JULY 06, 2018

By G Jayaprakash & Amina G

CONSEQUENT to the filing of an application for Advance Ruling about the taxability of the Canteen facilities provided to its employees by M/s Caltech Polymers Pvt Ltd., Malappuram, the authority for Advance Ruling, Kerala held that the services provided by the applicant are liable to GST - 2018-TIOL-01-AAR-GST. High end corporate accountants appear to have accepted the ruling if we look at the papers published in different professional weeklies.

However, this paper attempts a different view.

The reasoning adduced for the above conclusion appears to be that the applicant is collecting the cost of food provided to its employees on a cost sharing basis from them.The rulings admits that the Company is providing Canteen facilities exclusively for its employees without any profit margin and by not including any deemed cost incurred by the company. The cost of food alone is deducted from their salary.

The deductions relate only to the value of cereals, vegetables and other items required to prepare the food. The Company, as per requirement of the Factories Act, provided space including furniture and electricity along with the services of the cooks employed for running the Canteen. No deemed cost incurred by the company such as rent for the canteen space including furniture or salary of the cooks employed by the Company or electricity charges, either on proportionate basis or on actual basis, are added to the value of the food for which deductions are made from the salary of the employees. In sum and substance, the payment received from the employees through the deductions made from their salary is the recovery of the share of the cost of ingredients for the food consumed by them for which advance payment is made by the Company. The workers shared only the cost of ingredients for the food consumed by them. The Company's role is limited to that of a lender advancing payment of ingredients during the purchase and recovery of the same from the employees, based on consumption. From the above, it can be seen that the Company is not providing any output service of food supply as held by the Authority for Advance Ruling, Kerala.

The question of taxability is decided by relying on the definition of the term business as per sub clause (b) of Section 2(17) of the CGST ACT read with sub section(s)(31) & (105) of Section 2, Schedule II of the Act and Section 7(1) (a) of the Act. The ruling is given by considering the activity of the company as a supply of services. As per Section 2(102) of the Act "services" means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. The above definition of services excludes transaction of money other than for its use for conversion as provided in the definition quoted above.

The company restricts its role in recovering the cash it advanced for purchasing the ingredients used for cooking the food from the salary of its employees. As per the definition of services {S.2(102)}, the transaction in money is excluded from its ambit and hence there is no supply of services. Apparently, this aspect has not been considered by the authority in the ruling handed down by the Hon'ble members.

Quite possibly, this ruling would, therefore, be reversed by the appellate authority presuming the aggrieved knock on that door.

(The authors are Advocates, at G Jayaprakash Associates, Thiruvananthapuram and the views expressed are strictly personal.)

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