EMPLOYER-EMPLOYEE RELATIONSHIP V/S GST
By: – Natasha jhaver
Goods and Services Tax – GST
Dated:- 12-5-2018
“If you take care of your employees, they will take care of your business” by Richard Branson. It is the employees who support the employer to retain the customers and run the business. With the decision of the Advance Ruling Authority, Kerala [Caltech Polymers Pvt. Ltd. – 2018 (4) TMI 582 – AUTHORITY FOR ADVANCE RULING – KERALA ] the employer will have to think twice before providing healthy environment to the employees.
Wherein it was held that “Recovery of food expenses from the employees for canteen services provided by company would come under the definition of 'outward supply' as defined in the Section 2(83) of the Act, 2017, and therefore, taxable as a supply of service under GST”
The important aspect which was overlooked by AAR and needs attention is that Schedule III under Section 7(2) specifies that any services provided by an employee to the employer i
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reement during the tenure of the employment will out of the scope of GST. Like –
* Allowances mentioned as per the appointment letter of employees – travel allowance, food allowance, daily allowance etc.
* Perquisites – Accommodation, car, meal vouchers, etc
* Providing of transport facility
* Providing laptop for work
* Providing food at subsidized rate or for free
* Reimbursement of expenses like accommodation, drivers salary, medical expenses
Apart from the above, any transaction which occurs in connection or association with the employment will also be out of the scope of GST like –
* Refreshments (tea/coffee), lunch provided during the course of employment
* Reimbursement of expenses incurred by the employees in the course or furtherance of business.
Last but not the least, Section 7(2) overrules section 7(1), thus makes it more flawless that any transactions which are provided by the employee to employer in the course/relation to the employment shall be out of t
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e course or furtherance of business
Can a mere payment of some portion of the cost render the activity as in the course or furtherance of business? Though the term “in course or furtherance of” is not defined under the GST but the word 'business' has been defined in the GST law. Broadly it means any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for pecuniary benefits. Any activity ancillary or incidental to these activities is also covered as business.
It would be therefore essential to refer the dictionary meaning of the said phrase. The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course of' as 'during' and the word 'furtherance' as to mean 'furthering or being furthered; the advancement of a scheme etc.'
In the instant case, the employer is manufacturer of the footwear and is providing the canteen services by the employer exclusively for the employe
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hat if the main activity falling under sub-clause (i) did not amount to business, normally these sales made in connection with or were incidental or ancillary to the main activity would not be 'business' but there could still be an exception where the sales so connected or incidental or ancillary to the main "non-business" activity were proved to have been made with an independent intention to do business and the burden of proof to prove the exception would fall on the revenue.”
In the light of the above interpretation by the Apex court, canteen services cannot be treated as ancillary to the business activity of manufacturing footwear. Firstly, canteen services are provided is an ingredient of the wage negotiation with employer and would form part of the consideration under employment agreement. Secondly, Factories Act mandates the employer to provide food/meal to the employees and lastly, canteen cannot be termed as a business activity. Hence, if canteen can be term
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the main business."
will not draw an inference
" if the main activity falling under sub-clause (i) did not amount to business, normally these sales made in connection with or were incidental or ancillary to the main activity would not be 'business' "
A few decisions of Hon'ble High Courts
1. CCE vs Magalam Cement, Udaipur ( 2017 (11) TMI 483 – RAJASTHAN HIGH COURT )
2. CCE v. Ferromatik Milacron India Ltd. ( 2010 (4) TMI 649 – GUJARAT HIGH COURT ), In the above factual and legal background, the Tribunal was justified in holding that the service tax paid on outdoor catering services by the canteen located in the respondent's manufacturing premises has to be considered as an input service relating to business and that Cenvat credit is admissible in respect of the same.
3. In CCE v. Stanzen Toyotetsu India Pvt. Ltd. ( 2011 (4) TMI 201 – KARNATAKA HIGH COURT ),
12. It is in this context that when the Assessee provides outdoor canteen facilities b
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I states that services by an EMPLOYEE to an EMPLOYER shall not be treated as supply which means if the supply provider and supply receiver is employee and employer respectively, then in such case the transaction shall not be treated as supply.
Whereas if a company provides food to its employees and recovers the amount from their salary, then in such case the supply provider and receiver shall be considered as employer and employee respectively which does not get covered under schedule III resulting that this transaction shall be treated as supply which falls under the inclusive definition of Section 7(1) and not under Section 7(2).
The value of taxable supply shall be determined as per the provisions of section 15 of CGST Act, 2017 in which for the purpose of such section, the term "persons" shall be deemed to be related persons if such persons are employer and employee.
Would like to take any inputs on this if any.
-SAIRAM ESWARAN
Dated: 14-8-2018
Scholarly article
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