Subsidized canteen food amounts recovered from employees attract GST liability under mandatory facility provisions

AAR Tamil Nadu ruled that GST is applicable on amounts recovered from employees for subsidized canteen food. The Authority held that operating a mandatory canteen facility under the Factories Act constitutes supply of service in the course of business, making it an outward supply. While the employer bears certain mandated costs, the subsidized amounts collected from employees attract GST liability. The ruling clarified that GST exemption applies only to free perquisites under employee agreements, not to subsidized recoveries. Therefore, GST must be levied on the subsidized amounts recovered from employees for canteen services.

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Issues Involved:
1. Whether recovery of subsidized value from employees for providing canteen facility amounts to 'supply' under the CGST Act.
2. Whether such recovery attracts GST.

Summary:

Admissibility of Application:
The application falls within the scope of Section 97(2)(e) & (g) of the CGST/TNGST Act, 2017, making it admissible.

Issue 1: Whether Recovery of Subsidized Value from Employees Amounts to 'Supply' under the CGST Act:
The applicant argued that the canteen facility is a statutory obligation under the Factories Act, 1948, and not a business activity. They claimed there is no legal intention or agreement to supply canteen services for consideration, and the amount collected is merely a reimbursement without reciprocal obligations. The applicant also cited various case laws to support their claim that the activity does not qualify as 'supply' under the CGST Act.

However, the Authority found that the canteen facility is an activity in furtherance of business as defined under Section 2(17) of the GST Act. The provision of food in the canteen for a nominal cost is considered an 'Outward Supply' under Section 2(83) of the CGST Act. The running of the canteen is mandated by the Factories Act and is incidental to the business. Therefore, the provision of food in the canteen is a 'Supply' for GST purposes.

Issue 2: Whether Recovery Attracts GST:
The applicant contended that the amount recovered from employees is not 'consideration' but a reimbursement. They argued that subsidized food is a perquisite forming part of the wage agreement and HR policy, which should be excluded from GST as per Circular No. 172/04/2022-GST.

The Authority noted that the term 'Consideration' under Section 2(31) of the CGST Act includes any payment made for the supply of goods or services. Since the applicant supplies food to employees at a nominal cost, this amount is considered 'consideration' for the supply, making it liable for GST. The Authority also clarified that the benefit of non-levy of GST could only be extended to the extent of the cost borne by the applicant, not the subsidized amount recovered from employees.

Ruling:
The recovery of subsidized value from employees for providing canteen facility amounts to 'supply' under the CGST Act, and GST is to be levied on the amount recovered by the applicant from the employees towards the provision of the canteen facility.

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