In re Emcure Pharmaceuticals Limited

Quick Summary

This ruling explains GST on three common HR items: canteen subsidy, employee bus transport, and notice pay recovery.

The Authority treated canteen and bus recoveries as not a supply by the employer. For notice pay, it concluded that accepting such payment is compensation for breach and is not taxable as a supply.

Issues

• Is GST payable on canteen recoveries from employees?
• Is GST payable on bus transport recoveries from employees?
• Is GST payable on notice pay recovered for unserved notice period?

Rules

• Recipient principle: When services are procured from third-party vendors for employees, the employer is the recipient.
• Section 7, CGST: A transaction is a “supply” only if it is in the course or furtherance of business.
• Welfare facilities: Statutory/HR welfare like canteen or bus are not the core business → recoveries from staff are not a supply.
• Notice pay: Payment for breach of employment terms is compensation, not consideration for a supply (not “tolerating an act” here).

Facts — Timeline

Company & Facilities

Emcure (Pune) provides canteen and bus facilities to employees as per HR policy; both via third-party vendors.

Cost Recovery

Vendor invoices include GST to Emcure. Emcure recovers a subsidized portion from employee payroll.

Notice Pay

If an employee exits early, Emcure deducts notice pay for the unserved period as per employment contract.

Questions to GAAR

Sought ruling: GST on canteen, bus recoveries; GST on notice pay recovery; exemption scope.

Arguments

Judgment (Held)

• Canteen recoveries: Not a supply. Welfare measure; employer is vendor’s recipient; employee deduction is not outward supply → No GST.
• Bus transport recoveries: Same logic as canteen → No GST on employee recovery.
• Notice pay recovery: Treated as compensation for breach; not a service of tolerating an act → Not taxable.

Net result: No GST on the three employee recoveries discussed in this ruling.

Ratio Decidendi

Employee welfare facilities via third parties are not in the course of business for the employer; hence, employee recoveries are not supplies. Notice pay is contract damages, not consideration.

Why It Matters

• Gives HR and Finance a clear GST treatment for common amenities.
• Separates vendor GST from employee recoveries.
• Supports drafting of employment terms on notice pay without GST confusion.

Key Takeaways

Mnemonic + 3-Step Hook

Mnemonic: “W-N-C”

• Welfare ≠ business → no supply
• Notice pay = damages, not service
• Cost recovery ≠ consideration

3-Step Hook (Exam Writing):

1. State Section 7 & welfare principle.
2. Show third-party vendor + payroll recovery facts.
3. Seal conclusion: no GST on these recoveries.

IRAC Outline

Glossary

Welfare Facility

Employer-provided amenity (canteen/bus) for staff well-being; not core business output.

Notice Pay

Amount paid for not serving the contractually required notice period; treated as damages.

Consideration

Payment for a supply. Cost sharing alone does not make a supply.

FAQs

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