Companies are not required to pay Goods and Services Tax on employees’ share for canteen services and free transportation services, Gujarat’s Authority for Advance Ruling (GAAR) has said. This ruling has been made on two separate applications submitted by pharmaceutical companies, Cadila and Emcure, respectively.
“GST, at the hands of Cadila, is not leviable on the amount representing the employees’ portion of canteen charges, which is collected by Cadila and paid to the canteen service provider,” GAAR said in its ruling.
Though an AAR ruling is binding on the applicant and jurisdictional tax authorities only, it still has persuasive value in similar matters, and quite often, such rulings compel the Tax Administration to amend the law or rules. Appeals against AAR rulings can be made in Appellate Authority Appellate Authorities for Advance Ruling (AAAR) and after that in the High Court.
The pharmaceutical company, with an employee strength of over 7,000, submitted before AAR that it is mandated to provide a canteen facility to its employees at the factory. Accordingly, it has appointed a canteen service provider to comply with the statutory requirement laid down under the Factories Act.
The company and the service provider entered into an agreement where it was stated that the company will pay the full amount to the service provider for the food served. However, a pre-determined percentage of the amount paid by the company is recovered from the employees, while the balance amount is treated as a staff welfare expense towards subsidised food served to the employees. There is no profit issue involved in the amount being collected from the employees.
The company sought to know whether the subsidised deduction made by it from the employees availing of the canteen facility would be considered a supply under GST law. Also, if the answer to above-mentioned question is in the affirmative, then whether GST is applicable on the amount deducted from the salaries of its employees? In case answer to above is in the negative, then GST is applicable on which portion i.e. amount paid by the Applicant to the Canteen Service Provider or only on the amount recovered from the employees?
After hearing all the arguments and going through the facts, AAR said that the employees’ portion of canteen charges is collected by Cadila and paid to the canteen service provider. It noted the company’s submission where it was said that it does not retain with itself any profit margin in this activity of collecting employees’ portion of canteen charges. “We are not inclined to accord this canteen service facility provided by Cadila to its employees as an activity made in the course or furtherance of business, deeming it a Supply by Cadila to its employees,” AAR said and ruled no GST to be levied.
Application by Emcure
Similar application was filed by another pharmaceutical company but with one additional query, and that was whether the free-of-cost bus transport facilities provided by the company to its employees are taxable under the GST laws? Also, will the company be eligible for input tax credit (ITC) paid towards the canteen facility and transport facility.
Here, GAAR said that GST is leviable neither on the employee portion of canteen charges, nor on the free bus transportation facility provided to its employees. ITC will be admissible in the case of GST paid on the hiring of a bus (with capacity of more than 13 persons), but not on GST paid for canteen facility.