The Authority for Advance Ruling (AAR), Gujarat, has ruled that no GST is leviable on the amount representing the employee’s portion of canteen charges, which is collected by the employer and paid to the Canteen Service Provider. The AAR clarified that to levy tax on any activity, the activity is required to qualify as a ‘Supply’ in the first place, and hence, the recovery of the amount from the employees and workers cannot be subjected to GST, as the same cannot be considered as a “supply” as per Section 7 of the CGST Act.
The AAR explained that the applicant is merely providing demarcated space for the canteen facility as mandated under the provisions of the Factories Act to its employees and its workers. The supply is from the canteen Service provider to the employees and workers, and not from the Canteen Service provider to the applicant, as the food gets consumed only by the employees and workers.
Though the supplier is the canteen service provider and the invoice is raised on the applicant, the ultimate recipient of such canteen facility is the employee and workers, the AAR highlighted.
Referring to the Board’s Circular No. 172/04/2022-GST dated July 06, 2022, however, the Division Bench comprising Vishal Malani (Member CGST) and Sushma Vora (Member SGST) observed that GST is payable on the amount recovered as a deduction from the payment to workers’ contractors and not on the open market value.
Hence, the GST is leviable on the amount representing the contractual worker portion of canteen charges, which is collected for payment to the Canteen Service provider, added the Bench.
The Bench noted that in the case of the applicant, the contractual workers provided are under the full control and supervision of the applicant, though appointed from a third-party contractor. The work performed by the workers is essential, and a usual course of the main business of the applicant, and the workers are bound by the work policy of the applicant.
The Bench also noted that the applicant is mandated to provide canteen facilities to its employees and workers at the factory as per the Factory Act and the factory premises is located far away from local city limits and considering the time and effort required for arranging the food on daily basis, the applicant had decided to provide canteen facility to its employees and workers at the factory by appointing a canteen service provider (CSP).
“While the food is provided by the CSP to all the employees and workers at the canteen facility, and considering that it is practically inconvenient to enter into a contractual agreement with every employee and worker, the CSP has agreed with the applicant that the applicant shall contract and pay in full to the service provider for the food during a prescribed period on behalf of the employees and workers and a predetermined percentage of the amount paid by the applicant is recovered from the employees and workers (without any profit) and the balance amount borne by the applicant, is being treated as staff welfare expense towards subsidized food served to employees and workers”, added the Bench.
Therefore, the Bench concluded that the subsidised deduction made by the applicant from the employees towards the canteen facility provided by the canteen service provider at the canteen facility would not be considered as a ‘supply’ by the applicant under the provisions of Section 7 of the CGST Act, 2017 and GGST Act, 2017.
Briefly, the applicant provides canteen facilities to employees and contractual workers for which the applicant has contracted with caterers (Canteen Service Provider-CSP) to operate canteen within the applicant’s premises and a specified percentage of the cost of the meals provided is deducted by the applicant from their employees’ salaries and from the amount paid to/recovered from contractor providing contractual workers every month.
The applicant therefore sought a ruling on the questions, as to whether subsidized deduction made by the applicant from the employees and workers towards canteen facility provided by the canteen service provider at the canteen facility would be considered as a ‘supply’ by the applicant under the provisions of Section 7 of the CGST Act, 2017 and GGST Act, 2017 and If yes, Whether GST is payable on the amount recovered as deduction from the salaries of employees and worker contractors or an open market value?
Case Distinguished:
MMR Khan & Others vs UOI [1990 AIR 937]
Appearance:
Hiren Pathak, for the Applicant/ Taxpayer
