Order Date – 19 June 2023

Facts –

• The Appellant, M/s. Tata AutoComp Systems Ltd, employs 322 employees, other than contract employees and is registered under the Factories Act, 1948. The applicant has appointed CSP, who is responsible for providing skilled manpower for the preparation of food and maintenance of canteen premises. The canteen facility is provided at a nominal rate in the course of employment in pursuance of the Factory Act. The facility is restricted to employees of the Company.
• The applicant has further entered into a contract with TSP to provide transportation facility to its employees between the factory premises & the residence in non air conditioned buses having capacity of more than 13 persons. This facility is offered only to employees of the Company.
• Where an employee fails to serve the specified notice period or serves a shorter tenure, the applicant deducts an amount equivalent to salary for the tenure of notice period not served as a compensation for the breach of the terms of the employment agreement by the employees in accordance with the appointment letter.

Issue –

• Whether the GST application on above services? Whether the applicant is eligible for ITC?

Order –

• The AAA observed that in terms of Circular No. 17210412022-GST, it is clarified that perquisites provided 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 when the same are provided in terms of the contract between the employer and employee.
• There is no dispute as far as [a] the canteen facility as well as bus transportation facility are provided by the applicant as mandated in Section 46 of the Factories Act, 1948 is concerned; and [b] the applicant has provided a sample copy of the employment agreement. 
• Thus, it was held that the deduction made by the applicant from the employees who are availing food in the factory and bus transportation facility would not be considered as a 'supply' under the provisions of section 7 of the CGST Act, 2017 and GST is not applicable.
• Further it was held that Input Tax Credit will be available to the appellant in respect of food and beverages as canteen facility is obligatorily to be provided under the Factories Act, 1948, read with Gujarat Factories Rules, 1963 as far as provision of canteen service for employees other than contract employees is concerned. It is further held that the ITC on GST charged by the CSP will be restricted to the extent of cost borne by the appellant only.
• The amended section 17(5) w.e.f. 1.2.2019 has allowed availment of ITC on leasing, renting or hiring of motor vehicles for transportation of persons having approved seating capacity of more than 13 persons (including driver). Therefore, the applicant is eligible for ITC however subject to the condition that the buses they have hired is more than 13 seater, wef 1.2.2019 and restricted to the extent of cost borne by the appellant.

#Need for GST in India