In re Troikaa Pharmaceuticals Ltd (GST AAAR Gujarat)
Gujarat Appellate Authority for Advance Ruling (AAAR) reviewed the case of Troikaa Pharmaceuticals Ltd. regarding GST applicability and Input Tax Credit (ITC) eligibility on subsidized canteen services provided to employees and contractual workers. Troikaa, engaged in the manufacture and sale of pharmaceutical products, provides canteen facilities as mandated under Section 46 of the Factories Act, 1948. The company subsidizes 50% of the canteen cost, recovering this from employees, while contractual workers pay their portion directly to the canteen provider. The ruling addressed whether GST applies to the recovery amounts and whether ITC on such services is admissible.
The AAAR upheld that GST is not leviable on the amount recovered from employees for canteen charges, as per Circular No. 172/4/2022-GST, which clarified that such benefits provided under a contractual obligation do not constitute “supply” under GST law. However, for contractual workers, GST is applicable since the relationship between Troikaa and contractual workers lacks an employer-employee nexus. The AAAR emphasized that the contractual workers are engaged by a labor contractor and do not fall within the purview of Schedule III of the CGST Act, 2017.
Regarding ITC, the ruling distinguished between employees and contractual workers. ITC on canteen charges for employees was allowed under Section 17(5)(b) of the CGST Act, as the service is obligatory under the Factories Act. However, ITC was denied for canteen services provided to contractual workers. The AAAR reasoned that the obligation to provide such facilities lies with the contractor under the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA). The absence of a statutory mandate for Troikaa to provide canteen facilities to contractual workers blocks ITC under Section 17(5).
Judicial precedents like Balwant Rai Saluja v. Air India Ltd. were cited to evaluate the employer-employee relationship. The Supreme Court in this case outlined the test for determining such relationships, which includes control, supervision, and payment. Applying this, the AAAR concluded that the contractual workers, being paid by the contractor, do not meet the criteria for an employer-employee relationship with Troikaa. Thus, any recovery of canteen charges from these workers constitutes a taxable supply under Section 7(1)(a) of the CGST Act.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT
