In re Troikaa Pharmaceuticals Limited (GST AAR Gujarat)
No GST on charges collected from employees for canteen services provided under contractual agreement
The AAR, Gujarat in the matter of M/s. Troikaa Pharmaceuticals Limited [Advance Ruling No. GUJ/GAAR/R/ 2022/38 dated August 10, 2022] has ruled that no Goods and Services Tax (“GST”) is payable on the employees portion collected by the employer for providing canteen services as perquisites and paid to the canteen service provider in terms of contractual agreement, however, GST is payable on such portion, when provided to contractual workers. Further, held that Input Tax Credit (“ITC”) of GST paid on canteen charges provided to employees is available when it is obligatory to provide that service to employees under any law, but it is not available on canteen services provided to contractual workers.
Facts:
M/s Troikaa Pharmaceuticals Ltd. (“the Applicant”) provides canteen facility to its employees and workers, as mandated under the Factories Act, 1948 (“the Factories Act”) at a subsidized rate of 50%. The canteen service is provided by a third party, who raises an invoice as per the agreed billing frequency by charging 5% GST, which is borne 50% by the Applicant and balance 50% is recovered from the employee’s salary pay out.
The Applicant submitted that, the recoveries for providing canteen facility is not supply as per Section 7 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and it cannot be said that it is the ‘business’ of the Applicant. Further, the canteen service is made through an outside party under obligation in the Factories Act and neither had any intent to make profit or retain any profit from the amount recovered. Hence, no GST should be levied on such recovery of charges as neither the canteen service provided is an activity which is incidental or ancillary to the Applicant nor it is done in furtherance of business. Moreover, the Applicant should be allowed to claim ITC on the GST paid for such canteen service, being mandatory under the Factories Act.
Issues:
1. Whether GST shall be applicable on the amount recovered by the Applicant from its employees or contractual workers, when provision of third-party canteen service is mandatory under Section 46 of the Factories Act?
