Goods and Services Tax

EMPLOYER-EMPLOYEE RELATIONSHIP V/S GST

Goods and Services Tax – GST – By: – Natasha jhaver – Dated:- 12-5-2018 Last Replied Date:- 14-5-2018 – 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 in the course or in relatio

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ployment 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 the scope of GST. Once the activity comes under Schedule III, then any

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he 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 employees as per the Factories Act. Can providing of canteen services to its employees be termed as an act

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ade 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 termed as expenses for use in the course of business than a business activity itself, then the same cannot be termed as su

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ally 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 because of a statutory obligation imposed on him under Section 46 of the Factories Act, it becomes a condition of service as far as the employees are concer

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