Non payment of gst on services provided to the employees with nominal consideration

Where the taxable person provides Canteen Services and Conveyance services to their employees by charging a nominal consideration.

Canteen Services:

There is an AAR ‘Caltech Polymers Pvt. Ltd. – 2018 (4) TMI 582 – Authority for Advance Ruling – Kerala’ (Ref: http://gstcouncil.gov.in/sites/default/files/ruling-new/Kerala-CT_531-18-C3-CPPL.pdf) Wherein it was held that “Recovery of food expenses from the employees for canteen services provided by the Employer would come under the definition of ‘outward supply’ as defined in the Section 2 (83) of The CGST Act, 2017 and therefore, taxable as a supply of service under GST.

Transport/Conveyance Services:

On the same analogy as pronounced in AAR ‘Caltech Polymers Pvt. Ltd. – 2018 (4) TMI 582 – Authority for Advance Ruling – Kerala, the recovery of nominal charges for transport services to employees may come under the definition of outward supply hence may be subjected to GST Caltech Polymers Pvt. Ltd. above (Recovery of food expenses from the employees for canteen services).

As per explanation appended to Section 15 of the CGST Act employer and employee will be deemed to be “related persons”.

Valuation of supplies made to related person is to be done in accordance with Rule 27 of the CGST Rules, 2017 which should be open market value hence nominal consideration charged by the company in providing such services may be contested by GST Authorities and cost of procuring such services by employers may be considered as Open Market Value.

The question, however, arises whether providing canteen services and conveyance qualify under the definition of business as company? . These activities are not the business activities as the company is not in the business of providing canteen or transport services but provision of these services is done by employers as per their contractual obligations as a perquisites to the employees as per company policy hence these does not fall in definition of supply,

This type of very issue has been tested in the courts including the Supreme Court of India in many cases under the VAT regime. Under majority of the judgments, courts have said that sale of goods can be brought to tax only if done with an intention of doing business in those goods and not otherwise.

In the case of Panacea Biotech Ltd. the issue was taxability of sale of used car under Delhi VAT and whether the same was covered in the definition of “business”. Hon’ble Delhi High court in this case has held that the same will not be regarded as sale ‘in connection with or incidental or ancillary to’ business and hence shall not be taxable.

In view of above submission and on the basis of reliance on the case of Panacea Biotech Ltd, these activities (canteen and conveyance services provided to employees) are not covered under definition of supply hence no GST is payable.

However, in view of ruling by Authority for Advance Ruling in case of canteen facilities provided by company to employees to be treated as supply and under the purview of GST, the company may take a view to pay GST on cost recovered from the employees for provision of canteen service and transport services to avoid litigation based on cost benefit analysis.