized amount is deducted from salary of the employees on monthly basis) of the cost of the canteen and bus transportation incurred by the Applicant from its employees.
4. Applicant has contended that the recovery of amounts from employees for canteen services or transportation services to employees do not fall under ‘supply’ as per section 7 of CGST Act, as supply of these services are not in the course or furtherance of ‘business’.
5. Various grounds raised by the Applicant to contend that the recovery of amounts from the employees for providing canteen and transportation services are discussed as below.
5.1.2 Whether supply of canteen and transportation services provided to employees is in the course or furtherance of business.
(1) We observe that the Applicant has argued that he is engaged in the field of design, manufacture, supply, installation and commissioning of a wide range of Steam and Power Generation Plants for various industrial applications. The Applicant has taken view that supply of ‘canteen services’ or ‘transportation services’ cannot be regarded as ‘in the course or furtherance of business’. CGST Act, 2017 defines the expression ‘business’ under section 2(17) of the CGST Act, 2017. The definition of ‘business’ as given in Section 2(17) of the CGST Act, 2017 is as under:
”(17) “business” includes –
a. any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
b. any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
c. any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction
……..
……..
This is an inclusive definition wherein various aspects have been listed in the clauses that would be included in ‘business’. Clause ‘(a)’ of this definition mentions various activities like trade, commerce, manufacture, profession, vocation, adventure, wages or any other similar activity. Thus, this clause covers these activities or any other similar activities. The last phrase ‘whether or not it is for a pecuniary benefit’ widens the scope of business to include non-profit activities. Clause (b) mentions that any activity or transactions in connection with or incidental or ancillary to activities mentioned in (a) would also be included in ‘business’. Clause ‘(c)’ provides that there would not be requirement of volume, frequency, or regularity of such transactions.
(2) It is an accepted fact that the Applicant is not carrying out supply of canteen services as his principal activity. No doubt his principal activity remains as design, manufacture, supply, installation and commissioning of a wide range of Steam and Power Generation Plants for various industrial applications, which is covered by clause ‘a’ of above definition. Let’s see whether the activity of supply of canteen and transportation services, falls under the definition of business, as extracted above. Clause (b) mentions that any activity or transaction incidental or ancillary to principal activity would also be included in ‘business.
The term ‘incidental’ has been defined in various dictionaries as under: Oxford Dictionary – the happening as part of something more important. Cambridge Dictionary – less important than the thing something is connected with or part of Dictionary.com – happening or likely to happen in an unplanned or subordinate conjunction with something else.
Similarly word ‘ancillary’ has been defined as under:
Oxford Dictionary – provide necessary support to the main work or activities of an organisation.
– In addition to something else but not as important.
Cambridge Dictionary: providing support or help.
Dictionary.com – supporting, secondary, subsidiary
The reading of all above definitions clarify that any activity, which supports the main activity or necessary to carry out the principal activity, is an activity or transaction in connection with or incidental to or ancillary to the principal activity. The activity of providing food in canteen and transportation services to its workers who are pivotal to his principal activity can definitely be said to be in connection with or incidental or ancillary to his main activity of manufacture and supply of steam and power generation plants.
3. Further, in terms of Section 2(17) (c), as mentioned in para (1) above, the volume of transaction is immaterial for the purpose of coverage under “Business”, therefore, even if supply of food is quite insignificant activity in terms of volume of transaction, still in terms of clause (c) of the aforesaid section, the activity of supply of canteen and transportation services, falls within the definition of “business”.
4. Thus, as discussed above, the activity of supply of canteen services and transportation services provided to the employees falls under the definition of ‘business’ as these activities are in connection with or incidental or ancillary to the principal activity of the taxpayer as explained above.
5.1.3 Whether there is supply of canteen services and transportation services from the Applicant to the employees
1. Fundamentally, the subject issue pertains to the transaction between the Applicant and employees, i.e., with respect to the canteen services and transportation services (herein after both services are referred as ‘these services’) as being supplied by the Applicant to employees for a consideration, although at subsidized rates. The Applicant pays the total consideration for the supply of these services to the canteen service provider and transport bus provider respectively and the Applicant in turn supplies these services to their employees.
2. It is an undisputed fact that the money consideration charged, although at subsidized prices, for the supply of these services to their employees is being collected by the Applicant.
(3) Therefore, it is evident on record that there are two distinct and totally different transactions in the event of supply of these services to the employees of the Applicant. They are: –
i. Supply of these services by the respective service provider to the Applicant (employer); and
ii. Supply of these services by the Applicant (employer) to their employees.
(4) In respect of the first transaction, the respective service providers have been supplying these services to the Applicant for which the said service provider receives consideration from the Applicant on which the Applicant has been paying GST to these service providers.
(5) Similarly, in the second transaction, the Applicant is supplying these services to their employees for which the Applicant is receiving consideration, although at the subsidized rate, from their employees. The respective service provider invoices the appellant for the entire services. He charges the consideration along with GST thereon. There is no privity of contract between these service providers and the employees. It is the Applicant which is providing these services to the employees. Applicant deducts certain amount from salary of the employees against this supply. Applicant makes only part of the recovery and balance cost is borne by him. Hence, the criteria of ‘business’, ‘consideration are met in the transaction of supply of these services by Applicant to the employees. Thus, there is supply of canteen services and transportation services from the Applicant to the employees, u/s. 7 (1) of CGST Act, 2017.
5.1.4 Taxability of Supply of Canteen services and transportation services to the employees
(1) Whether the perquisites forming part of employment contract excluded from CST. 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:
| S. No. | Issue | Clarification |
| 5 | Whether various perquisites provided by the employer to its
employees in terms of contractual agreement entered into between the employer and the employee are liable for Cb1 . |
1. Schedule III to the CGST Act provides that “services by employee to the employer in the course of or in relation to his employment” will not be considered as supple of goods or services and hence GST is not applicable on services rendered by employee to employer providedthey are in the course of or in relation to employment
2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that perquisites provided by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee. |
Thus, it is derived from Entry 1 of Schedule III that “services by an employee to employer in the course of or in relation to his employment” shall be neither supply of goods nor supply of services. It could be seen here that Entry 1 of Schedule III basically deals with ‘services by an employee to employer’, and not the other way round. Only as a corollary, the ‘services by the employer to the employee’, especially when provided in the form of perquisites, has been discussed in the CBICCircular No. 172/04/2022-GST dated 06.07.2022 in its para 2 mentioned above. From the above, it could be inferred that perquisites in terms of a contractual agreement between the employer and employee are not to be subjected to GST.
(2) It may be seen that in order to place any service provided by the employer to employee outside the ambit of GST, the same should be in the form of a perquisite. Though the term ‘perquisite’ has not been defined under the provisions of GST, the same is discussed under the Income Tax Act, where it has been stated in Section 17(2) as follows: –
“perquisite” includes-
i. the value of rent-free accommodation provided to the assessee by his employer;
ii. the value of any conrecsion in the matter of rent respecting any accommodation provided to the assessee by his employer;
iii. ………
…….
(3) As per Income Tax Act, 1961, perquisite is defined to be the value of free benefit or facility given by the employer to his employees. The collection from the employees of whatever value, is not covered under ‘perquisite’. It could be inferred from the above, that any service rendered free of charge, or, any service rendered on a concessional basis shall qualify as a perquisite. But, it is to be noted that only the value to the extent of concession offered by the employer is to be treated as a perquisite and not the remaining portion that has been charged by the employer. Applying the said analogy to the instant case, in respect of the canteen and transportation services provided by the applicant to its employees, it becomes clear that the exemption provided in Entry 1 of Schedule III to the CGST Act, 2017 applies only to the concession part extended to the employees and not on the value charged to the employees. Thus, the recoveries made from the employees for canteen and transportation services are liable to levy of tax.
5.1.5 If incidental of ancillary supply of goods or services such as canteen or transportation services by the employer to employee were to not fall under ‘business’, it would not be necessary to provide respite to ‘supplies by employer to employees given as perquisite’ from falling under ‘supply’ by taking recourse to schedule Ill. That is, if a transaction or activity is not a supply u/s 7(1) of CGST Act, then there would not be necessity to place such a transaction u/s 7(2)(a) for deeming it to be neither supply of goods nor supply of services. Hence, as discussed in Para 5.1.2 and 5.1.3, Applicant’s activity of supply of canteen and transportation services falls u/s 7(1) of CGST Act, 2017. As discussed in Para 5.1.4, only the perquisites i.e., free supplies, in terms of a contractual agreement between the employer and employee are not to be subjected to GST as these are in lieu of the services provided by employee to the employer in relation to his employment. Hence, the recoveries made from the employees are liable to levy of tax as it is consideration against canteen services and transportation services provided by the Applicant to the employees.
5.2 Value in respect of which canteen and transportation services are taxable.
5.2.1 As explained in above paras, supply of canteen services and transportation services to the employees would in normal course constitute to be the supply of services u/s 7 (1) of GST Act 2017. However, it is now clarified by the CBIC Circular No. 172/04/2022-GST dated 06.07.2022 dated 6th July 2022 that perquisite provided to the employees in view of the Contractual Agreement would not be subjected to GST. It is clarified that such perquisite are in lieu of the services provided by the employees to the employer in the course of or in relation to his employment, and should not be subjected to GST.
Supplies of any services would not be subjected to GST only under the following circumstances.
1. Such services are exempt under the notification number 12/2017, CT(R) dated 28/06/2017.
2. Such a transaction in services is a non-GST supply.
3. Such services are not supply as per provisions in section 7 of CGST Act, 2017
5.2.2 The supply of canteen and transportation services in the nature of perquisite by the employer to the employee would not have respite from two aspects mentioned at Sr.No.1 and 2 above as the said supply is neither exempted nor a Non-GST supply. Hence, it needs to be analysed if such services can be called as supply u/s 7.
5.2.3 The activity of provision of canteen services to the employees are in the course of business (as detailed in paras above). Consideration is absent or nominal. As per Section 7(1)(c), ‘the activities specified in Schedule I, made or agreed to be made without consideration have been defined to be included in ‘Supply’. Serial Number 2 of Schedule 1 reads as below.
‘ 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when nude in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. ‘.
Further, Explanation to Section 15 reads as below.
Explanation. — For the purposes of this Act,– (a) persons shall be deemed to be —related persons if– (i) such persons are officers or directors of one another’s businesses;
ii. such persons are legally recognised partners in business;
iii. such persons are employer and employee;
……
As per Section 15 Explanation (a) (iii), employer and employee are deemed to be related persons for the purposes of this Act. This means any transaction between employer and employee will not come out of ‘supply’ for the reason of not having consideration.. However, respite to such transactions has come through Schedule 3. Section 7(2)(a) states that, notwithstanding anything in sub-section (1), activities or transactions specified in Schedule III shall be treated neither as a supply of goods nor a supply of services. Serial Number 1 of Schedule III is as below.
“1. Services by an employee to the employer in the course of or in relation to his employment.”
This entry includes only the services by an employee to the employer. However, it has been clarified by the above referred Circular that, as corollary to this provision, the perquisite given to the employees in view of the contractual agreement are in lieu of services given by the employee to the employer and should not be subjected to GST. As the supply of perquisite by the employer to the employee would not have respite from above two aspects mentioned at Sr.No.1 and 2 above as the said supply is neither exempted nor a Non-GST supply, it would be appropriate to interpret that the perquisite given to the employees in view of the contractual agreement are in lieu of services given by the employee to the employer and would not be subjected to GST by deeming it to be part of Schedule III as a corollary to entry at Sr. No.1 of Schedule III for cohesive interpretation.
5.2.4 The value of the outward supply of canteen and transportation service can be considered as having two parts. First part is the amount of recovery that is made from the employees, and second part is balance value of the services provided by the employer as perquisite which is in the lieu of the services provided by employees to the employer. The entire balance value of the services for which no amount is charged is the perquisite provided by the employer to the employees. As this part is in lieu of services of the employees to the employer which fall under schedule 3, the perquisite part is not taxable, as a corollary, deeming it to be falling in the said entry of schedule 3. Hence, though the employer and employee are related parties, the value on which tax is a liable to be paid is only the recovered amount from the employee as the remaining part of the value is the perquisite provided by the employer which is not liable to tax as discussed above.
5.2.5 The applicant relied on following rulings,
2. Maharashtra AAR in Integrated Decisions and Systems India Pvt. Ltd. (Order No. GST ARA-116/2019-20/B-113 dated 16.12.2021)
3. Maharashtra AAR in M/s. Tata Motors Ltd ((Order No. GST-ARA-23/ 2019-20/B-46 dated 25.08.2020))
4. Madhya Pradesh AAAR in M/s. Bharat Oman Refineries Ltd. (Order No. MP/ AAAR/07/2021 dated 08.11.2021)
We would like to place on record that an advance ruling pronounced by the Authority or the Appellate Authority shall be binding only on the applicant who had sought it, and the concerned officer or the jurisdictional officer in respect of the applicant.
5.3 Whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period?
5.3.1 It is now clarified by the CBIC Circular No. 178/10/2022-GST dated 3rd August 2022 that the notice pay recoveries are not taxable. The relevant para of the said Circular is produced as below.
“An employer carries out an elaborate selection process and incurs expenditure in recruiting an employee, invests in his training and snakes him a part of the organization, privy to its processes and business secrets in the expectation that the recruited employee would work for the organization for a certain minimum period. Premature leaving of the employment results in disruption of work and an undesirable situation. The provisions for forfeiture of salary or recovery of bond amount in the event of the employee leaving the employment before the minimum agreed period are incorporated in the employment contract to discourage non-serious candidates from taking up employment. The said amounts are recovered by the employer not as a consideration for tolerating the act of such premature quitting of enipknyment but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation. Further, the employee does not get anything in return from the employer against payment of such amounts. Therefore, such amounts recovered by the employer are not taxable as consideration for the service of agreeing to tolerate an act or a situation.”
5.3.2 In view of this clarification, notice pay recoveries made from the employees are not liable to levy of tax under CGST Act, 2017.
6. In view of the extensive deliberations as held hereinabove, we pass an order as follows:
ORDER
(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO.GST-ARA- 27/2022-23/B- 40 | Mumbai, dt. 23)02-12024
For reasons as discussed in the body of the order, the question is answered thus –
Question 1: Whether the GST would be payable on recoveries made from the employees towards providing canteen facility at subsidized rates in the factory and offices?
Answer: – Answered in the affirmative. GST is applicable on the recovered amount. However, no ITC is available.
Question 2: Whether the GST would be payable on the recoveries made from the employees towards providing bus transportation facility?
Answer. – Answered in the affirmative. GST is applicable and no ITC is available.
Question 3: Whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period?
Answer: – Answered in the Negative
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