Deepak Gupta | Dec 4, 2022 | Views 64434
Input Tax credit not allowed on GST paid on manpower service utilized for running canteen facility: AAR
The applicant is a manufacturer of auto components i.e. pistons, piston pins & piston rings and is engaged in manufacture, supply and distribution of the said auto components used in two/three/four wheeler automobiles. They have a factory to manufacture the auto components and have about 3200 employees working on a permanent as well as contractual basis.
The applicant entered into a contract with M/s Mithrapriya Enterprises (Service Provider) for supply of manpower to operate and manage canteen within the factory premises and a part of the cost of the meals provided is deducted by the applicant from the salary of the employees on a monthly basis.
In view of the above, the applicant has sought advance ruling in relation to applicability of GST on the deductions made from the salary of the employees in respect of the following questions:
Whether the subsidized deduction made by the applicant from the employees who are availing food in the factory would be considered as a “supply” by the Applicant under the provisions of Section 7 of the CGST / KGST Act 2017.
a. In case answer to above is yes, Whether GST is applicable on the nominal amount being recovered by the Applicant?
b. Whether Input Tax Credit (“ITC”) of the GST charged by the Service Provider would be eligible for availment to the Applicant?
It is observed, on examination of the available documents, that the applicant is running a canteen as mandated under the Factories Act, 1948 and is involved in supply of food to the employees. They are collecting certain amounts by way of deduction from the salaries of respective employees towards the supply of food through the canteen. The contention of the applicant that they do not have any legal intention for provision of canteen is contrary to the obligation placed on the applicant under the Factories Act, 1948. Having agreed to abide by the provisions of Factories Act, 1948, providing canteen facilities to employees is legal requirement and not an option to the applicant. Further the contractual relationship is evident from the fact that the applicant is charging employees. In the applicants own submission it is stated that they charge Rs 50 /- per month from the payroll and union employees and Rs 10/- per meal from contract employees. The said charges are deducted from the salaries on a monthly basis. Since the charges are predecided and deducted from the salaries, which are also agreed upon by the employees, contractual relationship is clearly established between the applicant and their employees. Further it is an admitted fact that the applicant themselves are running the canteen but claims that they merely provide demarcated space for canteen facility is factually incorrect.
The applicant, with regard to the second limb of supply i.e. consideration, quoting the definition of consideration, under Section 2(31) of the CGST Act 2017, contends that a supply must involve enforceable reciprocal obligations and in the instant case the receipt of payment is not on the enforcement of reciprocal obligations and thus the salary deduction would constitute a mere transaction in money. It is clearly evident from the above definition of “consideration” supra that the consideration includes any payment made or to be made, in response to, the supply of goods or services or both. Adequacy of consideration or otherwise is not a factor to decide whether the activity amounts to supply or not. The fact that a consideration is being charged by the applicant and paid by the employee is sufficient to establish contractual relationship with reciprocal obligations leading to supply of service. The argument of the applicant that there is no quid-pro-quo between them and the employees is factually and legally not sustainable. Thus the second limb of the supply also is fulfilled.
It is an undisputed fact that the applicant is a manufacturer and thus their activity is covered under Section 2(17)(a) of the CGST Act. Further Section 2(17)(b) stipulates that any activity /transaction in connection with sub-clause (a) i.e. Section 2(17)(a), is included in the business. In the instant case, the applicant is running the canteen in connection with the manufacturing activity. Thus providing canteen facility is incidental to their main activity of manufacture, and therefore covered in the definition of ‘business’ in terms of Section 2( 17)(b).
Thus the activity of provision of canteen facility by the applicant to supply the food amounts to supply in terms of Section 7(1)(a) of the CGST Act 2017.
The applicant has to discharge the GST liability on the impugned services on determination of the value of the said supply in terms of either rule 30 or 31, at the applicant’s option.
In this regard the applicant contended that the canteen facility is provided out of mandate laid down under the Factories Act 1948 and to comply with the said statutory requirement; the GST paid on manpower supply services, that are used for providing canteen facility should be allowed as credit of the same is not restricted under Section 17(5) of the CGST Act, 2017 and there is no restriction on availment or any requirement of reversal of said ITC.
In this regard, we find that the services of the applicant are covered under services provided in canteen and other establishments and merit classification under SAC 996333. The said services attract [email protected] 5%, without ITC in terms of Sl. No. 7 of the Notification 11/2017-Central Tax (Rate) dated 28.06.2017, as amended. Thus the applicant is not entitled to ITC of the GST paid on manpower supply services that are used for providing canteen facility.
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