Running canteen in factory in ‘furtherance of business’; Recovery from employees taxable; Denies ITC In the matter of Tube Investments

Uttrakhand AAR in case of an engineering company holds that the nominal cost recovered from employees for provision of subsidised canteen facilities will be subject to GST;Applicant recovers nominal amount from the employees for canteen facility and discharges GST @5% on the taxable value which is sum total of the cost of the canteen service provider plus 10% notional mark up; In this connection, Applicant is seeking advance ruling on (i) whether the nominal amount of recoveries made by the Applicant from the employees constitutes “Supply” under the provisions of Section 7 of CGST Act, 2017 (ii) whether GST is liable to be paid on that part of the amount collected from their employees towards provision of food and (iii) whether Input Tax Credit (ITC) is available on the GST paid by them on the taxable value of the canteen service; AAR browsing through the legal framework, clarifies that supply made by a taxable person in the course or furtherance of business is an ‘Outward Supply’ and resultantly, the provision of food in the canteen for a nominal cost is a ‘Supply’ for the purposes of GST since supplies are provided by the employer to the employees for a consideration, though nominal; To the Authority’s mind, establishing canteen is in the furtherance of business of the applicant and supply of food to the employees when the same is not contractually agreed, is not an allowance as a part of the employment, but it is mandated by the Factories Act; AAR notes that in present case, Applicants are adding 10% mark-up on cost which admittedly includes tables, chairs, utensils, washbasins, storage room, etc.; In this regard, AAR finds that electricity and other equipment for running the canteen is also supplied by Applicant, the cost of which is not charged from contractors, which ought to have been the cost for the contractors to be included in the taxable value; Thus, AAR deems the nominal cost, which is recovered from the salary as deferred payment as ‘consideration’ for the supply and derives further that, supply of food is a ‘Supply of Service’ by the Applicant to their employees as the same is not a part of the employment contract; Cites that case laws relied upon by Applicant do not even have persuasive value; On availability of ITC, explains that, two clauses in Section 17 (5)(b)(i) and Section 17(5)(b)(iii) which governs supply of goods and services are not related by the punctuation used at the end of the provisions and hence, it can be said that “ITC is not allowed on canteen charges even though it is obligatory under any other law”, draws support from Tata Motors ruling.