The AAAR, Madhya Pradesh, in Advance Ruling No. MP/AAAR/07/2021 dated November 8, 2021, held as under Noted that para 5(e) of the Schedule II of the Central Goods and Services Tax Act, 2017 (“CGST Act”) is similar to the Section 66E(e) of the Finance Act, 1994 (“the Finance Act”) applicable during Service Tax regime. In the GST era also, services provided by an employee to the employer are treated neither as the supply of goods nor a supply of services under Schedule III of the CGST Act. Relied on the judgment of the Hon’ble Madras High Court in GE T & D India Limited v. Deputy Commissioner of Central Excise [W.P. Nos. 35728 to 35734 of 2016] wherein it was held that no service tax is payable on notice pay recovery made by the Employer. Stated that the services by an employee to the Employer in the course of or in relation to his employment have been placed out of the purview of GST.

Further, the compensation which accrues to the Employer is in relation to the services provided by the employee and is related to the services not provided by him to the Employer during the course of employment, i.e. the Employer is being compensated for the employee’s sudden exit. Observed that the Appellant is collecting amounts only in respect of Mediclaim cover in lieu of the Policy provided to the employee’s non-dependent parents and retired employees who opt for such cover. Evidently, the Appellant is not in the business of providing insurance coverage and providing such insurance cover is not a mandatory requirement under any law for the time being in force therefore, non-providing insurance coverage to employees’ non-dependent parents and retired employees would not affect Appellants business by any means. Therefore, the activity of recovering of cost of insurance premiums at actuals cannot be treated as an activity done in the course of business or for the furtherance of business.

 Reversed the ruling passed by the AAR, Madhya Pradesh and held that: Merely because the Employer is being compensated does not mean that any services have been provided by him or that he has ‘tolerated’ any act of the employee for the premature exit. Facilitating medical insurance services in lieu of the Policy to non-dependent parents and retired employees upon recovery of premium amount on actuals and telephone connection to employees upon recovery of usage charges on actuals cannot be considered as ‘supply of service’ under CGST Act.

GST is not applicable on the collection by the Appellant of employees’ portion of the amount towards foodstuff supplied by the third party / Canteen Service Provider, and the Appellant is providing the facility to employees without making any profit and working as a mediator, and the Employer is mandated to run a canteen under the Factories Act, 1948 (“the Factories Act”). Further, canteen services provided to employees without charging any amount, i.e. free of cost, will also fall under Para 1 of Schedule III of CGST Act that shall be treated neither as a supply of goods nor a supply of services and, therefore, not be subjected to GST. ITC on GST paid towards telephone services and Policy would not be available to the Appellant in terms of Section 17(1) of the CGST Act and Section 17 (5) of the CGST Act, respectively. Further, ITC, in respect of the canteen facility provided by the Appellant, would be available as per Section 17(5)(b), as obligatory for an Employer to provide the same to its employees under the Factories Act.