Whether GST is applicable on the amount recovered from employee on account of third-party canteen services which is obligatory under Section 46 of the Factories Act, provided by company?

Yet another advance ruling (in the matter of M/s Amneal Pharmaceuticals Private Limited) has come which confirms that GST is applicable on the amount recovered from employee on account of canteen services. In this respect, we had posted a detailed article “GST Implications on provision of canteen facilities to employees by employer”. The above advance ruling reiterate the similar opinion as discussed in the aforesaid article.

Read this article at the following link: - GST Implications on provision of canteen facilities to employees by employer

Facts of the case: -

The applicant is a 100% EOU carrying out canteen facilities through third party in factory premises. The applicant employs more than 500 employees. The food is offered to employees at subsidized rates whereby the employee’s share of the cost is being deducted from their salary. There is no profit-making objective and the applicant is working simply as a mediator between employee and contractor of canteen service provider. Therefore, in their view, no GST is payable by employee to company on the subsidized value of food. They are only facilitating supply of food to employees, which is a statutory requirement under section 46 of the Factories Act, and is recovering only employee share as actual expenditure incurred in connection with the food supply, without making any profit.

Findings and Ruling of Authority: -

• From the plain reading of the definition of “Business”, it can be safely concluded that the supply of food by the applicant to its employees would definitely come under clause (b) of Section 2(17) as a transaction incidental or ancillary to the main business.
• As per clause 6 of the Schedule II to the CGST Act, 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."

• Even though, there is no profit as claimed by the applicant on the supply of food to its employees, there is a "supply", as provided in Section 7(1)(a) of the CGST Act, 2017. The applicant would definitely come under the definition of "Supplier", as provided in sub-section (105) of Section 2 of the CGST Act, 2017.

• Since the applicant recovers the cost of food from its employees, there is ‘consideration’, as defined in Section 2(31) of the CGST Act, 2017.

• In view of the above, we hold that recovery of amount from employee on account of third-party canteen services provided by the Company, which is obligatory under Section 46 of the Factories Act, 1948 would come under the definition of 'outward supply' as defined in Section 2(83) of the CGST Act, 2017 and therefore, taxable as a supply under GST.