The bench held that the applicant, Tube Investment of India, set up canteen facilities as mandated under the Factories Act and supplies food at a nominal cost through a thirdparty vendor. The supply of such food by the applicant company is a ‘supply of service’ to its employees. This is because it is not part of the employment contract, but rather mandated by the Factories Act. The nominal cost, which is recovered from salary as deferred payment, is ‘consideration’ for the supply and GST is liable to be paid.
As reported earlier by TOI, the Tamil Nadu bench, in the case of Kothari Sugarsand Chemicals, had taken an identical view. However, a large majority of rulings given by various benches have held otherwise. These include theHaryana bench, in the case of RITES, which is a company set up under the aegis of Indian Railways, or by the Gujarat bench in the case of Cadila Healthcare and Tata Motors.
In the RITES ruling, the bench held that it was mandatory for the company to provide canteen facilities under the Factories Act. So, the transaction of recovering part payment of the meals from thestaff is outside the purview of ‘scope of supply’ and no GST incidence arises.
KPMG-India indirect tax partner Harpreet Singh said, “Such conflicting rulings have left India Inc puzzled. There should be no GST on nominal sums from employees, as there is no intention of a taxable supply for business. Alternatively, the company can argue it is acting as a pure agent, as the entire sum collected is passed on to the thirdparty caterer. Thus, the value of the supply would be nil. ”
While advance rulings do not set a judicial precedent, they do have a persuasive value in the course of assessments. According to tax experts, in view of the conflicting rulings, while the industry in general is not paying GST on canteen recoveries, the tax authorities during GST audits are raising this issue. This then results in undue litigation. TOIspoke to a few companies who are hoping that the GST Council will explicitly clarify this issue in the forthcoming meeting.