2021 (1) TMI 432 - AAR - GST

GST Applicable on Employee Canteen Charges per Authority Ruling

The Authority ruled that GST is applicable on the amount recovered from employees for third-party canteen services under the Factories Act. The ruling ... Outward supply - business (including activity incidental or ancillary to business) - supply of food as a service (Schedule II clause regarding food for consideration) - consideration for supply - supplier - taxable supply under GST - obligation under the Factories Act and its effect on supply characterisationOutward supply - business (including activity incidental or ancillary to business) - supply of food as a service (Schedule II clause regarding food for consideration) - consideration for supply - taxable supply under GST - GST is applicable on the amount recovered from employees towards third party canteen services provided by the company which are obligatory under the Factories Act. - HELD THAT: - The Authority examined statutory definitions and classifications under the CGST Act. The definition of 'outward supply' requires a supply made in the course or furtherance of business. The definition of 'business' includes activities incidental or ancillary to trade or commerce; accordingly, supply of food to employees qualifies as an activity incidental or ancillary to the applicant's business. Schedule II classifies supply of food or any other article for human consumption for consideration as a supply of service. The payments recovered from employees constitute 'consideration' under the Act. Even if no profit is made and the company acts as an intermediary for a third party canteen provider, the recovery of the employee's share meets the statutory elements of supply by a supplier for consideration. Therefore the amount recovered is an 'outward supply' and taxable under GST. [Paras 11, 12, 13, 15, 16]The recovery from employees for third party canteen services obligatory under the Factories Act amounts to a taxable outward supply under the CGST Act.Final Conclusion: The Authority ruled in the affirmative that amounts recovered from employees for canteen services provided through a third party, even when obligatory under the Factories Act and provided on a subsidised/no profit basis, constitute consideration for an outward supply and are taxable under GST. Issues:- Applicability of GST on amount recovered from employees for third-party canteen services under Factories Act.Analysis:1. The applicant, a 100% EOU, provides canteen services through a third party to over 500 employees, deducting the cost from employees' salaries. They argue it's not a profit-making activity but a statutory obligation under the Factories Act, 1948.2. The key question is whether this activity constitutes an 'outward supply' as per CGST Act, 2017. The definition of 'business' under Section 2(17) includes activities incidental to the main business, suggesting the food supply to employees falls under this definition.3. Schedule II of the CGST Act, 2017 deems the supply of goods or services, including food, as a composite supply. Even though no profit is made, the provision of food to employees qualifies as a 'supply' under Section 7(1)(a) of the Act.4. The concept of 'consideration' under Section 2(31) of the CGST Act includes any payment made for the supply of goods or services. As the applicant recovers the food cost from employees, it constitutes 'consideration' under the Act.5. The ruling states that the recovery of amounts from employees for third-party canteen services, as mandated by the Factories Act, falls within the definition of 'outward supply' under the CGST Act, making it taxable under GST.6. Therefore, the Authority rules that GST is applicable on the amount recovered from employees for third-party canteen services under the Factories Act. The ruling is affirmative based on the interpretation of relevant provisions and definitions under the CGST Act, 2017.