GST not Applicable on Subsidised Deduction made from Employees Availing Food in the Factory: AAR [Read Order]

The Gujarat Authority for Advance Ruling ( AAR ) has held that Goods and Service Tax (GST) would not be applicable on subsidised deductions made from employees availing food in the factory.

The applicant Cadila Pharmaceuticals Ltd, was engaged in the business of manufacture, supply and distribution of various pharmaceutical products. The applicant had employed around 2745 full-time permanent employees in their factory and corporate office. The applicant had provided a canteen facility to its employees at the factory and its corporate office.

Since the factory premises was located far away from the city limits, the applicant provided a canteen facility by appointing a canteen service provider (CSP). A predetermined percentage was deducted from salary payable to the respective employee.

It was the applicant’s contention that since it was practically not possible to enter into a contractual agreement with every employee, the CSP had entered into an agreement with the applicant; that the applicant had been paying full to the CSP in respect of goods served during the prescribed period on behalf of the employees; that a portion of the said amount was recovered from the employees and the remaining part was born by the applicant; that the amount so bome by the applicant was treated as staff welfare expenses towards subsidised food served to employees.

The applicant has filed this application for advance ruling to ascertain the GST implication on the existing arrangement of canteen facilities being provided to all the employees at the factory and the corporate office of the applicant.

The Division Bench of Milind Kavatkar (State Goods and Service Tax) and Amit Kumar Misra (Central Goods and Service Tax) held that the subsidised deduction made by the applicant from the employees who were availing food in the factory would not be considered as a supply’ under the provisions of section 7 of the CGST Act, 2017.

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