Treading GST Path XLIII - Advance Ruling on Canteens - The Pandora's (tiffin)box

Hi Natarajan,

Schedule III of CGST Act states that services provided by an employee to employer are neither supply of goods nor services. In other words the legislative intent was to keep the services of an employee under an employment contract out of the purview of GST. Now if the employee, as a part of his employment contract receives certain statutory or obligatory benefits like subsidized food in terms of Factories Act, insurance coverage in terms of ESI Act, conveyance (IT/ITES sector companies are required to provide conveyance at night and most of the companies owing to their distance from the cities or towns provide conveyance to their employees), the cost of such benefits extended by the employer to the employee (if any subsidy is borne by the employer) is regarded as cost to company.

The services per se, i.e. subsidized canteen, insurance, conveyance are actually provided by third parties arranged by the employer (rarely by employer himself and even if its by employer it does not alter anything) and the costs incurred are recovered from the employees by the employer, usually through salary deductions and consolidated amounts are paid to the third party service providers. These recoveries will be accounted by the employer and adjusted against the expenditure incurred by the employer for payments made to the service providers.

The entire arrangement is part of the employment contract and as stated above any additional expenditure borne by the employer will be regarded as cost to the company by the employer. Where is the question of this being regarded as supply as envisaged under section 7 read with respective Schedules. It was naïve on the part of AAR to not consider or comprehend how employment contracts work or was there deficiency in the arguments put forth by the party's representative, and the result was a disaster creating unwarranted panic throughout the country. Government should also keep all such perks, benefits etc. provided by employers to employees out of the purview of GST and revise the law accordingly. Its shocking to say the least that government and tax authorities is looking for revenues treating these activities as supplies.

Last but not the least, a piece of advise to the Govt. AAR as an institution in GST needs a thorough revamp. Two Joint Commissioners deciding the fate of an activity, assessee and the country is plain stupid. And imagine AARs in each of the States. Let there be a Principal Bench at Delhi and regional benches in different zones - north, east, west, south and central. Each of these regional benches to be headed by a HC judge and the Principal Bench by a SC judge. It should not be manned by junior officers of the tax department - its a joke. Hope the Finance Ministry, CBIT will wake up and smell the coffee.

Regards,
Santosh Hatwar
Tax Lawyer

santosh hatwar 19/04/2018