2025(03)LCX0278(AAR)

Spicer India Private Limited

decided on 27-03-2025

MAHARASHTRA AUTHORITY FOR ADVANCE RULING
GST Bhavan, Room No.107, 1st floor, B-Wing, Old Building, Mazgaon, Mumbai - 400010.
( Constituted under Section 96 of the Maharashtra Goods and Services Tax Act, 2017)

BEFORE THE BENCH OF

(1) Shri. D.P. Gojamgunde, Joinl Commissioner of Slate Tax, (Member)

(2) Ms. Priya Jadhav, Joint Commissioner of Central Tax, (Member)

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the

Maharashtra Goods and Services Tax Act, 2017)

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 SPICER INDIA PRIVATE LIMITED, the applicant, seeking an advance ruling in respect of the following question.

(a) Whether the GST would be payable on recoveries made from the employees towards providing canteen facility at subsidized rates in the factory and office? If Yes, what should be the value on which the tax should be payable?

(b) Whether the GST would be payable on the recoveries made from the employees towards providing bus transportation facility? If Yes, whether the Applicant is exempted under Notification No. 12/2017 Central Tax (Rate)?

(c) Whether the ITC of the input services received in respect of the services procured in respect of bus transportation services would be available?

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 Spicer India Private Limited (hereinafter referred to as ‘Applicant’) is a company having its registered office at 29th Milestone, Pune, Nasik Highway, Tal-Khed, Village Kuruli, Chakan, Maharashtra-410501 (“Chakan Unit”) and having its plant at Gat No. 74/ A adjacent to Addl. MIDC area, Karandwadi, Satara 415004 (“Satara Unit”).

1.2. The Applicant is a company incorporated under the Companies Act, 1956, which is involved in the business of manufacturing of automotive components-mainly axles and driveshafts and child part components of the same. The Applicant has its manufacturing units and office located at aforesaid two locations viz. Chakan and Satara Units. Accordingly, the Applicant has obtained GST registration in the state of Maharashtra.

1.3. The employees are vital resources to carry out the day to day affairs from the factory and office. Accordingly, in order to carry out its business of supply of its final product and for efficient functioning of business as a whole, the Applicant is required to provide canteen and bus transportation facility to its employees. The canteen and bus transportation facility ensure that employees of the Applicant are able to reach the factory and offices in time for doing their day to day work as scheduled and to perform their work with efficiency. Therefore, the canteen and bus transportation facility are part and parcel of the employment arrangement with the employees.

1.4. The Applicant for the proper and smooth functioning of the business, employs various professionals/ employees for different job profiles. The Applicant follows a diligent recruitment procedure to hire its employees and on careful scrutiny recruits them. At the time of appointment, the Applicant issues an appointment letter (hereinafter referred to as the “Employment Agreement”) to such employees, which inter alia contains various terms and conditions of employment, including remuneration, qualification, allowances, termination, notice period, etc. In addition to this the Application in its HR Policy has also mentioned about the terms and conditions related to work, responsibility, termination, etc.

1.5. As per the Employment Agreement, the Applicant is paying a pre-decided allowance to the Employees for conveyance, house rent, special allowance etc. However, at the same time, the Appellant is also recovering certain amounts from its employees for providing the transportation services to its employees. The same is evident from the salary slips of the employees wherein the express deductions that are recovered by the Applicant on account of food and bus transportation are mentioned.

1.6. Further, for the well-being and health of the employees and in accordance with the provision of Factories Act, 1948, the Applicant has introduced a canteen policy wherein the Applicant will be providing quality food and refreshments to employees at subsidized rates in the company premises.

1.7. The present application is filed in respect of applicability of Goods and Services Tax (hereinafter referred to as “GST”) payable on the recoveries made by the Applicant from its employees for providing the canteen and bus transportation to its employees.

Canteen & Bus Transportation

1.8. The Applicant provides canteen and transportation facility to its employees at the Chakan and Satara units based on the employment terms of the Applicant. Further, for providing the canteen facility to the employees, the Applicant has introduced a separate canteen policy. Based on the agreed terms between the Applicant and Employees, the Applicant is entitled to make recoveries at subsidized rates for the canteen and bus transportation facility provided by the Applicant at its factory and corporate office. The relevant clauses of the Canteen Policy are extracted below:

Accounting by Biometrics Punching:

2.1 In order to avail meals/snacks services, employees must scan his registered finger through Biometric devices and subsequently the meals/snacks charges as per level will be subtracted from the individual salary.

Subsidy rates of Canteen (Snacks/Meals)

2.2 Existing subsidy is based on base rates of 2008 and as per 2018 OEs guidelines:

a. Employees in LO level (OEs)    :- As per 2018 OEs guidelines

b. Employees in LO level (Staff/CRE/CC)   :- Subsidy 50% as per 2008

c. Employees in L1 Level     :- Subsidy 25% as per 2008

d. Employees in L2 Level and above     :- Subsidy - Nil as per 2008

1.9. Based on the above clauses of the policy, it is clear that the Applicant is providing canteen facility to its employees on subsidized rates. The charges of the meals/snacks will be deducted from the salary of the individual salary of the employee based on his/her level.

1.10. Similarly, the Applicant is providing the transportation facility to the employees at subsidized rates. The charges for providing the said facility is also deducted from the salary of the employee.

1.11. In order to provide the said canteen and bus transportation facility, the Applicant has engaged third party service providers who are in turn 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 is liable to pay the consideration to the third-party service providers for the said canteen and transportation facilities. Thereafter, the Applicant recovers certain potion (i.e. subsidized amount is deducted from Salary on monthly basis) of the cost of the canteen and bus transportation incurred by the Applicant from its employees.

1.12. The buses involved in the transportation of employees are Non-Air-conditioned (Non-AC) buses and having contract carriage permit. Further, it is important to note that the approved capacity of the bus is more than thirteen passengers.

1.13. Both the facilities i.e. canteen and bus transportation facilities are provided by the Applicant to the employees without any profit motive. In fact, the said facilities are provided at subsidized amount and forms part and parcel of the employment arrangement. The said facilities are provided merely to facilitate better working environment to the employees and does not carry intention to undertake any kind of business activity. The said facilities are towards providing hygienic food and to maintain safety for the employees who work in the shifts as well as to maintain the continuity in manufacturing and research & development work. The factories of the Applicant are located in remote locations. It is submitted that safety for employees and more particularly female employees is very important. Hence, the Applicant provides the bus transportation facility to ensure the safety of the employees and to provide a better working environment.

1.14. Under the aforesaid circumstances, the Applicant seeks the present advance ruling to understand whether the canteen and bus transportation recoveries made by the Applicant are taxable under the GST laws and whether the transportation facility provided to the employees in Non-AC buses having contract carriage permit would be exempted from GST? Apart from the taxability, the Applicants also seeks the advance ruling with respect to the valuation of the said recoveries from the employees. The Applicant also wishes to seek the Advance Ruling with respect to the availability of ITC in respect of input services received for providing bus transportation and canteen facility to its employees.

2. STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW

2.1 The employee recoveries for providing canteen facility and also for providing bus transportation service is not covered under the ambit of “supply” under Clause (a) of Section 7 (1) of the CGST Act.

2.1.1 In order to analyse the present issue, reference is made to Section 7 (1) of the CGST Act, which defines the term ‘supply’ as under:

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, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule 1, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

... Emphasis Supplied

2.1.2 Section 7 (1) (a) of CGST Act defines the term ‘supply’ widely to include all forms of supply of goods or services or both such as sale, transfer, disposal, etc. made or agreed to be made for a consideration in the course or furtherance of business. Therefore, in order to constitute supply under Section 7 (1) (a) of the CGST Act, the following key elements are required to be satisfied:

(a) Supply of goods or/ and services;

(b) Consideration;

(c) Course of furtherance of business.

2.1.3 It is clear from the above that in order to constitute supply under Section 7, the supply should be in the course of business or furtherance of business. The term in the “course of business” or “furtherance of business” is not defined under the CGST Act. However, it is pivotal to appreciate that the term “Business” has been defined under Section 2 (17) of the CGST Act and reads as:

Section 2 (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;

(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;

(f) 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;

... Emphasis Supplied under: -

2.1.4. A bare reading of the above clause (a) provides that the term “business” includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for pecuniary benefits. Also, as per clause (b) any activity ancillary or incidental to the activities covered under clause (a) are also treated as business. Further, clause (c) also states that any activity or transaction falling in the above categories would be business whether or not there is volume, frequency, continuity or regularity in transactions. Hence, the above definition provides that business includes any activity in the nature of trade, commerce, manufacture, etc.

2.1.5 The Applicant reiterates that ‘supply’ can come into existence only when there is any activity done in the course of business or furtherance of business. It is clear from the above discussion that business means any activity in the nature of trade, commerce, manufacture, etc.

2.1.6 It is submitted that the Applicant is engaged in the business of manufacture of axle, driveshafts and its components. The entire business activities are aimed towards the manufacture, develop, sales, distribution, promotion of axle and driveshaft products only. The Applicant also submits that while obtaining incorporation of the Applicant as a registered company under the Companies Act, the Memorandum of Association (MOA) also provides that the Applicant would be engaged in manufacture of automotive components, inter alia including axles and driveshafts. Reliance can be placed on the Clause No. IIIA which clearly provides for the same. Hence, it is submitted that the Applicant is engaged in business of automotive components only.

2.1.7. As stated above, the Applicant is providing canteen facility to the employees at the Chakan and Satara Unit. It is submitted that as per Section 46 of the Factories Act, 1948, every factory is mandatorily required to provide and maintain canteen in the factory in which more than 250 workers are employed. Therefore, in order to comply with the said mandatory condition, the Applicant is providing and maintaining the canteen at the factory. The Applicant is not engaged in the “business” of providing canteen facility to its employees.

2.1.8 Further, the objective of providing canteen facility at the corporate office is to provide a healthy and workable environment to the employees. The canteen facility is being provided in order to increase the working efficiency of the employees and not to undertake any business activity. The Applicant is also known in the Indian industry as well as international trade and industry as a manufacturer of automotive components. Even in case where the said provided by the Applicant, the business of the Applicant of manufacturing automotive components, would still be continuing.

2.1.9 As mentioned above, the Applicant is involved in the business of the manufacturing and selling of automotive components and providing canteen facilities to its employees is not the business of the Applicant. The canteen facility is provided by a third-party service provider for which the third party is raising an invoice to the Applicant and charging GST on the same. Therefore, the canteen services are being provided by the third-party service provider only. The Applicant is merely acting as a conduit to provide the canteen facility.

2.1.10 Therefore, it is submitted that Applicant is not in the business of providing catering facility. Further, providing / non-providing such canteen facility will not affect the business of Applicant in any way. Hence, the canteen facility cannot be said to be a business activity of the Applicant and hence, the provision of canteen facility to the employees cannot qualify as supply.

2.1.11 The Applicant also submits that the business of manufacturing, cooking, packing, supplying food items is strictly regulated in India under the Food Safety and Standard Act, 2006 (“FSSAI Act”), The Applicant is acting as a facilitator in the transaction between the third-party contractor and employees. Therefore, the Applicant does not hold a license to carry out food related business. Had the Applicant engaged in the business of canteen services, the Applicant would have been required to obtain registration and undertake necessary compliance under the FSSAI regulations. The relevant provisions under FSSAI Act are extracted below:

“Section 3 (1) (n) “Food business” means any undertaking, whether for profit or not and whether public or private, carrying out any of the activities related to any stage of manufacture, processing, packaging, storage, transportation, distribution of food, import and includes food services, catering services, sale of food or food ingredients;

Section 3 (1) (o) “food business operator” in relation to food business means a person by whom the business is carried on or owned and is responsible for ensuring the compliance of this Act, rules and regulations made thereunder;”

2.1.12 From the above, the term “food business” means any undertaking involved in the activities related to manufacture, processing, packaging, storage, transportation and in distribution of food. It also provides that a food business operator is a person who carries or owns a food business and is responsible for carrying out the compliance of this Act, rules and regulations made under this Act. The Applicant is not involved in any of the activities mentioned above. The Applicant only enters into the contract with a third-party contractor who provides the food to the employees. The Applicant is only a facilitator in said transaction.

2.1.13. Further, according to the Regulation 2.1 of Food Safety and Standards (Licensing and Registration of Food Businesses), Regulations 2011, all the food business operators in the country will have to be registered. Since, the Applicant is not a food business operator, the Applicant is under no obligation to obtain registration and to carry out compliance of the FSSAI Act and Rules. This also supports the above contention of the Applicant that the Applicant is not engaged in the business of canteen services.

2.1.14 In view of the above discussion, the Applicant’s business is neither a “food business” nor the Applicant qualifies as a “food service operator”. Therefore, the Applicant cannot be said to be engaged in the business of providing canteen services.

2.1.15 The Applicant also submits that the meaning of the term business should be restricted to cover only commercial activities. Any activity which is towards providing any support or service such as helping, aiding or assisting own employees cannot be treated at par with business. In the given case in hand, the provision of canteen facility is merely a support function extended by the Applicant to the employees. Hence, the said activity cannot be equated with business.

2.1.16 In this regard, reliance can be placed in the case of State of Gujarat vs. Raipur Manufacturing Co. Ltd. (Civil Appeal No. 603 of 1966) wherein the Petitioner was engaged in the business of manufacturing and selling cotton textiles. The Petitioner purchased coal for usage in business of cotton textiles. The said coal was later sold by the Petitioner. The Supreme Court held that the Petitioner was not engaged in the business of coal. The operative part of the judgement is extracted below:

“8. Il is clear from these cases that to attribute an intention to carry on business of selling goods it is not sufficient that the assessee was carrying on business in some commodity and he disposes of for a price articles discarded, surplus or unserviceable. It was urged, however, on behalf of the State that where a dealer with a view to reduce the cost of production disposed of unserviceable articles used in the manufacture of goods and credits the price received in his accounts, he must be deemed to have a profit motive, for it would be uneconomical for the business to store unserviceable articles and to survive as an economic unit. But the question is of intention to carry on business of selling any particular class of goods. Undoubtedly from the frequency, volume, continuity and regularity of transactions carried on with a profit motive, an inference that it was intended to carry on business in the commodity may arise. But it does not arise merely because the price received by sale of discarded goods enters the accounts of the trader and may on an overall view enhance his total profit, or indirectly reduce the cost of production of goods in the business of selling in which he is engaged. An attempt to realize price by sale of surplus unserviceable or discarded goods does not necessarily lead to an inference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the assessee also does not lead to inference that business is intended to be carried on in selling those goods.

14. It appears from the statement furnished that coal of the value of Rs. 16,083/- was sold by the Company under 12 bills in the year 1953-54. Coal is purchased by the Company for the purpose of lighting its furnaces and heating boilers. A part of the coal purchased was sold. The Tribunal merely stated in respect of all the items of goods sold that looking to the volume and frequency of their sale, the Company should be regarded as a dealer in respect of those goods. Unless there is evidence to show that there was an intention to carry on business of selling coal, the mere fact that coal of the value exceeding Rs. 16,000/- was sold will not by itself make the Company a dealer carrying on business in coal. We have no evidence on the record as to what the total quantity of the coal purchased by the Company was, and what percentage thereof was sold. No investigation has been made as to the circumstances in which the coal came to be sold. Mere sale of a commodity which a Company requires for the purpose of its business and which has been purchased for use in that business will not justify an inference that a business of selling that commodity was intended, unless there are circumstances existing at the time when the commodity was purchased or which have come into existence later which establish such an intention. It may be pointed out that the burden of proving that the Company was carrying on business of selling coal lay upon the Sales-tax authorities and if they made no investigation and have come to the conclusion merely because of the frequency and the volume of the sales, the inference cannot be sustained.”

... Emphasis Supplied

2.1.17 It is also submitted that 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. Hence, one may question as to whether the provision of canteen facility can be said to be in connection with or incidental or ancillary to the principle business of automotive components.

2.1.18 In this regard, the Applicant submits that the connected activities or incidental or ancillary activities cannot be construed to include all activities carried out by the business. Furthermore, as per Black’s Law Dictionary (Ninth Edition), “incidental” means dependent upon, subordinate to, arising out of, or otherwise connected with (something else, usually of greater importance). Also, the term “ancillary” is defined in the Black’s Law Dictionary (Ninth Edition) as supplementary; subordinate.

2.1.19 The activities which are having direct nexus with the main business can be said to be ancillary or incidental. One of such examples of could be sale of by-products. However, canteen facility is not related to or connected with the principle business of supply of automotive components in that manner. Hence, the same cannot be construed as incidental or ancillary to the main business of the Applicant.

2.1.20 In support of the above contention, the Applicant relies on the case of Deputy Commissioner of Commercial Taxes vs. Thirumagal Mills Ltd. [1967 (20) STC 287 Mad]. In the given case, the Hon’ble Madras High Court had examined the issue similar provision as below:

“4. The primary requisite of “business” as defined even under Madras Act 15 of 1964 is that it should be a trade or commerce or adventure or concern in the nature of trade or commerce. Presence or absence of profit will not matter. But the activity must be of commercial character and in the course of trade or commerce. The second clause in the definition of “business”, as it appears to us, is still one invested with commercial character, for the reference is to any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern. Unless the transaction is connected with trade, that is to say, it has something to do with trade or has the incidence or elements of trade or commerce, it will not be within the definition. The words “in connection with or incidental or ancillary to” in the second part of the definition of “business”, in our opinion, still preserve or retain the requisite that the transaction should be in the course of business understood in a commercial sense. The intention of Madras Act 15 of 1964 does not appear to be to bring into the tax net a transaction of sale or purchase which is not of a commercial character.

5. In this case it is difficult to say that the assessee has been carrying on business in fair price shop. We have looked into its articles of association and nowhere is there any reference to the carrying on of business in fair price shop. What appears to be probable is that the assessee in order to provide amenity to its workmen has opened the fair price shop so that commodities may be made available to them at fair price. It may be that in fact profit accrues. But that is not what is material. The question is whether the assessee meant to run the fair price shop as a trade or commerce or a commercial activity. We do not find it possible to say that the fair price shop is a commercial activity of the assessee. We hold that the assessee is not carrying on the business of selling commodities in the fair price shop in a trade or commercial sense, and that, therefore, it is not with reference to the fair price shop a dealer within the meaning of the Act.”

... Emphasis Supplied

2.1.21 In the case of Panacea Biotech Limited vs. Commissioner of Trade and Taxes [(2013) 59 VST 524 (Del.)] the issue was related to whether the selling of used cars is ancillary or incidental to the pharmaceutical business of the assessee. The Hon’ble Delhi High Court held that:

“11. In the present case, the main business of the petitioner is manufacture and sale of pharmaceutical products and the vehicles are used by it in the course of business (as written by Respondent No.-2 in the impugned order (Annexure A-1)). This may lead to the inference that proceeds from the sales of such vehicles should have been included in the turnover and must be taxed accordingly. But the selling of used cars cannot by any stretch of the imagination be characterized as “ancillary” or incidental to the business of a pharmaceutical company. It is not shown that the cars were of a special character e.g. air-conditioned vehicles especially designed to store and ferry pharmacy products. They were purchased for use of company employees and executives, for office purposes. At the stage of purchase, they suffered sales tax, which the assessee, as buyer, was bound to pay. However, the assessee never held them for the purpose of sale and purchase, but for using them. After their use, having regard to lapse of time, and their wear and tear, the assessee decided to replace them. These cars were then sold. Their sales, in a sense are twice removed from the business of the assessee. They cannot be called “incidental” or “ancillary” to the manufacture and sale of pharmaceutical products, which the assessee is engaged in.”

... Emphasis Supplied

2.1.22 Based on the above cited judgments, the canteen facility provided by the Applicant to its employees cannot be said to be principle or ancillary or incidental business activity of the Applicant. Therefore, one of the essential ingredient i.e. “business’ is missing to constitute ‘supply’ under GST. Thus, it is submitted that the said canteen facility cannot be taxed under GST.

2.1.23 Similarly, the Applicant cannot be said to be in the business of transportation by providing the transportation facility to the employees at subsidized rate. Hence the Applicant cannot be asked to pay GST on the said recoveries.

2.2 Without prejudice to the above, the canteen facility and bus transportation facility provided by Applicant is excluded from the scope of supply in terms of Clause (a) of Section 7 (2) of the CGST Act.

2.2.1 The Applicant also submits that the canteen facility and bus transportation facility provided by the Applicant is specifically excluded from the coverage of ‘supply’ under GST as per Clause (a) of Section 7 (2) of the CGST Act which reads as below:

“Section 7 (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”

“SCHEDULE III [See section 7]

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his employment.

... Emphasis Supplied

2.2.2 Section 7 (2) begins with a non-obstante clause and overrides Section 7 (1) of the CGST Act. A plain reading of above section provides that even in case where any activity may be treated as ‘supply’ in terms of Section 7 (1), certain activities/ transactions would still be excluded from the scope of ‘supply’.

2.2.3 Entry (1) of Schedule-III covers services provided by employee to its employer in the course of employment or in relation to employment. It can be noted that the any activity or transaction which is undertaken in the course of employment or in connection with employment has been specifically excluded from the ambit of supply.

2.2.4 The canteen facility is being provided by the Applicant to its employees as a part and parcel of the employment terms. Therefore, the said canteen facility is being clearly an activity which is being undertaken in the course of employment only. The canteen facility has a direct nexus with the employment of the employee with the Applicant. Therefore, by virtue of Section 7 (2) read with Entry (1) of Schedule III, the canteen facility does not amount to supply.

2.2.5 The canteen facility is being provided by the Applicant due to the reason that the persons enjoying the canteen facility are working as “employees” of the Applicant. Further, as already stated above, the canteen facility is being provided in the factory of the Applicant due to the mandatory requirement as per the Factories Act. Further, the canteen facility is provided not merely due to the statutory requirement, but also to provide a healthy and workable environment to all the employees of the Applicant. Therefore, the Applicant also provides the canteen facility in the Corporate office where it is not mandatory to provide the canteen facility in order to maintain uniformity for all employees of the Applicant.

2.2.6 In this regard, the “Canteen Policy” of the Applicant can also be referred. As per Clause 1.1, canteen facility may be provided to the employees. It is further submitted that the Canteen Policy is a part and parcel of the employment terms and conditions.

2.2.7 As discussed in the above paragraphs, the Applicant is providing these facilities to the employees due to their agreed terms. The Applicant is recovering the subsidized amount of canteen facility to the employee in terms of the Canteen Policy. Therefore, it is clearly established that the canteen facility is directly in connection with the employment of the employees.

2.2.8 Also, as per the Press release issued by the Ministry of Finance dated 10 July 2017 which states the following:

“Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply 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. Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C)”.

... Emphasis Supplied,

2.2.9 Basis the above press release, it is clear that any services provided by the employer to the employees in terms of the contractual agreement entered into between the employer and employee will not be subjected to the GST. As mentioned above, the Applicant in the present case is providing canteen facility to its employees as per the Canteen Policy. Further, the amount charged by the Applicant is fully paid to the third-party contractor and no profit or pecuniary benefit is involved in this activity. Hence, the Applicant is of the view that the provision of canteen facility is excluded from the purview of supply.

2.2.10 The above said position would be equally applicable in case of recoveries from the employees on account of providing the bus transportation facility.

2.2.11 Therefore, the Applicant humbly submits that the canteen facility and bus transportation facility provided by the Applicant to its employees cannot be treated as supply and therefore, GST should not be applicable.

2.3 Without prejudice to the above, it is settled position under GST regime that employee recoveries does not amount to ‘supply’.

2.3.1 The Applicant submits that it is a settled legal position that the employee recovery would not qualify as ‘supply’ under GST and hence, not taxable. The Applicant humbly submits that this Hon’ble Maharashtra Advance Ruling Authority has categorially held that employee recovery would not be treated as supply under GST.

2.3.2 Reliance can be placed in the case of M/s Jotun India Private Limited, [2019-TIOL-312-AAR-GST]. In the case of Jotun, the issue before this Hon’ble Authority was whether the recovery from employee towards health insurance would be treated as supply. The Applicant in the said case was procuring health insurance services from third-party insurance service providers for its employees and the parents of its employees. The Applicant was recovering 50% of the cost incurred by the Applicant towards the parental insurance cost of its employees. This Hon’ble Authority vide its Order No. GST-ARA-19/2019-20/B-108 Mumbai dated 04-10-2019 has ruled that the employee recovery would not be treated as ‘supply’ since the activity of recovering the amount from employees does not satisfy the conditions of Section 7. The below extract of the Advance Ruling is reproduced for ready reference:

“(3) The issue put forth before us is very limited. We find from the documents of insurance scheme submitted on record that the applicant provides Mediclaim cover to their employees’ parents. There are four types of category of scheme wherein sum insured amount for family floater is at Rs. 300000/- and premium amount is fixed as per the number of parents involved therein. The applicant will bear 50% amount for maximum 2 members only and rest of money will be paid by respective employee. It is cashless Mediclaim insurance policy for the lock-in period of 3 years. The mediclaim insurance policy is made from “The Oriental Insurance Company Ltd”. Further we find from the sample copy of insurance policy submitted before us by the applicant that the applicant Initially pays the entire premium along with taxes and then recovers 50% of the premium through salary in one installment in case of staff and in three installments in case of operators as the case may be. The Applicant is not in the business of providing insurance coverage. Secondly, to provide parental insurance cover, is not a mandatory requirement under any law for the time being in force and therefore, non-providing parental insurance coverage would not affect its business by any means. Therefore, activity of recovery of 50% of the cost of insurance premium cannot be treated as an activity done in the course of business or for the furtherance of business.

(4) We have referred to the term “Supply” described under Section 7 and the term “Business” defined in Section 2 (17) of the CGST Act, 2017, which are reproduced in applicant’s contention above. From the reading of the above definition and section (supra), we find that the activity undertaken by the applicant like providing of mediclaim policy for the employees’ parent through insurance company neither satisfies conditions of section 7 to be held as “supply of service” nor it is covered under the term “business” of section 2 (17) of CGST ACT 2017. Hence, we find that applicant is not rendering any services of health insurance to their employees’ parent and hence there is no supply of services in the instant case of transaction between employer and employee.

(5) Applicant has referred the ARA order in case of M/s POSCO India Pune Processing Center Private Limited (POSCO IPPC) vide Order NO.GST-ARA-36/2018-19/B-110 Mumbai dated 07-09-2018 = 2019-TIOL-25-AAR-GST wherein facts are identical and similar to that of the facts of applicant and ARA has ruled that, “they are not rendering any service of health insurance to their employees and hence, there is no supply of services in the instant case”. Considering the similar nature of facts and earlier ruling, as referred above, the same ruling is confirmed in this matter also.

(6) In view of detailed discussions above, we find that the recovery of 50% of Parental Health Insurance Premium from employees does not amounts to “supply of service” under Section 7 of the Central Goods and Service Tax Act, 2017.

... Emphasis Supplied

2.3.3 The Applicant also invites your kind attention to the Advance Ruling in the case of M/s POSCO India Pune Processing Centre Private Limited [2019 (2) TMI 63]. In the said case, this Hon’ble Authority was examining similar issue whether the recovery of 50% parental insurance premium amount from the employees would be treated as supply or not in order to avail Input Tax Credit of input services. This Hon’ble Authority vide Order No. GST-ARA-36/2018-19/B-110 Mumbai dated 07-09-2018, has ruled that the employee recovery would not amount to supply. The relevant extract is reproduced as below:

“We find that the applicant is paying the premium towards mediclaim taken for their employees and the parents of such employees. Against such payments made they are recovering 50% from their employees There is no way that the 50% amount recovered can be treated as amounts received for services rendered, since this entire amount is paid to the insurance company which is providing mediclaim facilities to the employees and their parents. Such recovery of 50% premium amounts by the applicant from their employees cannot be supply of services under the GST laws. In fact what is happening in this case is that since the applicant is recovering 50% of the premium paid on mediclaim from their employees, they want to treat the same as rendering of insurance output service to their employees and therefore they are contending that they are entitled to 100% input tax credit on the insurance premium paid to the insurance company in terms of Section 17 (5) (b) (iii) of the CGST Act, 2017, mentioned above. They have already submitted that they are primarily engaged in distribution of steel coils and also perform low value-added processing function in respect of some of the traded goods based on customer’s requirements. The applicant has brought nothing on records to show that they are an Insurance Company and registered with such authorities. Hence it appears that the applicant is creating this fiction of providing health insurance to their employees only to avail 100% ITC of payments made to the insurance companies.

Hence we find that they are not rendering any services of health insurance to their employees and hence there is no supply of services in the instant case. Since there is no supply, we do not find the need to answer the second part of this question. In view of detailed discussions above, we find that the Applicant cannot claim input tax credit of GST charged by the insurance company.”

... Emphasis Supplied

2.3.4 Similarly, reliance can also be placed on the advance ruling in the case of M/s. Tata Motors Ltd. [2020 (9) TMI 352] wherein the applicant had sought a ruling as to whether GST is applicable on nominal amount recovered from employees for usage of employee bus transportation facility In non-AC buses. In the given case, this Hon’ble Authority vide its Order No. GST-ARA-23/2019-20/B-46 Mumbai dated 25-08-2020 categorically held that the recovery of part amount of transport costs from the employees, would not amount to ‘supply’. Relevant extract of the ruling is reproduced below:

“5.3 The second question raised by the applicant is whether GST is applicable on nominal amount recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.

5.3.1 Applicant has submitted that they issue pass only to their employees, so that the transportation facility can be used by such employees, for which nominal amount is recovered on monthly basis. They have also submitted that once, employee ceases to be in employment with Applicant, he/she is not authorized to use the transportation facility. In other words, employer-employee relationship is must to avail this facility.

5.3.2 In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. The applicant’s contentions that they are eligible for exemption from GST under SI. No. 15 (b) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 in respect of nominal amounts of recoveries made from their employees to wards bus transportation service, is not correct. The exemption under the said notification is available only when the supply is taxable in the first place. In the subject case, the transaction between the applicant & their employees, due to “Employer-Employee” relation as stated by the applicant in their submissions, is not a supply under GST Act.

5.3.3 To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services As per clause 1 of the said Schedule-III, Services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services.

5.3.4 Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we are of the opinion that GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.”

... Emphasis supplied

2.3.5 The understanding of the Applicant is supported by the aforesaid rulings that the Applicant is not involved in the business of providing canteen facility. The Applicant has no intention to carry out the canteen business and the Applicant is only a facilitator in the transaction between the employee and the third-party canteen service provider. Therefore, in light of the above case laws, the Applicant submits that the canteen recovery from its employees would not amount to supply.

2.3.6 Hence, the Applicant submits that the provision of canteen facility by the Applicant to its employees through the third-party service providers cannot be said to be canteen services provided by the Applicant. Therefore, the said activity does not qualify as service and hence, GST is not applicable on the same.

2.4 Without prejudice to the above, the Applicant is eligible to claim the input tax credit on the GST paid on the cost borne by the Applicant for providing the canteen facility.

2.4.1 Without prejudice to the above, it is humbly submitted that the Applicant is eligible to claim the ITC in respect of the GST paid to the caterer to the extent the cost is borne by the Applicant.

2.4.2 It is important to note that, as per Section 16 of CGST Act, a registered person shall be eligible to avail the ITC of GST paid on procurement of goods or services or both which are used or intended to be used in the course or furtherance of business. The relevant extract of Section 16 of the CGST Act is reproduced below:

16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

2.4.3 Further, Section 17 (5) of CGST Act, specifies the supplies in respect of which ITC would not be available.

2.4.4 As per Section 17 (5) (b) of the CGST Act, ITC in respect of food and beverages and outdoor catering will not be available. However, as per the proviso to Section 17 (5) (b) of CGST Act, input tax credit in respect of food, beverages and outdoor catering etc. will be available in case the employer is under obligation to provide the said services under any law for the time being in force. The relevant extract of the said provision is reproduced below:

(b) the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

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.

... Emphasis Supplied

2.4.5 In the present case, the Applicant is providing canteen facility to the employees at the Chakan and Satara Unit. It is submitted that as per Section 46 of the Factories Act, 1948, every factory is mandatorily required to provide and maintain canteen in the factory in which more than 250 workers are employed. Therefore, in order to comply with the said mandatory condition, the Applicant is providing and maintaining the canteen at the factory.

2.4.6 Further, reliance can also be placed on advance ruling in the case of M/s. Tata Motors Ltd. (supra), wherein the authority while dealing with the similar issue has expressly held that the Applicant can claim the ITC to the extent of cost borne by the Applicant. Relevant extract of the ruling is reproduced below:

“5.2.7. Therefore in the subject case, since the applicant has specifically submitted and as agreed by the jurisdictional officer, that they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the applicant shall be eligible for Input Tax Credit in this case. However we would like to make it very clear that if the motor vehicle hired by them docs not have an approved seating capacity of more than thirteen persons (including the driver), then in that case the applicant will not be eligible for Input Tax Credit.”

... Emphasis supplied

2.4.7. Thus, in light of the above, it is humbly submitted that in accordance with the proviso to Section 17 (5) (b), the Applicant is eligible to claim the ITC in respect of the GST paid on the cost borne by the Applicant for providing the canteen facility to the employees as the same is mandated under Section 46 of the Factories Act, 1948.

2.5 Applicant’s Interpretation with respect to the recoveries made from the employees for providing Bus Transportation facilities to its employees are provided in the below grounds which are without prejudice to each other.

2.5.1. The employee recoveries for providing bus transportation facility is not covered under the ambit of “supply” under Clause (a) of Section 7 (1) of the CGST Act.

• The Applicant is procuring bus transportation facility from a third-party bus transportation service provider for transportation of its employees in Non-AC buses. Accordingly, the said service provider issues tax invoice with applicable GST to the Applicant. The Applicant is using the said bus transportation facility for transportation of its employees from place of work to home and back. Therefore, the Applicant recovers subsidized amount for the said transportation facility from its employees.
   

• As discussed above, the Applicant is a company involved in the business of developing, manufacturing and marketing of automotive components globally. Accordingly, the employees of the Applicant are engaged in developing, manufacturing and marketing of these automotive components. It is already submitted that the Applicant is engaged in the business of automotive components in Ground 3.1 above. The submissions of the Applicant made above equally apply in the case of Bus Transportation facility provided to the employees. Therefore, it is submitted that the Applicant is not engaged in the business of bus transportation and accordingly, the said facility provided by the Applicant to its employees does not amount to supply under the GST regulations.

2.5.2 Without prejudice to the above, the bus transportation facility provided by Applicant is excluded from the scope of supply in terms of Clause (a) of Section 7 (2) of the CGST Act.

• The Applicant submits that the submission made by the Applicant in respect of canteen recovery in Ground-3.2 equally applies so far as the bus transportation is concerned. Therefore, it is humbly submitted that the bus transportation facility is specifically excluded from the purview of ‘supply’ in terms of Section 7 (2) (a) read with Schedule-III to the CGST Act.

2.5.3 Without prejudice to the above, it is settled position under GST regime that employee recoveries does not amount to ‘supply’.

• The Applicant submits that the submission made by the Applicant in respect of canteen recovery in Ground-3.3 equally applies so far as the bus transportation is concerned. Therefore, it is humbly submitted that the recovery towards bus transportation facility does not amount to ‘supply’ in light with the advance rulings pronounced by this Hon’ble Authority.
   

• Further reliance in this regard, is placed on the advance ruling in the case of M/s. Tata Motors Ltd. (supra) wherein the applicant had sought a ruling as to whether GST is applicable on nominal amount recovered from employees for usage of employee bus transportation facility in non-AC buses. In the given case, this Hon’ble Authority vide its Order No. GST-ARA-23/2019-20/B-46 Mumbai dated 25-08-2020 categorically held that the recovery of part amount of transport costs from the employees, would not amount to ‘supply’. Relevant extract of the ruling is reproduced below:

“5.3 The second question raised by the applicant is whether GST is applicable on nominal amount recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.

5.3.1 Applicant has submitted that they issue pass only to their employees, so that the transportation facility can be used by such employees, for which nominal amount is recovered on monthly basis. They have also submitted that once, employee ceases to be in employment with Applicant, he/she is not authorized to use the transportation facility. In other words, employer-employee relationship is must to avail this facility.

5.3.2 In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. The applicant’s contentions that they are eligible for exemption from GST under SI. No. 15 (b) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 in respect of nominal amounts of recoveries made from their employees to wards bus transportation service, is not correct. The exemption under the said notification is available only when the supply is taxable in the first place. In the subject case, the transaction between the applicant & their employees, due to “Employer-Employee” relation as stated by the applicant in their submissions, is not a supply under GST Act.

5.3.3 To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services As per clause 1 of the said Schedule-III, Services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services.

5.3.4 Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we are of the opinion that GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.”

... Emphasis supplied

• In view of the above, it is submitted that there should not be any GST implications on the recoveries made from the employees for providing the bus transportation facility as a part of employment contract.

2.6 Applicant’s Interpretation with respect to the applicability of exemption from GST in respect of provision of Non-AC bus transportation facility to its employees.

2.6.1 The Applicant reiterates that the bus transportation facility provided by the Applicant to its employees are undertaken via Non-Air-conditioned (Non-AC) buses.

2.6.2 The Applicant submits that the transportation of employees by the Applicant through usage of Non-AC buses would merit classification under the Tariff 9964 as “Passenger Transportation Services”. It is submitted that the Annexure for Scheme of classification of services appended to Notification 11/2017-Central Tax (Rate) provides the manner for classification of services. The relevant extract of the same is reproduced below;

2.6.3 It is submitted that the local transportation services of passengers through buses are covered under Tariff 996411. Therefore, the local passenger transportation facility within the city in the given case in hand, if classified as service would merit classification under the Tariff 996411 only. Further, the Explanatory Notes issued by the CBIC also provides that the services provided by bus within city limits would be very well classified under Tariff 996411. The Explanatory Notes also provides that the renter defines the travel routes in case of passenger transportation services. In the given case, the said conditions are satisfied. Hence, without prejudice to above submission, in case the bus employee recovery qualifies as supply of service, the said service would be classified under Tariff 9964 only.

2.6.4 Therefore, without prejudice to the above submissions, even in case where the bus transportation facility provided by the Applicant to its employees amount to supply, the said services would be exempted by virtue of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (hereinafter referred to as ‘Exemption Notification’).

2.6.5 The Applicant further submits that as per SI. No. 15 (b) of the Exemption Notification, “Non-airconditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire” is exempt from GST. The relevant part is reproduced below:

2.6.6 From the above table, it is clear that, passenger transportation services via non airconditioned contract carriage, other than radio taxi is used for transportation of passenger is exempted from GST. The Applicant submits that the buses engaged in the transportation of employees are Non-AC buses. It is further submitted that the buses involved in the given case on hand is not a radio-taxi. The Applicant also submits that the buses engaged by Applicant in the given case are registered as ‘contract carriage’.

2.6.7 In view of the above discussion, the services of transportation of the employees of the Applicant through Non-AC buses would be treated as passenger transportation service classified under Tariff 9964. Further, as per SI. No. 15 (b) of the Exemption Notification, the Non-AC buses being a Non-AC contract carriage would be covered under the exemption from GST.

2.6.8 Thus, it is humbly submitted that even in case where the bus transportation facility amounts to service, the said supply of service by the Applicant to its employees would be exempted from GST.

2.7 Without prejudice to the above, the Applicant is eligible to claim the input tax credit on the cost borne by the Applicant for providing the transportation facility w.e.f. 01.02.2019.

2.7.1 As stated in ground-5, the Applicant is eligible to claim the exemption on the transport recovery made by the Applicant in terms of Sl.15 (b) of the Exemption Notification.

2.7.2 It is pertinent to note that, as per Section 16 of CGST Act, a person can avail ITC in respect of goods or services or both, which are used or intended to be used in the course or in furtherance of business. Further, Section 17 (3) of CGST Act, specifies the supplies in respect of which ITC would not be available.

2.7.3 As per Section 17 (5) (b) read with Section 17 (5) (a) of CGST Act, ITC in respect of renting or hiring of motor vehicles which are used for the transportation of persons and having approved seating capacity of not more than thirteen persons (including the driver) will not be available. In other words, ITC on renting or hiring of motor vehicles which are used for transportation of persons and having approved capacity of more than thirteen persons will be available. The relevant extract of the said provision is reproduced below:

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely :-

(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:- (A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicles;

    (b) the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

... Emphasis Supplied

2.7.4 In the present case, the bus has the approved capacity of more than thirteen passengers. Since the bus transportation provided by the Applicant to its employees is clearly intended to be used in furtherance of business, therefore, ITC in respect of GST paid on the cost borne by the Applicant in lieu of transportation facility will be available. Further, the same would not be barred under Section 17 (5) (b) read with Section 17 (5) (a) of CGST Act, as the renting or hiring of motor vehicles used for providing the transportation facility are having the approved capacity of more than thirteen person.

2.7.5 Further, reliance can also be placed on advance ruling in the case of M/s. Tata Motors Ltd. (supra), wherein the authority while dealing with the similar issue has expressly held that the Applicant can claim the ITC to the extent of cost borne by the Applicant. Relevant extract of the ruling is reproduced below:

“5.2.7. Therefore in the subject case, since the applicant has specifically submitted and as agreed by the jurisdictional officer, that they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the applicant shall be eligible for Input Tax Credit in this case. However we would like to make it very clear that if the motor vehicle hired by them docs not have an approved seating capacity of more than thirteen persons (including the driver), then in that case the applicant will not be eligible for Input Tax Credit.”

... Emphasis supplied

2.7.6 Thus, in light of the above, it is humbly submitted that the Applicant is eligible to claim the ITC in respect of the GST paid on the cost borne by the Applicant for providing the bus transportation facility.

2.8 Without prejudice to the above, even if GST is payable by the Applicant on the canteen recoveries made, the Applicant is liable to pay the GST on the amount of recoveries made towards providing the canteen facility.

2.8.1 Without prejudice to the above, it is humbly submitted that even if it is assumed that the Applicant is liable to discharge the GST on the canteen recoveries made, the Applicant is liable to discharge the GST only on the amount of recoveries made on providing the canteen facility.

2.8.2 In this regard, reliance can be placed on press release issued by Ministry of Finance dated 10th July 2017, wherein it is clearly stated that GST will not be applicable in case free housing is provided to the employees in terms of the contract between the employer and employee and the same is part and parcel of the cost to company. In other words, GST will not applicable, in case, any free facility provided by the employer to its employee as per the contract entered into between them and when the same is treated as cost to company. For better understanding, the relevant part of said press release is reproduced below:

7.3 “Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply 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. Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b)(ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C)”.

... Emphasis Supplied

2.8.3 Based on the above understanding, it is submitted that, in case, a certain pre-decided amount of recoveries are made by the employer for providing certain facilities to its employees and rest of the non-recovered amount is treated as cost to the company, the GST will be applicable only on the recoveries made and not on the full amount charged by the supplier for providing the facility the employee.

Conclusion:

In view of the above submission, in the present case:

• The canteen facility provided by the Applicant to its employees would not amount to ‘supply’ under GST;
   

• The bus transportation facility provided by the Applicant to its employees would not amount to ‘supply’ under GST;
   

• Without prejudice to above, even in case where bus transportation facility amount to supply of service, the same would be exempted under GST.
   

• Without prejudice to the above, input tax credit is eligible on both the canteen and transport recoveries in respect of GST charged by the service provider to the extent it relates to the cost borne by the Applicant.
   

• Without prejudice to the above, if at all GST is payable, the same would be payable on the amount recovered from the employees and not on the value charged by the service provider to the Applicant.

03. CONTENTION - AS PER THE CONCERNED OFFICER:

OFFICER SUBMISSION DATED 21.12.2021

3.1 M/s. Spicer India Private Limited (GSTIN No. 27AAECS1869999C1ZD) (hereinafter referred to as ‘Applicant’) is a company having its registered office at 29th Milestone, Pune, Nasik Highway, Tal-Khed, Village Kuruli, Chakan, Maharashtra-410501 (“Chakan Unit”) and having its plant at Gat No. 74/ A adjacent to Addl. MIDC area, Karandwadi, Satara 415004 (“Satara Unit”).

3.2. The Applicant is a company incorporated under the Companies Act, 1956, which is involved in the business of manufacturing of automotive components-mainly axles and driveshafts. The Applicant has its manufacturing units and office located at aforesaid two locations viz. Chakan and Satara Units. Accordingly, the Applicant has obtained GST registration in the state of Maharashtra.

3.3. The comments on the Applicant’s eligibility to apply for advance ruling and point-wise legal/factual position are detailed below :-

3.3.1 In order to file an application in relation to supply of goods or services before the Authority of Advance Ruling, the Applicant must satisfy the conditions prescribed under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as ‘CGST Act’).

3.3.2 Section 95 to 106 of the CGST Act, 2017 enunciated under Chapter XVII cover Advance Ruling and its appeals. Sub-section (c) of Section 95 of the CGST Act, defines the term ‘Applicant’ as under: -

“Applicant” means any person registered or desirous of obtaining registration under this Act”

3.3.3 The Applicant submits that as on date, it is registered in various States, including the State of Maharashtra and is making taxable supply of services from the same to its customers located in State of Maharashtra. Further, the turnover of the Applicant exceeds rupees twenty lakhs in the financial year.

3.3.4 Sub-section (1) of the Section 95 of the CGST Act defines the term ‘advance ruling’ as under:

“(a) “advance ruling” 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;”

“Section 97. Application for advance ruling: (2) The question on which the advance ruling is sought under this Act, shall be 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 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.”

3.3.5 From the above-mentioned provisions on advance ruling, it can be inferred that the Applicant is eligible to seek advance ruling in respect of determination of admissibility of ITC of GST paid on bus transportation services and canteen services as well as the query on the applicability of exemption notification 12/2017 Central Tax (Rate) dt. 28.6.2017, on recovery of nominal amount from the employees.

3.4. The Applicant has sought advance ruling on the questions relating to:

(I) Canteen services provided to employees.

(II) Transportation services provided to employees

(I) CANTEEN SERVICE

3.5. The applicant, a private limited company, engaged in manufacturing automotive components are having their plants in Chakan and Satara. The Applicant has a canteen policy where they provide food to their employees at subsidized rates in the company premises. For this applicant has engaged third party outdoor catering service provider for providing food to the employees of the company in the canteen area. The caterer is raising invoices for the services provided. The applicant is recovering subsidized amount from the employees for the canteen facility provided to them.

3.6. The Applicant has submitted that canteen facility is being provided to its employees as a part and parcel of the employment terms. Therefore, the said canteen facility is being clearly an activity which is being undertaken in the course of employment only. Further, as already stated above, the canteen facility is being provided in the factory of the Applicant due to the mandatory requirement as per the Factories Act, 1948 and that the Canteen Policy is a part and parcel of the employment terms and conditions. Further, the amount charged by the Applicant is fully paid to the third-party contractor and no profit or pecuniary benefit is involved in this activity. Therefore, by virtue of Section 7 (2) read with Entry (1) of Schedule III, the canteen facility does not amount to supply.

3.7. Question: Advance ruling is sought to ascertain whether the recoveries made by the Applicant from the employees for providing canteen facility to its employees is taxable under the GST laws.

Without prejudice to the above, whether input tax credit is eligible on canteen service procured from third party supplier to the extent the cost is borne by the Applicant?

3.8. The term, ‘outward supply’, has been defined in Section 2(83) of the CGST Act, 2017, as below:

‘Outward Supply’ in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business”.

The term “business” is defined in Section 2 (17) of the CGST Act, which reads like this:

“Business” includes:

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other sintilar activity, whether or not it is for a pecuniary benefit:

(b) any activity or transaction in connection with or incidents or ancillary to sub-clause (a); ...

3.8.1 From the plane reading of the definition of “business”, it can be safely concluded that the supply of food by the applicant to its employees would come under clause (b) of Section 2 (17) as a transaction incidental or ancillary to the main business.

Schedule Il to the CGST Act, 2017 describes the activities to be treated as supply of goods or supply of services. As per clause 6 of the Schedule, the following composite supply is declared as supply of service:

“supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is-for cash, deferred payment or other valuable consideration.”

3.8.2 Even though, there is no profit as claimed by the applicant on the supply of food to its employees, there is a “supply”, as provided in Section 7 (1) (a) of the CGST Act, 2017. The applicant would definitely come under the definition of “Supplier”, as provided in sub-section (105) of Section 2 of the CGST Act, 2017.

3.8.3 The term ‘consideration’ is defined in Section 2 (31) of the CGST Act, 2017, which is extracted below:

‘consideration’ in relation to the supply of goods or services or both includes,-

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or-both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.

3.8.4 Since the applicant recovers the cost of food from its employees, there is ‘consideration’, as defined in Section 2 (31) of the CGST Act, 2017.

3.9. In view of the above, we hold that recovery of amount from employee on account of third-party canteen services provided by the Company, which is obligatory under Section 46 of the Factories Act, 1948 would come under the definition of ‘outward supply’ as defined in Section 2(83) of the CGST Act, 2017 and therefore, taxable as a supply under GST.

3.9.1 In the pre-GST period, vide SI No. 19 and 19A of Notification No. 25/2012 ST dated 20.60.2012 as amended by Notification No. 14/2013-Service Tax dated 22.10.2013 the ‘services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), including a canteen having the facility of air-conditioning or central air-heating at any time during the year’ was exempted from service tax. But, there is no similar provision under the GST laws.

3.10. The Kerala AAAR in the matter of Caltech Polymers (P.) Ltd. held that the provision of food items to the employees for a consideration in a canteen run by company would come under definition of ‘outward supply’ and hence, shall be taxable as supply of service under GST.

3.11. The Haryana AAR in Musashi Auto Parts Put. Ltd. even when the third-party canteen service provider was involved, held that supply of coupons (for purchasing food) by employer to employees at 25% of the cost of food were taxable. The AAR was of the view that Schedule III of the CGST Act, 2017 only provides that services of employees to the employer were excluded from the purview of GST and not vice-versa.

3.12. Similarly, the Tamil Nadu AAR in Mfar Hotels & Resorts Pot. Ltd. Discussed the GST liability for food supplied via canteen to their employees on a free-of-cost basis as part of the employment contract. The AAR held that supply of free food to the employees was supply of service as per paragraph 2 to Schedule I of the CGST Act and was in the course or in furtherance of business as it was a part of the employment contract.

3.19 Section 17 (5) of the CGST Act prescribes a list of few goods and services on which ITC is not admissible. Relevant provision reads as under:

Section 17: Apportionment of credit and blocked credits

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely :-

    (b) the following supply of goods or services or both -

    (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

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.

3.14. Therefore, the recoveries made by the Applicant from the employees for providing canteen facility to its employees is taxable under the GST laws, and the ITC of GST paid on canteen facility provided by applicant to its employees is not available to the Applicant.

(II) TRANSPORTATION PROVIDED TO EMPLOYEES

Q. 2.2) Whether the recoveries made by the Applicant from the employees for providing bus transport facilities to its employees is taxable under the provisions of CGST Act?

Q. 2.3) Without prejudice, even if GST is applicable in respect of employee recovery towards bus transportation facility, whether the Applicant would be exempted under the SI. No. 15 of Notification No. 12/2017-Central Tax (Rate)?

3.15. Applicant has submitted that as per the Employment Agreement, the Applicant is paying a pre-decided allowance to the Employees for conveyance, house rent, special allowance etc. However, at the same time, the Appellant is also recovering certain amounts from its employees at subsidized rates for providing the transportation services to its employees. The bus transportation service provider is raising its invoices on the Applicant.

3.15.1 The buses involved in the transportation of employees are Non-Air-conditioned (Non-AC) buses and having contract carriage permit. Further, the approved capacity of the bus is more than thirteen passengers. The bus transportation facility is provided by the Applicant to the employees without any profit motive. They are provided at subsidized amount and forms part and parcel of the employment arrangement.

3.15.2 Therefore, the services of transportation of the employees of the Applicant through Non-AC buses would be treated as passenger transportation service classified under Tariff 9964. Further, as per SI. No. 15 (b) of the Exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, the Non-AC buses being a Non-AC contract carriage would be covered under the exemption from GST.

The relevant part is reproduced below:

3.16. Department’s views:

3.16.1 Schedule III to the CGST Act, lists activities which shall be treated neither as a supply of goods nor a supply of services.

1. “Services by an employee to the employer in the course of or in relation to his employment”.

3.16.2 In this case it is seen that services are not being provided by the employee to the employer. Schedule III of the CGST Act, 2017 only provides that services of employees to the employer were excluded from the purview of GST and not vice-versa. Therefore said clause cannot be applied to this case and GST appears to be applicable in the case of recoveries made from employer for providing passenger transportation services under tariff heading 9964.

3.16.3 From the plane reading of the definition of “business”, it can be safely concluded that transportation service to its employees would come under clause (b) of Section 2 (17) as a transaction incidental or ancillary to the main business.

3.16.4 Further, even though, there is no profit as claimed by the applicant on the service to its employees, there is a “supply”, as provided in Section 7 (1) (a) of the CGST Act, 2017. The applicant would definitely come under the definition of “Supplier”, as provided in sub-section (105) of Section 2 of the CGST Act, 2017. The supply is also for a consideration which is recovered from the employees.

3.17. The applicant is not eligible for exemption from GST under SI. No. 15(b) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 for the above reasons.

3.18. Q. 2.4) Without prejudice to the above, whether input tax credit is eligible on bus transport service procured from third party supplier to the extent the cost is borne by the Applicant?

Q. 2.5. Without prejudice, even if GST is payable in respect of aforesaid employee recoveries, what would be the value on which GST is payable?

3.19. The issue has already been settled by the Hon’ble High Court of Bombay in the case of CCE Nagpur Vs. Ultratech Cement Ltd., 2010 (260) ELT 369 (Bom.) wherein the Hon’ble High Court has held that although the assessee is entitled for input service credit for the manufacturing of final product but the amount reimbursed by the employees by way of contribution is not entitled for input service credit.

04. HEARING

Preliminary e-hearing was held on 21.12.2021. The Authorized representative of the applicant, Mr. Sandeep Sachdeva, Advocate, authorized of the applicant was Appeared, and requested for admission of the application. Jurisdictional Officer was not available.

Final e-hearing was held on 18.12.2024. The Authorized representative of the applicant, Mr. Shankar Rochlani, C.A., and Mr. Harishchander Yadav, Assistant Commissioner of CGST, Division-IV, has virtually attended the meeting. We heard both the sides.

05. 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) Spicer India Private Limited (hereinafter referred to as ‘Applicant’) is a company having its registered office at 29th Milestone, Pune, Nasik Highway, Tal-Khed, Village Kuruli, Chakan, Maharashtra-410501 and having its plant at Gat No. 74/A adjacent to Addl. MIDC area, Karandwadi, Satara 415004. It is involved in the business of manufacturing of automotive components-mainly axles and drive shafts.

(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) The Applicant has submitted that they provide canteen and transportation facility to its employees at the Chakan and Satara units based on the employment terms of the Applicant. Further, for providing the canteen facility to the employees, the Applicant has introduced a separate canteen policy. Based on the agreed terms between the Applicant and Employees, the Applicant is entitled to make recoveries at subsidized rates for the canteen and bus transportation facility provided by the Applicant at its factory and corporate office. The recovery of amounts is evident from the salary slips of the employees wherein the express deductions that are recovered by the Applicant on account of food and bus transportation are mentioned.

(4) 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.

(5) 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’. Further, they have also taken a view that any services provided by the employer to the employees in terms of the contractual agreement entered into between the employer and employee will not be subjected to the GST.

(6) 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 in the business of manufacture and supply of seats for motor vehicles and supply of canteen or transportation services is not his business. 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 manufacture and supply of seats for motor vehicles 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 off seats for motor vehicles.

(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 (employer) 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 (employer) 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 Appellant (employer) 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) Another contention of the Applicant is that the perquisites forming part of employment contract excluded from GST. 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:

    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 CBIC Circular 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 concession 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/ portion to the extent of concession offered by the employer is to be treated as a perquisite and not the remaining portion/value 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 Ill 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 The Applicant has presented following arguments in support of his stand

(1) The Applicant relies on the case of Deputy Commissioner of Commercial Taxes vs. Thirumagal Milis Ltd. [1967 (20) STC 287 Mad]. M/s Thirumagal Mills Ltd. is a spinning mill manufacturing cotton yarn. The issue relates to taxation of a fair price shop run by the assessee for the benefit of its employees. This case pertains to the interpretation of provisions of the Madras General Sales Tax Act, 1959. Under the said Act, liability to pay tax was upon the ‘dealer’. The Tribunal held that the assessee is not a dealer in respect of the turnover related to fair price shop. Hon’ble High Court confirmed this decision holding that the assessee is not dealer with reference to the transactions of fair price shop. The facts and the provisions of the law for which the said decision was pronounced are completely different than the current case.

The Applicant further relies on the decision in case of Panacea Biotech Limited vs. Commissioner of Trade and Taxes [(2013) 59 VST 524 (Del.)]. This judgment is in respect of the provisions of Delhi Sales Tax Act, 1975, wherein taxability mainly depended upon whether the person is ‘dealer’ as per the provisions of the said Act. In the said case when the cars were purchased, they were taxable at the first point i.e. w.e.f. 29.03.1996 to 02.09.2001, therefore, purchases were made after payment of Tax. When the tax is paid at the first point, subsequent sales are not to be taxed in view of provisions of the section 5 of Delhi Sales Tax Act, 1975. However, till the time cars were to be sold as used cars, they were included in the notification on which tax was to be paid at last point. No protection was provided in respect of cars which were purchased under first point regime and were sold during the last point regime from levy of tax. Thus, the fact and provisions of law in that case are different than the current case. Applicant has further quoted judgement in case of M/s Raipur Mfg Co. Vs State of Gujarat (CA No.603 of 1966). However, the facts In this case and the provisions of law involved are completely different.

(2) In this regard, we notice that the applicant has further placed reliance on the ruling of Gujarat AAR in RE: Emcure Pharmaceuticals Limited [2022-VIL-231-AAR], the ruling of Maharashtra AAR in RE: Tata Motors Limited in [2021-TIOL-197-AAR-GST-2020-VIL-257-AAR], the Maharashtra AAR in a ruling in RE: Posco India Pune Processing Centre Pvt Ltd (Order dated 07.09.2018), Authority for Advance Ruling, Maharashtra in M/s Jotun India Pvt Ltd (Order dated 4.10.2019), 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. Further, this authority has placed reliance on Rulings in case of Himachal Pradesh AAAR dated 26.09.2023 in case of M/s Federal-Mogul Anand Bearings India Limited, Tamil Nadu AAAR dated 05.05.2023 in case of M/s Kothari Sugars and Chemicals Limited and Tamil Nadu AAR dated 20.12.2023 in case of M/s Faiveley Transport Rail Technologies India Private Limited.

(3) 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 III. 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 Whether the Applicant would be exempted under the SI. No. 15 of Notification No. 12/2017 - Central Tax (Rate)

5.2.1 The Applicant has submitted that they have agreement with M/s. Sachin Travels for providing non-air-conditioned buses along with the drivers. M/s. Sachin Travels has raised tax invoices to the Applicant charging 12% GST to the Applicant under SAC 9966. Applicant has further used these buses for providing transport services to its employees.

5.2.2 The applicant submits that the services of employees to and from factory by non-air-conditioned buses will be covered under “transportation of passengers by non-air-conditioned contact carriages” which is exempted from payment of tax as per SI. No. 15(b) of Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017.

5.2.3 The SI. No. 15 of Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017 reads as under:

5.2.4 We observe that, as per clause (b) of above SI. No. 15 of Notification No. 12/2017-Central Tax (Rate), dated 28.6.2017, the services of transportation of passengers, with or without accompanied belongings, by non-air-conditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire is exempt from GST.

In Para 2(t) of Notification No. 12/2017-Central Tax (Rate), dated 28.6.2017, the term Contract Carriage has been defined as under:

(t) “contract carriage” has the same meaning as assigned to it in clause (7) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988);

In clause (7) of Section 2 of the Motor Vehicles Act, 1988. the contract carriage has been defined as under:

“(7) ‘contract carriage’ means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether expressed or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorised by him in this behalf on a fixed or an agreed rate or sum-

(a) on a time basis, whether or not with reference to any route or distance; or

(b) from one point to another; and in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey, and includes-

(i) a maxicab; and

(ii) a motor-cab notwithstanding that separate fares are charged for its passengers;”

As per the above definition, Regional Transport Authority imposes certain conditions on the contract carriage permit holder for carrying contract carriage. Section 74 of the Motor Vehicles Act, 1988 which is relevant the contract carriage is produced as below.

74. Grant of contract carriage permit. -

(1) Subject to the provisions of sub-section (3), a Regional Transport Authority may, on an application made to it under section 73, grant a contract carriage permit in accordance with the application or with such modifications as it deems fit or refuse to grant such a permit:

Provided that no such permit shall be granted in respect of any area not specified in the application.

(2) The Regional Transport Authority, if it decides to grant a contract carriage permit, may, subject to any rules that may be made under this Act, attach to the permit any one or more of the following conditions, namely: -

(i) that the vehicles shall be used only in a specified area or on a specified route or routes;

(ii) that except in accordance with specified conditions, no contract of hiring, other than anextension or modification of a subsisting contract, may be entered into outside the specified area;

(iii) the maximum number of passengers and the maximum weight of luggage that may be carried on the vehicles, either generally or on specified occasions or at specified times and seasons;

(iv) the conditions subject to which goods may be carried in any contract carriage in addition to, or to the exclusion of, passengers;

(v) that, in the case of motor cabs, specified fares or rates of fares shall be charged and a copy of the fare table shall be exhibited on the vehicle;

(vi) that, in the case of vehicles other than motor cabs, specified rates of hiring not exceeding specified maximum shall be charged;

(vii) that, in the case of motor cabs, a special weight of passengers’ luggage shall be carried free of charge, and that the charge, if any, for any luggage in excess thereof shall be at a specified rate;

(vii) that, in the case of motor cabs, a taximeter shall be fitted and maintained in proper working order, if prescribed;

(ix) that the Regional Transport Authority may, after giving notice of not less than one month, -

(a) vary the conditions of the permit;

(b) attach to the permit further conditions;

(x) that the conditions of permit shall not be departed from save with the approval of the Regional Transport Authority;

(xi) that specified standards of comfort and cleanliness shall be maintained in the vehicles;

(xii) that, except in the circumstances of exceptional nature, the plying of the vehicle or carrying of the passengers shall not be refused;

(xiii) any other conditions which may be prescribed.

It is to be noted that the contract carriage permit holder is responsible for the operation of vehicles as per the conditions imposed in section 74 of the Motor Vehicles Act, 1988. In this case, the applicant is not the contract carriage permit holder and thus not bound by the conditions mentioned in the section 74 of the Motor Vehicles Act, 1988.

As per the above definition of contract carriage, the passenger or passengers for hire or reward are to be engaged under a contract with them by a person with a holder of a permit of contract carriage. In this case, holder of a permit does not have any privity of contract with the passengers i.e. employees of the Applicant. Applicant has rented the buses from M/s. Sachin Travels. This transaction is in the nature of rent-a-cab service. M/s. Sachin Travels is charging his services of providing transport buses for carrying the employees @12% (6% SGST and 6% CGST). These invoices are raised to M/s. Spicer India Private Limited. These services are in the nature of renting of services of transport vehicles with operators. Here, the transport service provider provides buses to M/s. Spicer India Private Limited and charges them on monthly basis based on fixed amount plus additional charges based on the Km running of the bus. Additionally, 12% GST under SAC 9966 is also charged in the bill. Cost of fuel is included in these charges and the buses provided are along with the drivers. It is for M/s. Spicer India Private Limited to decide as to how these buses are to be used. Thus, these services squarely fall under SAC 9966 as rented services of transport vehicles. In case of MAH AAR-M/s. Shailesh Ramsundar Pande and RAJ AAR in case of M/s. Pawan Putra travels, the services provided by the transport service providers to the companies or organization for transportation of its employees have been held to be renting services to the company.

Let’s further analyse the compliance to conditions for a contract carriage as provided in clause (7) of section 2 of Motor Vehicles Act, 1988. We observe that

1. M/s. Spicer India Private Limited is not a holder of permit for contract carriage,

2. It is not charging passengers i.e. employees on a time basis.

3. It does not provide service to employees from one point to another. It is plying buses through various routes so as to pick up other employees.

Thus, it is difficult to infer that the Applicant is providing contract carriage service to its employees.

Further, the hire or charter services are excluded from the said entry 15 (b) of Notification No. 12/2017 CT(R) dated 28.06.2017. In view of aforesaid discussion, the transportation services provided by the Applicant to its employees are not covered by entry 15(b) of the Notification No. 12/2017 CT(R) dated 28.06.2027. The services provided by M/s. Spicer India Private Limited squarely fall under transport of passengers under SAC 9964 and taxable at 5% without ITC or 12% with ITC (If ITC is not blocked by other provisions) under entry No. 8 (vi) of Not. No. 11/2017 CT(R) dated 28.06.2017 as amended from time to time.

5.3 Whether ITC is available to the Applicant on GST charged by the Transport Service Providers for providing the non-air-conditioned bus transportation services.

5.3.1 The services of bus transportation by the employer to his employee provided as perquisite in terms of contractual agreement entered into between the employer and his employees are in lieu of the services provided by employees to the employer in relation to their employment and will not be subjected to GST.

5.3.2 The service provider of transportation service to the Applicant is required to discharge GST on the said services. It is seen that ITC on leasing, renting or hiring of motor vehicles for transportation of passengers having approved seating capacity of more than 13 persons is not blocked u/s 17 (5) (b)(i).

5.3.3 The transportation of employees by picking them from their residence to the factory or office premises is merely for personal convenience of the employees to enable them to reach the premises of the office so as to participate in the business activity.

5.3.4 Hon’ble High court of Bombay in Solar Industries India Limited Vs Commissioner, Central Excise, Customs and Service Tax held that Cenvat Credit is not eligible on facility of transportation provided by the appellant to its employees as same was merely in the nature of service for personal use or consumption of its employees. The substantial question of law involved in the said judgement is:

1. Whether the services provided by a Manufacturer of transportation of its employees, from their designated pick up points to their workplace, by Bus, would amount to a service for personal use or consumption of any of the employees?”

2. Whether the activity of providing bus transport services to its employees, at the cost of the Manufacturer, to reach factory in time and the expenses incurred by the Manufacturer in providing such service, (which amount is taken into consideration, while determining the final price of the product) can be said to be a component leading to the manufacturing activity, so as to entitle the Manufacturer, the benefit of Cenvat Credit?

The view held by Hon’ble High court is produced below:

“The transportation of employees from distance of about 40 kms for reaching factory is not an activity which could be said to be a part of manufacturing activity. It is merely for personal convenience of the employees to enable them to reach the premises of the factory so as to thereafter participate in the manufacturing activity.

In this regard, the reliance is placed on the judgment of the Karnataka High Court in Toyota Kirloskar Motor Private Limited vs The Commissioner Of Central TAX wherein food and beverages were provided by the appellant therein to its employees by engaging the services of an outdoor caterer. This was sought to be treated as “input service” since there was a statutory duty on the appellant to establish a canteen for its employees. Considering the effect of definition of “input service’ after 01.04.2011 it was found that establishment of such canteen was primarily for personal use or consumption of the employees and after such amendment no cenvat credit could be availed. This view has been upheld by the Hon’ble Supreme Court while dismissing the Special Leave Petition on 18.11.2021 preferred by the said appellant. The facts of the present case also indicate that the facility of transportation provided by the appellant to its employees was merely in the nature of service for personal use or consumption of its employees.”

It is pertinent to note that the Hon’ble High Court held its view on the nature of services, under contention between taxpayer and the department, notwithstanding that they are not explicitly categorized as service for personal use or consumption of its employees under the provisions of the existing laws. Thus, we find that the ratio of court judgment is applicable in the current taxation regime and particularly to the current issue contended by the taxpayer to the extent that the services availed are not used further for offering taxable services.

5.3.5 Hired motor vehicles would be used by the applicant for provision of service of transportation of employees from residence to factory or office premises. The services of leased or hired motor vehicles are consumed for discharging obligation towards employees.

5.4.7 Section 17 (5) (g) of CGST/MGST Act 2017 states that input tax credit shall not be available in respect of goods or services or both used for personal consumption. Provision of service of transportation of employees from residence to factory or office premises has been used for personal consumption or comfort of employees. The applicant is not under any statutory obligation to provide these services to his employees and the services provided comes under category of personal consumption which “makes the applicant ineligible to avail input tax credit on the invoices issued to him by the transporter for transportation of employees as per Section 17 (5) (g) of CGST/MGST Act 2017.

5.5 Value in respect of which canteen and transportation services are taxable

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 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

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.

The activity of provision of canteen and transportation 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 made 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;

(i) such persons are legally recognised partners in business;

(ii) such persons are employer and employee;

…..

As per ‘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.

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.

06. 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)

For reasons as discussed in the body of the order, the questions are 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 office? If Yes, what should be the value on which the tax should be payable?

Answer:- As discussed above, GST is payable on the value of the recoveries made from the employees towards providing canteen facility at subsidized rates in the factory and office.

Question 2: Whether the GST would be payable on the recoveries made from the employees towards providing bus transportation facility? If Yes, whether the Applicant is exempted under Notification No. 12/2017 Central Tax (Rate)?

Answer:- Yes, GST is payable on the value of the recoveries made from the employees towards providing bus transportation facility. As discussed above, the Applicant is not exempted under Notification Nc. 12/2017 Central Tax (Rate).

Question 3: Whether the ITC of the input services received in respect of the services procured in respect of bus transportation services would be available?

Answer:- No.

Place - Mumbai

Date - 27/03/2025

Copy to:-

 l. The applicant
2. The concerned Central / State officer
3. The Commissioner of State Tax, Maharashtra State, Mumbai
4. The Pr. Chief Commissioner of Central Tax, Churchgate, Mumbai
5. The Joint Commissioner of State Tax, Mahavikas for Website.