Employers must pay GST on subsidized canteen services to employees despite Factories Act mandate

The AAAR Tamil Nadu held that GST is leviable on canteen services provided by employers to employees, even at subsidized rates. The Authority ruled that while the Factories Act, 1948 mandates canteen facilities for factories with over 250 workers, it does not provide tax exemption. The consideration charged from employees for food/beverages constitutes taxable supply under GST law. The case was distinguished from cost-sharing agreements as the employer provides services to employees at reduced prices rather than sharing costs for common services. GST applies on the actual consideration collected from employees.

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Issues Involved:
1. Whether recovery of nominal amount from employees for canteen services mandated under the Factories Act, 1948 attracts GST.
2. Whether the subsidized supply of food/beverages by the employer to employees qualifies as a perquisite under GST law.
3. Whether the cost-sharing arrangement between the employer and employees for canteen services is subject to GST.

Summary:

Issue 1: GST on Recovery of Nominal Amount for Canteen Services
The Appellant, engaged in manufacturing activities, provided canteen facilities at their units as mandated by Section 46 of the Factories Act, 1948. They sought clarification on whether the nominal amount recovered from employees for canteen services would attract GST. The Original Authority ruled affirmatively, stating that the supply of food by the employer to employees is a "Supply of service" and the nominal cost recovered is 'consideration' for the supply, thus liable to GST.

Issue 2: Perquisites under GST Law
The Appellant argued that perquisites forming part of the employment contract were excluded from GST as per Circular No. 172/04/2022-GST. However, the Appellate Authority noted that the employment contract did not explicitly mention the canteen facility as a perquisite. The Authority held that even if the canteen facility was considered a perquisite, GST would still be applicable on the subsidized amount charged to employees. The Circular cited by the Appellant did not apply as the canteen facility was not provided in terms of a contractual agreement.

Issue 3: Cost-Sharing Arrangement
The Appellant contended that the recovery from employees was a mere cost-sharing arrangement and not consideration. The Authority found that there were two distinct transactions: one between the caterer and the employer, and another between the employer and employees. The consideration received from employees, although at subsidized rates, was subject to GST. The Authority rejected the argument that the arrangement was merely a pass-through activity, stating that the Appellant had sought an advance ruling under Section 95(a) of the CGST Act, 2017, indicating a separate transaction.

Discussion and Findings:
The Authority reviewed the relevant provisions of the GST law and the Factories Act, 1948. It held that the supply of food/beverages by the employer to employees, even at subsidized rates, amounts to a supply of service and attracts GST. The Authority also distinguished the cited case laws and AAR/AAAR rulings, noting that they were not binding and had different factual matrices.

Ruling:
The Appellate Authority upheld the decision of the Authority for Advance Ruling of Tamil Nadu, ruling that the recovery of nominal amounts from employees for canteen services is liable to GST and rejected the appeal.

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