The Gujarat bench of the Authority for Advance Ruling ( AAR ) ruled that deducting from employee salaries for food provided within factory premises does not fall under the classification of ‘supply’ as per section 7 of the (Central Goods and Service Tax) CGST Act.
The applicant was engaged in the manufacturing of plumbing products for kitchen & bathrooms. Their manufacturing facility is in Gujarat and is governed by the provisions of the Factories Act, 1948. In terms of section 46 of the Factories Act, 1948, as more than a specified number of workers are employed, it is mandatory for the applicant to provide canteen facilities. To comply with this requirement, the applicant entered into a contract with a canteen service provider (for short – ‘CSP”) to provide canteen facilities to their workers at their factory premises.
The issue to be decided is whether the deduction of nominal amount made by the applicant from the employees who are availing food in the factory premises would be considered as a ‘supply’ under the provisions of Section 7 of the CGST Act, 2017 Now, in terms of Section 7 of the CGST Act 2017, supply means all forms of ‘supply’ of goods/services or both such as sale transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. The exception being Schedule I, which includes the activities made or agreed to be made without a consideration and Schedule III, which includes activities which shall be treated neither as a supply of goods or services. The applicant’s case is that they employ around 1500 employees [informed during PH] who have been provided with canteen facility in terms of section 46 of the Factories Act, 1948
Further, the applicant’s primary role was that he has set up a canteen facility, having a demarcated area in the factory premises, pursuant to & in compliance with the Factories Act; that the said canteen facility is in a demarcated area. Further, the applicant has also informed that the ruling is in respect of permanent employees.
The two member bench of the tribunal comprising Riddesh Raval (SGST member) and Amit Kumar Mishra (CGST member) ruled that deduction of amount by the applicant f-rom the salary of the employees who are availing facility of food provided in the factory premises would not be considered as a ‘supply’ under the provisions section 7 of the CGST Act, 2017 and the GGST Act, 2017
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