A company providing food to its employees, either directly or through a contractor, will be treated as a restaurant service and will be ineligible for Input Tax Credit (ITC) under Goods & Services Tax, Himachal Pradesh’s Appellate Authority for Advance Ruling (HPAAAR) has ruled.

Though the orders of the AAAR and AAR (Advance Rulings Authority) are applicable on the applicant and jurisdictional tax officials only, many such rulings have become the base for policy decisions. Since there have been contrary rulings on the issue of applicability of GST on subsidised food provided to employees, it is expected that the GST Council would soon come out with a clear direction on it.

Federal-Mogul Anand Bearings India Ltd, based in Parwanoo (Himachal Pradesh), moved the HPAAAR after AAR ruled that GST will be paid on the subsidised food and ITC will not be available. After going through the facts presented and arguments made, AAAR observed that services provided by the employer to the employee, in the course of employment, are out of the purview of GST. Naturally, an employer pays some compensation, either in monetary (money) form or otherwise (kind), to the employee.

Therefore, perks provided by the employer to his or her employees as part of compensation for the services rendered, is not an independent supply, but is in connection with or in relation to the employer-employee relationship. Accordingly, the CBIC in a circular, has mandated that perks provided in terms of contractual agreement, are not supply under GST. In other words, the CBIC circular mandates that any perk provided to the employee, in terms of contractual agreement, is outside the purview of GST.

“The AAR in its ruling has held that there is no contractual agreement between the appellant and the employees/ contract workers for providing subsidised food and, therefore, benefit of the circular cannot be extended to the appellant,” AAAR said. Further, it said the appellant, during the course of hearing, has adopted the argument that since it is statutorily mandated in the Factories Act that canteen facilities are to be established in the factory, therefore, it is immaterial whether such a clause is mentioned in the contractual contract or not. Since, under the law, employees have the right to receive benefits, therefore, absence of this clause in the employment agreement cannot be the basis for denial of benefit of the above circular in his case, the appellant argued

AAAR observed that the Employment Agreement lists out the compensation to be granted by the employer to employees for their services. If any perk is mentioned in the employment contract, then it becomes binding on the employer to provide the same to the employees, otherwise such an employer can be sued in a court of law for breach of conditions of employment contract. Therefore, anything provided beyond the employment contract is the sweet will or largesse on the part of the employer, and cannot be insisted upon by an employee. Viewed from this angle, a perk, which is not specified in the employee contract, is not in lieu of services, supplied by the employer to the employee, but the largesse or matter of goodwill on part of such employer.

Therefore, “absence of mention about supply of subsidised food, in an employment contract, cannot be equated with perk mentioned in the employment contract as talked about in the above referred CBIC circular,” AAAR said in its recent ruling, and held the AAR ruling on ineligibility of ITC.

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