Recovery from Employee – Now subject
to GST
In
yet another ruling by AAR in case of M/s Caltech Polymers Private Limited, the
scope of term “Supply” has been further widened. Even the companies running
canteen as per statutory norms would also be required to pay GST on the amount
recovered from the employees. The Ruling held that exemption in respect of
canteen run as per Factories Act was available under Service Tax and not under
GST. The authority emphasized that supply of food to the employees is covered
under Schedule II of the CGST Act 2017, despite the fact that such service is
provided with no profit. This means that reimbursement on actual basis will
also considered as supply.
The
authority held that where the supply is made for a consideration it shall be
chargeable to GST. It deliberated on the definitions of term “Supply” and “Consideration”
and came to the conclusion that the recovery of food charges from the employees
tantamount to consideration for the services rendered by the company. Where the
company does not charge any amount it would have gone out of the ambit of Section
7(1)(a).
This
Advance ruling has not just expanded the meaning of “supply” for purposes of
food but also for any supply of goods/services provided by the company to its
employees. For instance, the company provides laptop to its employees and
deducts monthly installment from salary, it shall also be charged to GST. Or the
other case would be where the company bears the petrol expenses of the car used
by the employee/owned by the employee and then recovers the same, it shall attract
GST. To be simply put, a company recovering any amount from its employees other
than advances/loans etc. will tantamount to supply chargeable to GST.
We
feel rather than providing goods or services to the employees and then
recovering the said amount, the company can resort to loan and advances. Where
an advance is given to an employee and recovered on monthly basis, it shall not
be treated as “supply” and the company would not be required to pay GST.
Instead of providing laptop the company can resort to advances for purchase of
laptop.
With
the interpretation taken by AAR, not only the term “supply” is expanded but
also the term “Aggregate turnover” would also have an impact. The reimbursements
if covered under term Supply would also form part of the Aggregate turnover.
For instance a consultant making tax payment on behalf of the client and then
getting it reimbursed would also be liable to pay GST on said amount.
We
at MyGst.MyTax understand that it is very important for taxpayers to do rigorous
deliberation and check what amongst their transactions is chargeable to GST or
not. Because if these sort of judgments keep on coming, we feel that most of
the transaction would form part of Supply leaving apart a few.
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