The Gujarat Bench of the Authority for Advance Rulings (AAR) recently ruled that, GST, at the hands of the applicant, is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by the applicant and paid to the CSP.
The Applicant is engaged in the manufacture & supply of mining and construction equipment. They have set up their factory & business operations at various places across India. The applicant has employed more than 250 employees including contract workers in their factory and is also registered under the Factories Act, 1948.
The applicant stated that in terms of Section 46 of the Factories Act, 1948, they are statutorily mandated to provide canteen facilities for their employees, including contract workers, at their factory premises.
The applicant submitted that there are more than 250 employees including contract workers in their factory; that they are providing food at subsidised rate to their contractual workers i.e. the total amount of food is being borne by them and residual 50% amount is recovered from Contractual workers.
The contractual workers are not employees of the applicant but they are working in the company through a contract. These contractual workers do not form part of the ’employee’ as they are not on the payroll of the company. The term ‘contract labour’ under Contract Labour (Regulation and Abolition) Act, 1970 (CLRA) means a person who is hired in or in connection with the work of an establishment by or through a contractor.
It is important to note that the word, ‘hire’, as used in the Act, has a significant connotation and it is not equivalent to an employer-employee relationship. A person is deemed to have been employed as contract labour when he is hired in or in connection with a particular work of the principal employer. Where a person is ‘hired’ specifically for the work of an establishment, his scope of work does not extend beyond the work of that establishment and he is considered to be a contract labour, the applicant contented.
The Authority bench observed that, “In the copy of the contract [submitted as a part of additional submission], the applicant has entered into a contract with the contractor dtd 30.3.2021, wherein clause 25 states that the applicant will make available food, snacks tea at subsidised rate to the contract labour deployed by the contractor through a CSP; that the total cost of the goods, snacks and tea provided to the labourers will be collected by the applicant from the contractor for making payment to the CSP.”
It was further noted that, “Thus it is clear that this is a contract entered into by the applicant with the contractor and not with the contract workers. Even otherwise, the onus shifts to the principal employer [ie the applicant] only in case of failure of the contractor to provide such a facility. Nothing is brought on record to exhibit that the contractor who supplied workers to the applicant, in this case, failed to provide the canteen facilities. The averment therefore is not legally tenable.”
The Authority bench thus ruled that, Goods and Services Tax (GST), at the hands of the applicant, is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by the applicant and paid to the CSP.
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