2018 (4) TMI 582 - AAR - GST

Supreme Court Declares Employee Canteen Food Reimbursement Taxable Under GST Regulations, Expanding Definition of Supply

The SC ruled that recovery of food expenses from employees for canteen services constitutes an outward supply under GST Act. Despite no profit being made, ... Outward supply - supply of service - business includes incidental or ancillary activity - consideration - composite supply of food as service (Schedule II clause 6)Outward supply - supply of service - business includes incidental or ancillary activity - consideration - composite supply of food as service (Schedule II clause 6) - Recovery of food expenses from employees for canteen services provided by the company is an outward supply and taxable under GST as supply of service. - HELD THAT: - The Authority applied the definition of 'business' which expressly includes activities incidental or ancillary to trade or manufacture, concluding that supply of food to employees falls within that ambit. Schedule II(6) characterises supply of food as a supply of service when made for cash or other valuable consideration. The definition of 'consideration' includes payments made in respect of a supply; therefore recovery of actual food costs from employees constitutes consideration. On these bases the company qualifies as a 'supplier' and the recovery of food expenses is an outward supply taxable as a service under the GST law. [Paras 9, 10, 11, 12]Recovery of food expenses from employees for canteen services provided by the company is an outward supply and taxable as a supply of service under GST.Final Conclusion: The Advance Ruling holds that the company's recovery of canteen food expenses from its employees constitutes an outward supply and is taxable under the GST law. Issues involved:Recovery of food expenses from employees for canteen services - Whether it constitutes outward supplies and is taxable under GST Act.Analysis:The case involved an application for Advance Ruling by a Private Limited Company engaged in the manufacture and sale of footwear regarding the taxability of recovering food expenses from employees for canteen services provided. The company provided canteen services exclusively for its employees, incurring running expenses and recovering the same without profit. The company argued that the activity did not constitute 'supply' as it was not a business activity but a statutory requirement under the Factories Act, 1948, to provide canteen facilities for employees. The company referred to a previous Service Tax Law exemption for canteen services in factories. The applicant questioned whether the reimbursement of food expenses from employees constituted outward supplies taxable under the GST Act.The ruling authority examined the definitions of 'business' and 'supply' under the GST Act. It noted that the supply of food to employees fell under the definition of 'business' as a transaction incidental or ancillary to the main business. Schedule II of the GST Act classified the supply of goods or services, including food, as a supply of service. Despite the company not making a profit, the activity still constituted a 'supply' under the GST Act. The authority also considered the definition of 'consideration' under the GST Act, stating that the recovery of food costs from employees constituted consideration as defined. The authority highlighted that the absence of a similar provision under GST laws, unlike the previous Service Tax Law exemption for canteen services, led to the conclusion that the recovery of food expenses for canteen services constituted an outward supply taxable under GST.In conclusion, the ruling clarified that the recovery of food expenses from employees for canteen services provided by the company constituted an 'outward supply' as defined in the GST Act and was therefore taxable as a supply of service under GST.