2026 (2) TMI 457 - AAR - GST

Canteen services to employees treated as business supply; recovered amounts taxable while unrecovered concessions are perquisites not subject to GST.

The Authority addressed whether employer provided canteen services amount to a taxable supply. It held that provision of canteen services by the employer ... Supply of services - expression ‘in the course or furtherance of business’ - business (inclusive definition - incidental or ancillary) - Scope of term ‘perquisite’ (as corollary to Schedule III) - consideration - related persons - supply without consideration (Schedule I) - value of taxable supply - recoveries from employees - Applicant contended that providing canteen facility to its employees is not in the course or furtherance of business. Providing canteen facility to its employees does not amount to supply of services as per the applicable provisions of Central Goods and Services Tax Act, 2017 (CGST Act’) and Maharashtra Goods and Services Act, 2017 (‘MGST Act’). According to him, the canteen services to employees do not fall under ‘supply’ as per section 7 of CGST Act, as supply of these services are not in the course or furtherance of business. HELD THAT:- The expression ‘in the course or furtherance of business’ has not been defined in the GST law. However, in the common parlance, “in the course of business” would mean “while conducting the business or the business activity”. The terms incidental or ancillary have not been defined in the CGST Act. In the absence of a definition, recourse may be taken to general understanding of the terms. Incidental and ancillary refers to something that is connected to the main but is little lesser in importance but none the less is an important part that cannon be severed from the main part. Taxation of canteen services provided to employees - HELD THAT:- It is seen from the copy of invoice submitted, the applicant has engaged third party service provider M/s. FF Services Private Limited, who are providing the said canteen facilities to the Applicant. Since, the said service is provided by the third-party service provider to the Applicant, the service provider is raising their invoices with applicable GST to the Applicant. The Applicant pays the consideration to the third-party service providers for the said canteen facilities. In terms of Section 2(17) (c), the volume of transaction is immaterial for the purpose of coverage under ‘business’, therefore, even if supply of food is quite insignificant activity in terms of volume of transaction, still in terms of clause (c) of the aforesaid section, the activity of supply of canteen services, falls within the definition of ‘business’. As per Income Tax Act, 1961, perquisite is defined to be the value of free benefit or facility given by the employer to his employees. The collection from the employees of whatever value, is not covered under ‘perquisite’. It could be inferred from the above, that any service rendered free of charge, or any service rendered on a concessional basis shall qualify as a perquisite. But it is to be noted that only the value/ portion to the extent of concession offered by the employer is to be treated as a perquisite and not the remaining portion/value that has been charged by the employer. Applying the said analogy to the instant case, in respect of the canteen services provided by the applicant to its employees, it becomes clear that the exemption provided in Entry 1 of Schedule III to the CGST Act, 2017 applies only to the concession part extended to the employees and not on the value charged to the employees. If incidental or ancillary supply of goods or services such as canteen services by the employer to employee were to not fall under ‘business’, it would not be necessary to provide respite to ‘supplies by employer to employees given as perquisite’ from falling under ‘supply’ by taking recourse to schedule III. That is, if a transaction or activity is not a supply u/s 7(1) of CGST Act, then there would not be necessity to place such a transaction u/s 7(2)(a) for deeming it to be neither supply of goods nor supply of services. Hence, as discussed, Applicant’s activity of supply of canteen services falls u/s 7(1) of CGST Act, 2017. As discussed, only the perquisites i.e., free supplies, in terms of a contractual agreement between the employer and employee are not to be subjected to GST as these are in lieu of the services provided by employee to the employer in relation to his employment. Hence, the recoveries made from the employees are liable to levy of tax as it is consideration against canteen services provided by the Applicant to the employees. Value in respect of which canteen services are taxable. - The activity of provision of canteen services to the employees are in the course of business. Consideration is absent or nominal. As per Section 7(1)(c), ‘the activities specified in Schedule I, made or agreed to be made without consideration’ have been defined to be included in ‘Supply’. As the supply of perquisite by the employer to the employee would not have respite from above two aspects mentioned at Sr. No. 1 and 2 above as the said supply is neither exempted nor a Non-GST supply, it would be appropriate to interpret that the perquisite given to the employees in view of the contractual agreement are in lieu of services given by the employee to the employer and would not be subjected to GST by deeming it to be part of Schedule III as a corollary to entry at Sr. No. 1 of Schedule III for cohesive interpretation. If the applicant does not recover any amount from the employees, then, the entire value of the services for which no amount is charged is the perquisite provided by the employer to the employees. As this perquisite is in lieu of services of the employees to the employer which fall under schedule 3, the perquisite part is not taxable, as a corollary, deeming it to be falling in the said entry of schedule 3. As the entire value is the perquisite provided by the employer, it is not liable to tax as discussed above. If the applicant recovers any amount from the employees, then the perquisite in this case is only to the extent of concession given to the employees and any amount recovered would be liable for GST. Conclusion - Whether GST would be applicable on canteen facility provided by M/s. KSB Limited to its employees using a third-party canteen services provider? Answer:- The supply of canteen services by the applicant to its employees amount to supply of services under the MGST Act, 2017. GST would be payable on the said services. In case GST is applicable on Canteen services provided by KSB to its employees, whether GST would be applicable if KSB Limited does not recover any amount from employee for providing canteen facility? Answer:- GST is not applicable, if no amount is recovered from the employees for the canteen services as the cost of said service would be considered as a perquisite. In case GST is applicable on Canteen services provided by KSB to its employees, whether GST would be applicable if KSB Limited recovers from employee’s part or whole of the cost charged by the canteen service provider to KSB? Answer:- Yes, GST would be applicable on the amount recovered from the employees for the canteen services. The portion of the cost, not recovered, would be considered as a perquisite. Issues: (i) Whether GST is payable on canteen facility provided by the applicant to its employees through a third-party canteen services provider; (ii) If GST is payable, whether GST is applicable when the applicant does not recover any amount from employees for the canteen facility; (iii) If GST is payable, whether GST is applicable when the applicant recovers part or whole of the cost charged by the canteen service provider from the employees.Issue (i): Whether the canteen facility provided by the applicant to its employees through a third-party vendor amounts to a supply of services under the GST Act.Analysis: The Authority analysed the inclusive definitions of 'business' and 'supply' under Section 2(17) and Section 7(1) of the Central Goods and Services Tax Act, 2017, the treatment of activities incidental or ancillary to the principal business, Schedule I (deemed supplies) and Schedule III (non-supplies), and relevant CBIC guidance. It identified two distinct transactions: (a) supply of canteen services by the third-party vendor to the applicant and (b) supply of canteen services by the applicant to its employees where the applicant pays the vendor and provides/arranges the service for employees. The Authority treated provision of canteen services by the applicant to employees as an activity connected with or incidental/ancillary to its principal business and therefore falling within the definition of 'business' and 'supply' under the GST Act.Conclusion: The supply of canteen services by the applicant to its employees amounts to a supply of services under the GST Act and GST is payable on such services. (In favour of Revenue)Issue (ii): Whether GST is applicable if the applicant does not recover any amount from employees for providing the canteen facility.Analysis: The Authority examined Schedule III and CBIC Circular No. 172/04/2022-GST clarifying that perquisites provided by an employer to an employee under the contractual employment relationship are in lieu of services rendered by the employee and are not to be treated as supply. It held that where no amount is recovered from employees, the entire value of the canteen service constitutes a perquisite provided by the employer to the employee and qualifies for the non-supply treatment by virtue of Schedule III as interpreted with the CBIC circular.Conclusion: If no amount is recovered from employees, GST is not applicable on the canteen services as the cost is to be treated as a perquisite. (In favour of Assessee)Issue (iii): Whether GST is applicable if the applicant recovers part or whole of the cost charged by the canteen service provider from the employees.Analysis: The Authority distinguished the concession/perquisite element from the portion paid by employees. It applied the definition of consideration and related-person transactions, and treated recoveries from employees as consideration for supply. The portion recovered from employees represents taxable consideration and is therefore a supply subject to GST; the unrecovered portion remains a perquisite and falls outside taxable supply.Conclusion: GST is applicable on the amount recovered from employees for canteen services. The portion not recovered from employees is to be treated as a perquisite and is not taxable. (Recovered portion: In favour of Revenue; Unrecovered portion: In favour of Assessee)Final Conclusion: The Authority rules that (a) provision of canteen services by the applicant to its employees through a third-party vendor constitutes a taxable supply by the applicant; (b) where no recovery is made from employees, the cost is a perquisite and not taxable; and (c) where recoveries are made from employees, the recovered amount is taxable while the unrecovered portion is a non-taxable perquisite.Ratio Decidendi: Where an employer procures canteen services and provides them to employees, such provision constitutes a supply by the employer under the GST Act when consideration (including recoveries from employees) exists; however, amounts constituting employer-provided perquisites (no recovery or the concession element) are not taxable under Schedule III as interpreted with CBIC Circular No. 172/04/2022-GST.