2018 (10) TMI 1313 - AAAR - GST

Employee canteen food expenses taxable under GST Act

The Appellate Authority upheld the ruling that the recovery of food expenses from employees for canteen services by a company, even without profit, ... Supply - consideration - outward supply - supply of service - composite supply of food or beverages under Schedule II - services by employee to employer excluded under Schedule III - double taxationSupply - consideration - outward supply - supply of service - composite supply of food or beverages under Schedule II - Recovery of food expenses from employees for canteen services run by the employer constitutes a 'supply' and is taxable under GST. - HELD THAT: - The authority found that supplying food to employees for cash, even without any profit margin, falls within the statutory concept of 'supply' as envisaged by Section 7(1)(a) and the composite supply treatment for food under Schedule II. The appellant's admission that it recovers the cost of food from employees establishes 'consideration' within the meaning of Section 2(31). Consequently the appellant qualifies as a 'supplier' and the activity is a taxable supply of service under the GST framework. The Appellate Authority affirmed the earlier AAR finding to this effect. [Paras 14, 17]Supply of food items to employees for consideration in the appellant's canteen is a taxable 'supply' under the GST law; the appeal is dismissed.Services by employee to employer excluded under Schedule III - double taxation - The appellant's reliance on Schedule III, the CBIC press release, and the Bhimas Hotels decision under the erstwhile regime does not exclude the present activity from GST. - HELD THAT: - The Appellate Authority examined the contention that services by an employee to the employer fall outside GST under Schedule III and noted the press release relied upon by the appellant. It distinguished the Bhimas Hotels decision on factual and legal grounds: that case arose under the pre GST regime where food supplies had been subjected to Value Added Tax, and the High Court's reasoning was directed to avoid double taxation under separate State VAT and Service Tax regimes. In the GST architecture, where such double taxation does not arise, the factual circumstances and legal basis of Bhimas Hotels are not pari materia and therefore do not operate to exempt the appellant's canteen supplies from GST. [Paras 15, 16]Press releases and the cited pre GST judicial decision do not negate that the canteen recoveries constitute taxable supply under GST; the prior decision is distinguished and does not apply.Final Conclusion: The Appellate Authority upholds the Advance Ruling: recoveries from employees for food in the employer run canteen constitute consideration for a taxable supply of service under the GST law; the appeal is dismissed. Issues:Recovery of food expenses from employees for canteen services - Whether taxable under GST Act.Analysis:Issue 1: Recovery of Food Expenses - Definition of Outward Supplies under GSTThe case involved a company providing canteen services exclusively for its employees and recovering expenses without profit margin. The company argued that the activity did not constitute a supply as it was not in the course of business but a statutory requirement under the Factories Act, 1948. The Advance Ruling Authority determined that despite no profit, the activity fell under the definition of 'supply' as per Section 7(1)(a) of the GST Act, making the company a 'supplier' under Section 2 of the Act.Issue 2: Consideration and Applicability of GSTThe appellant contended that as per Schedule III, services by employees to employers are not considered supplies under GST. They also cited a press release clarifying the non-applicability of reverse charge mechanism in certain transactions. However, the Appellate Authority upheld the ruling that serving food to employees for cash, even without profit, constituted a supply under Section 7(1)(a) of the GST Act, and recovery of food expenses from employees qualified as 'consideration' under Section 2(31).Issue 3: Comparison with Previous Tax RegimeThe appellant referenced a High Court judgment regarding taxation of food provided to workers under the previous tax regime. The Appellate Authority distinguished the case, emphasizing that the current GST regime did not pose the risk of double taxation, thus affirming the decision that the supply of food items to employees in the company's canteen was taxable under GST.In conclusion, the Appellate Authority dismissed the appeal, affirming that the supply of food items to employees in the company's canteen constituted a taxable supply under the GST Act, despite the absence of profit margin, based on the definitions of 'supply' and 'consideration' under the Act.