GST Update No 183 on tax implications on perquisites to employees

Applicability of GST and input tax credit thereon has been a matter of discussion in GST Law since long, especially when the question is related to transportation and catering services provided by employer to the employee. It is well known that services provided by employers to employee in form of food or transportation has a character of perquisite, yet, it is matter of debate among the minds of the taxpayers. Recently, one such issue was raised before Gujarat AAR in the case of M/S EMCURE PHARMACEUTICALS LIMITED. The outcome of this decision is subject matter of consideration of our present update. The applicant provides canteen and transportation facility to its employees without any profit motive which is part and parcel of HR policy. The applicant makes recoveries of the same at subsidized rates and engages a third-party service provider who in turn raises invoices along with applicable GST to the applicant. However, no recovery is made for bus transportation services. The buses are Non-Air-Conditioned having seating capacity of more than 13 seats. The applicant sought advance ruling on following: 1. Whether recoveries made by Applicant for canteen facility are taxable under GST? 2. Whether free of cost transportation taxable under GST? 3. If GST is applicable on transportation, whether applicant is eligible to avail exemption on the same? 4. Whether ITC is admissible to applicant u/s 16 of CGST Act, 2017 and if yes, to what extent? The applicant submitted that the recoveries made from employees are not covered under the ambit of supply as per Section 7 (1) of CGST Act, 2017. Further, it was submitted that the said services do not comes under the ambit CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??4 of business since, the applicant is engaged in business of sales and promotion of pharmaceutical products only and not in the business of providing food to the employees. Reliance was placed on the decision given in the case of STATE OF GUJARAT V/S RAIPUR MANUFACTURING CO. LTD. [Appeal No. 603 of 1966]. Further, since canteen facility is not having any direct nexus with the principal business activity, it cannot be construed as incidental to the main business. References were made to following cases: • DEPUTY COMMISSIONER OF COMMERCIAL TAXES V/S THIRUMAGAL MILLS LTD. [1967 (20) STC 287 MAD] • PANACEA BIOTECH LIMITED VS. COMMISSIONER OF TRADE AND TAXES [(2013) 59 VST 524 (DEL.)] Furthermore, reliance was also placed on the press release issued by the Ministry of Finance dated 10.07.2017 wherein it is mentioned that services by employer to employee under employment agreement will not be subject to GST. It was further contended that the recovery made from the employees does not amounts to supply. Reliance was placed on following rulings: • In Re: M/s Amneal Pharmaceuticals Pvt Ltd., 2021 (9) TMI 1293 – Appellate Authority for Advance Ruling, Gujarat; • In Re: M/s Dishman Carbogen Amics Ltd., 2021 (8) TMI 836 – Authority for Advance Ruling, Gujarat; • In re: M/s Bharat Oman Refineries Limited 2021-VIL-73-AAAR The Madhya Pradesh Appellate Authority For Advance Ruling • M/s Jotun India Private Limited, [2019-TIOL-312-AAR-GST]. Maharshtra Authority for Advance Ruling • Advance Ruling in the case of M/s POSCO India Pune Processing Centre Private Limited [2019 (2) TMI 63]. It was further submitted that the free of cost facility of bus transportation provided by employer to employees is excluded from the scope of supply as defined u/s 7(2) (a) read with Schedule III of CGST Act, 2017. Reliance was placed on following rulings: • In Re: M/s Tata Motors Ltd., 2020 (9) TMI 352 – Authority for Advance Ruling, Maharashtra; • In Re: M/s North Shore Technologies Pvt. Ltd., 2021 (3) TMI 707 – Authority for Advance Ruling, Uttar Pradesh; CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 • In Re: Tata Motors Ltd, 2020 (41) G.S.T.L. 35 (A.A.R. - GST – Guj.) • In Re: Dr Willmar Schwabe (I) Private Limited UP ADRG 79/2021 - Authority for Advance Ruling, Uttar Pradesh • In Re: Integrated Decisions and Systems India Pvt Ltd, [GST-ARA-116/2019-20 dated 16.12.2021] It was further contended that transportation of employees through usage of Non-AC buses would come under ambit exemption under Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. The applicant further stated its own Advance Ruling sought for the state of Maharashtra wherein Maharashtra AAR held that canteen services and bus services by the Applicant to the employees is not covered under the definition of ‘supply’ under GST and hence not liable under GST. It was also argued that it is eligible to avail input tax credit for GST on purchase of Canteen Services since, it is obligatory on the part of employer under Factories Act, 1948 to provide employees with canteen facility. Similarly, it was argued that input tax credit shall be available on bus services since the seating capacity is more than 13 persons. The revenue submitted that issues raised are already settled by Maharashtra AAR vide Order No. GST-ARA-119/2019-20/B-03 dated 04.01.2022. The AAR held that the canteen and transportation activity provided by applicant to its employees are made in the course or furtherance of business but is not the business of the applicant. It was further held that as far as admissibility of GST paid on these services is concerned, it was analysed that Section 17(5)(b)(i) ends with colon : and followed by proviso which ends with semi-colon. These two are important punctuations used to complete a sentence. It is therefore concluded that the legislature intended the said sub-clauses to be distinct and separate alternatives. Reliance was placed on decision of Apex Court in the case of PIL of Shri Jayant Verma v. Union of India, dated 16-2-2018 and Kerala High Court in the case of Mr. Vincent Mathew v. LIC of India dated 15-1-2013 wherein expression colon and semi-colon were explained. It was therefore, held following: 1. GST shall not be leviable on amount collected on portion of canteen 2. GST shall not be leviable on amount collected on free of cost transportation services provided by the applicant CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 3. ITC paid on canteen facility stands blocked under Section17(5) of CGST Act, 2017 4. ITC on transportation facility is admissible since the seating capacity of bus exceeds 13 persons. The above issue has been a matter of dispute since there are various contrary rulings pronounced by AARs and AAARs on the same. The ruling is in contradiction with earlier rulings pronounced by Kerala AAR in Caltech Polymers Private Limited and Gujarat AAR in the case of Amneal Pharmaceuticals Private Limited wherein it was held that canteen recoveries amount to supply and liable to GST. On the contrary, in the case of Tata Motors, Gujarat AAR held that GST is not leviable on canteen supply. Although the rulings pronounced by AARs have persuasive value, contradictory views are always a matter of concern for the taxpayers. It is hoped that the Government issues appropriate clarification in this regard so as to avoid any further litigations on the subject.

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GST Update No 183 on tax implications on perquisites to employees

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