Food Expenses recovered from Employees for Canteen Services is subject to GST: AAR [Read Order]

In an order by the Authority for Advance Ruling ( AAR ), Kerala, has ruled that recovery of food expenses from the employees for the canteen services provided by company would come under the definition of ‘outward supply’ as defined in Section 2 (83) of the Goods and Services Tax Act, 2017 and hence are taxable under the Goods and Services Tax () lawsGST.

M/s. Caltech Polymers Pvt. Ltd is a manufacturer and seller of footwear. As the factory employs more than 250 employees, the company was statutorily obliged to provide canteen services to its employees as per Section 46 of the Factory Act,1948. A space for the canteen was provided by the company inside the factory premises and the expenses incurred to run the services were recovered from the employees as a deduction from their monthly salary in proportion to the food they consumed.

The Company preferred an application to the Authority for Advance Ruling to have clarification on whether recovery of food expenses from employees for the canteen service provided by the company come under the definition of outward supplies and taxable under GST.

The company was of the opinion that such activity would be outside the purview of ‘Supply” as such activity was not in the course or furtherance of its business. The company also pointed out that such facility of supplying food to the employees was done as part of their statutory requirement and the expenses recovered in connection with the food supply was without any profit. A Mega Exemption Notification No. 25/2012 – ST dated 20.06.2012 issued by the Government of India were referred by the company. As per the notification services in relation to supply of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948was exempted under the Service Tax Law.

The Authority while agreeing with the notification observed that there was no similar provision in the GST laws. Other than that the Authority found schedule II of the GST Act in clause 6 declares certain composite supplies as the supply of service if such service is for a consideration.

The Authority bench comprising of Joint Commissioner, Senthil Nathan IRS and Joint Commissioner (General), N. Thulaseedharan Pillai said “Even though there is no profit as claimed by the applicant on the supply of food to its employees, there is “supply” as provided in Section 7(1) (a) of the GST Act, 2017. The applicant would definitely come under the definition of “Supplier” as provided in sub-section (105) of Section 2 of the GST Act, 2017. Since the applicant recovers the cost of food from its employees, there is the consideration as defined in Section 2(31) of the GST Act, 2017.”