GST AAR on Canteen Services

The Authority of Advance Ruling (AAR) in Kerala had passed an advance ruling clarifying that GST would be applicable on payments made by an employee of a company towards canteen expenses. This advance ruling is a significant shift from the existing service tax regulations and has enormous implication for employers operating a canteen on their premises for use by their employees. In this article, we look at the GST AAR on Canteen Services in detail.

GST Advance Ruling Authority (AAR)

Advance ruling under GST has been made very taxpayer friendly under GST. Advance ruling helps taxpayers plan for GST liability in advance. Advance ruling is binding on both the taxpayer and the Government. Hence, advance ruling can also be used by taxpayer to avoid costly litigations. One of the major advantages of advance ruling under GST compared to advance ruling under service tax is that under GST, advance ruling can be obtained on a proposed transaction as well as a transaction already undertaken by the appellant. To handle all aspects of advance ruling under GST, the Government has created the Authority for Advance Ruling (AAR), which can give a binding ruling to an applicant who is a registered taxable person or is liable to be registered.

Advance Ruling on Canteen Service

The Advance ruling on Canteen services was requested by Caltech Polymers Private Limited, a maker and trader of footwear in Kerala, Malappuram. As the factory employs more than 250 employees, the company was legally forced to render canteen services to its employees as per Section 46 of the Factory Act,1948. A space for the canteen was also given by the company inside the factory premises and the cost incurred to run the services were retrieved from the employees as an abstraction from their monthly pay in relative to the food intake. In the application to AAR the company stated the following facts:

• The space for the canteen is provided by the Company, inside the factory premises.
• The cook is employed by the Company and is paid monthly salary.
• The vegetables and other items required for preparing the food items are purchased by the Company directly from the suppliers .
• The number of times, the Canteen facility is availed, each day, by the employees is tracked on a daily basis.
• Based on the details above, the expenditure incurred by the Company on the vegetables and other items required for preparation of food is recovered from the employees, as a deduction from their monthly salary, in proportion to the foods consumed by them.
• The company does not make any profit while recovering the cost of the food items, from the employees. Only the actual cost incurred for the food items is recovered from the employees.

Hence, the company contended that the activity of providing canteen services to its employees does not fall within the scope of supply, as the same in not in the course or furtherance of its business. The company is only facilitating the supply of food to its employees, which is a statutory requirement, and is recovering only the actual expenditure incurred in connection with the food supply, without making any profit.

AAR on Canteen Services

In the AAR ruling on Canteen services, the Authorities made the following observations and justifications to hold canteen services provided to an employee as being taxable under GST.

Definition of Business

The term “business” is defined in Section 2(17) of the GST Act as: “Business” includes:-

• (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit
• (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a)

Hence, the definition of “business” includes a transaction incidental or ancillary to the main business. Thus supply of canteen services to employees would be a supply that is transaction incidental or ancillary to the main business and is taxable.

Activities Treated as Supply

Schedule II to the GST Act describes the activities to be treated as supply of goods or supply of services. As per clause 6 of the Schedule, the following composite supply is declared as supply of service.

“Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.”

Hence, even though there is no profit, the supply of food to its employees, would be a “supply” as provided in Section 7(1)(a) of the GST Act, 2017.

Consideration

Finally, the GST Act defines consideration as follows:

‘Consideration’ in relation to the supply of goods or services or both includes,-

• a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
• (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
  • Provided that a deposit given in respect of the supply of goods or services or-both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.

Since the company recovers the cost of food from its employees, there is consideration as defined under the GST Act.

Conclusion

Taking into the above aspects, the GST Advance Ruling Authority has ruled that GST is applicable on canteen services provided by an employer to its employees. (Know the GST Rate for Canteen Services.)

There is a process of appeal for Advance Ruling under GST. Hence, it is to be seen if the order would be appealed against and its conclusion.

Copy of AAR Order on Canteen Services

A copy of the GST Authority of Advance Ruling (AAR) order in the matter of Caltech Polymers Private Limited:

The post GST AAR on Canteen Services appeared first on IndiaFilings.com | Learning Center.