Recently, AAR Maharashtra in the matter of Emcure Pharmaceuticals Ltd. [2022] 134 taxmann.com 74 (AAR-Maharashtra), dealt with the questions that whether GST would be payable on recoveries made from employees towards canteen facility and bus transportation facility at subsidized rates in factory and office.
In the instant matter, the Applicant is providing canteen facilities to its employees based on its HR Policy for which it avails services of third party service providers who are raising tax invoice on the applicant, with applicable GST and to whom the Applicant pays consideration. Further, applicant recovers certain portion, a subsidized amount, as deduction from the employee salary. The applicant is mandatorily required to maintain the canteen as per the provisions of Section 46 of the Factories Act, 1948. Further, applicant is also not availing any ITC on the input services of canteen.
It was held that in terms of Section 7 of the CGST Act, 2017 for a transaction to qualify as supply, it should essentially be made in the course or furtherance of business, however, the applicant is engaged in the business of developing, manufacturing and marketing a broad range of pharmaceutical products from its various manufacturing units, Research and development centers and branch offices. The employees are vital resources to carry out the day to day affairs of the applicant company. Accordingly, in order to carry out its business of output supply mentioned above, the Applicant is providing canteen facility to its employees. The provision of canteen facility to the employees is a welfare measure, also mandated by the Factories Act and is not at all connected to the functioning of their business of developing, manufacturing and marketing pharmaceutical products. Further, the said activity is not a factor which will take the applicant's business activity forward.
It was also held that applicant is not supplying any canteen service to its employees in the instant case. Further, the said canteen facility services are also not the output service of the applicant since it is not in the business of providing canteen service. Rather, this canteen facility is provided to employees by the third party vendors and not by the applicant. Therefore, in the subject case, the applicant is not providing any canteen facility to its employees, in fact the applicant is a receiver of such services.
Further, GST is discharged on the gross value of bills raised on the applicant by the third party vendors, providing canteen facility. Also the partial amounts recovered by the applicant from its employees in respect of use of such canteen facility are a part of the amount paid to the third party vendors which has already suffered GST.
Thus , it can be concluded that since the provision of canteen facility by the applicant to its employees is not a transaction made in the course or furtherance of business, and since in terms of Section 7 of the CGST Act, 2017, for a transaction to qualify as supply, it should essentially be made in course or furtherance of business, it is found that the canteen services provided by the applicant to its employees cannot be considered as a “supply” under the relevant provisions of the CGST Act, 2017 and therefore the applicant is not liable to pay GST on the recoveries made from the employees towards providing canteen facility at subsidized rates.
The same was also held in case of recoveries made from the employees towards providing bus transportation facility that such activity isn’t incidental or ancillary to the activity of business nor can it be called an activity done in course or furtherance of business in instant matter. Thus, GST would not be payable on the recoveries made from employees towards providing bus transportation facility.
