Non payment of gst on services provided to the employees without consideration

Where the taxable person provides Canteen Services, Uniform, Accommodation/Housing and Conveyance Services to their employees free of charge.

Free Canteen Services:- The company provides the canteen services to the employees as per company policy as part of perquisites which is emanating from contractual obligations or as per statutory requirement under factories Act 1948 which specify that factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers. Therefore , the provision of canteen services in such a case will not be subject to GST being statutory obligation.

ITC on canteen services: Section 17 (5)(b) of CGST Act makes it clear that ITC would be available where it is statutory obligation for an employer to provide food and beverages or outdoor catering to its employees under any law for time being in force. Factories Act 1948 make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers. Therefore canteen services procured by the employer for its employees used in the course of business or in furtherance of business”, and ITC shall be available.

Free Uniforms Provided by the Employer to the Employees:- The company provides the uniforms to the employees due to following reasons:

(1)The operations of the company are best performed when employees function with a team spirit and the uniform clothing created the feeling of equality resulting in high motivation & morale which in turn improves quality, efficiency and cost effectiveness. This in turns make company cost competitive to be better place in the Industry & increased business.
(2) The uniform is also required to provided for safe working on the shop floor. The properly designed uniforms enable the workers to operate machines as loose clothes may get entangles and tight clothes may restrict efficient movement.

Hence providing uniforms to employees is a business requirement and input cost and can not be treated as supply of services to employees.

Free Accommodation/Housing:- Free Accommodation/Housing are in the nature of perquisites governed by contractual arrangement between employer & employees hence are not subject to GST. This is part of their remuneration s cost to the company for providing services to the organization. Further provision of rent free accommodation/housing is perquisite gie to the employee and added to taxable income of concerned employees as per provision of the Income Tax Act, 1962.

Free Conveyance/transport Services:- The company provides conveyance/transport services to employees so that they do not waste significant time in finding public transportation or self drive either using their own vehicles-cycles/two wheelers or four wheelers. Public commuting also adversely affects the efficiency of the employees by creating stress & tiredness due to travelling which may in turn cause revenue loss. Similarly using own conveyance not only exposed them to road hazards but also crates stress & tiredness.

In view of above company prefer to provide conveyance services to employees as part of company policy so that they reach the work place safely & conveniently, resulting in increased motivation and greater working efficiency. The employer provides conveyance service for no consideration as part of perquisite to employees. Since conveyance service is a business requirement and also emanates from contractual obligation due to employer-employee relationship hence cannot be treated as provision of supply and therefore are not subject to GST.

ITC on Conveyance services:

1. Using company owned motor vehicles:— As per Section 17 (5)(a) ITC Shall not be available in respect of Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver) except when they are used for making the following taxable supplies, namely:—

(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;

As the company do not use motor vehicles (i.e. buses) for providing transport facility to its employees hence the condition for availing the Input Tax Credit on purchase of Motor vehicle shall not be available.

2. Using Hiring of Vehicles from a service provider:—
As per Section 17(5)(b) Input tax credit for Hiring of motor vehicle is not available except when it is obligatory for an employer to provides the same to its employees under any law for the time being in force.”
There is no law which prescribes transport facility to be provided to employees by their employers except in respect of women employees if their working hours fall between 7pm to 6 am with the permission of authorities under the Factories Act, 1948 & Shop & Establishment Acts of respective states.

However employers do provide transport facility as part of perquisites to employees as a company policy so that they reach the work place safely and conveniently, resulting in increased motivation and greater working efficiency resulting in retention of employees and company image. The provision of transport facility is a perquisite which is also part of contractual obligation between employer and employees as cost to the company.

There are two advance rulings input tax credit on the availability of input tax credit for hiring of motor vehicle for providing transportation facility to employees as under.

(i) HAR/HAAR/R/2018- L9 /O4 dated 11.O7.2078 passed by the Haryana State Authority for Advance Ruling in re: M/s YKK India R/t Ltd
(ii) AAR by Himachal State Authority for Advance Ruling in re: Prasar Bharti Broadcasting Corporation Of India

Both these ruling have given conflicting opinions but the jurisdiction of these rulings is applicable to these respective states only.

Interpretation: The facilities of free Canteen, Accommodation, uniform & conveyance are in the nature of perquisites governed by contractual arrangement between employer & employees hence are not subject to GST which is clarified by CBIC as well by their press release dated 10.07.2017 which is reproduced below for ready reference.

However, the Section 17(5)(b) provides that Input Tax credits in respect of above facilities be available where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”

It is advisable that Company may take decision based on cost benefit analysis.

Press Release Dated 10.07.2017

It is being reported that gifts and perquisites supplied by companies to their employees will be taxed in GST. Gifts upto a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.

The question arises as to what constitutes a gift. Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.

Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment

is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C)

https://www.cbic.gov.in/resources//htdocs-cbec/press-release/pres-rls-gst-gift-dt10july.pdf