Employees are undoubtedly vital resources to  carry out the affairs of the Company, thus it  becomes important for any employer to  provide basic facilities and good working  conditions to its employees. Facilities such as  transportation, healthcare, insurance, canteen  services, etc. are often provided by employers  to their employees as welfare measure.

A canteen facility is provided to employees at a  nominal value or without consideration by  employers. For provisioning of these canteen  services, the employer usually hires a a third[1]party vendor who provides food directly to the  employees against a consideration paid by the  employer. In certain cases, after payment of  consideration to third-party vendor, the  employer also collects a nominal amount from  its employees, and some part of the cost is  borne by the employer himself.

Taxability of such recoveries against canteen  services by the employees has been akin to  controversies under the erstwhile regime and  thus, it was expected that the government  would keep the taxability of these recoveries  clear in the Goods and Services Tax (GST)  regime. However, due to a lack of explicit  clarification to date, the employers have been  left wondering with the only option is to seek  directions from the Authority of Advance  Ruling (AAR) which has been giving divergent  rulings.

Under the GST laws, an activity to attract a levy  of GST must qualify as "supply". The term  supply as per Section 7 of the Central Goods and  Service Tax Act, 2017 (the CGST Act) includes all  forms of supply of services and goods such as  sale, transfer, barter, exchange,etc. made or  agreed to be made for a consideration by a  person in the course or furtherance of business.

Also, it includes any supplies made between the  related parties (employer and employee) even  if made without consideration, and excludes  services by an employee to the employer in the  course of employment. Based on the above, it  may be construed that the supplies made by the  employer to its employee are exigible to GST in  certain situations. However, this issue was  addressed by the government wherein it was  clarified that supply by an employer to its  employee in terms of a contractual agreement  between them will not be subject to GST.

In spite of such clarification companies  providing canteen services to their employees  have time and again faced interpretational  issues revolving around the definition of supply  and the clarification provided by the press  release.

In the case of M/s Rites Ltd.1 where the  applicant employer was engaged in consultancy  service related to infrastructure and transport,  the AAR has held that the recoveries made by  the applicant from its employees for the  canteen facility run by third-party vendor are  outside the purview of scope of supply as there  was no independent contract between the  employees and the employer for the supply of  canteen services and the same were supplied  on account of the legal obligation under the  Factory Act. Moreover, it wasn't in the course or  furtherance of the business of the applicant  since the principal supply of the applicant was  not canteen service. Similarly, in the case of M/s  Amneal Pharmaceuticals Pvt. Ltd.2, the  Appellate AAR held that GST is not leviable on  recoveries against canteen services as the  applicant neither supplied any goods or  services to its employees against the recoveries  nor charged any margin on the recoveries. The  applicant merely acted as a mediator between  the employees and the third-party vendor.  Further, in the case of M/s Emcure  Pharmaceuticals Ltd.3 it has been held that  GST is not leviable on the recoveries for  arranging canteen facilities, since it is a welfare  measure, mandated by the Factory Act and is  not at all connected to the functioning of their  main business.

However, there are advance rulings where the  recoveries made towards canteen services has  been included within the definition of supply. In  the case of M/s Tube Investment of India  Ltd.4 and Kothari Sugars and Chemicals Ltd.5,  the AAR interpreted establishment of a canteen  facility in the factory to be an incidental activity  to the running of the main business and thus, is  in furtherance of business. It has been held that  supply of food to the employees is not  contractually agreed and thus, is not an  allowance under the employment. Accordingly,  provision of canteen services, though for  nominal value, is taxable under GST. The  Appellate AAR in the case of M/s Caltech  Polymers Pvt. Ltd.6 has held that supply of  food, with or without profits, by the applicant to  its employees is incidental or ancillary to the  main business of manufacture and sale of  footwear. The recoveries qualify as a  consideration towards provisioning of canteen  facility and thus, attract levy of GST.

Keeping in view that the tax is already being  discharged by the third-party vendor on  canteen services, levying GST on recoveries  made from the employees will add  unreasonable burden on the employer. Thus, to  put an end to the confusion and to avoid the  multiplicity of litigation, it is important that  clarification in this regard is issued by the  Government. While the industry awaits  clarification, it is important to note that though  the advance rulings are applicant specific, they  do have an impact on the other taxable persons.  Thus, it is imperative for an employer who is  providing food in the canteen to its employees  to check the nuances of the above AARs on its  tax position with respect to canteen services.


1 M/s Rites Ltd., AR No. HR/ARL/19/2022-23, Order  dated October 18, 2022 (AAR, Haryana).

2 M/s Amneal Pharmaceuticals Pvt. Ltd., AR (Appeal) No.  GUJ/GAAAR/APPEAL/2021/07, Order dated March 8,  2021 (Appellate AAR, Gujarat).

3 M/s Emcure Pharmaceuticals Ltd., AR No. GST-ARA[1]119/2019-20/B-03, Order dated January 4, 2022 (AAR,  Maharashtra). M/s Emcure Pharmaceuticals Ltd., AR No.  GUJ/GAAR/R/2022/22, Order dated April 12, 2022  (AAR, Gujarat).

4 M/s Tube Investment of India Ltd., AR No: 12/2022- 23, Order dated November 24, 2022 (AAR, Uttrakhand).

5 Kothari Sugars and Chemicals Ltd., Order No.  20/AAR/2022, Order dated May 31, 2022 (AAR, Tamil  Nadu).

6 M/s Caltech Polymers Pvt. Ltd., Order No.  CT/7726/2018-C3, Order dated September 25, 2018  (Appellate AAR, Kerala).

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