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GST - Recovery of food expenses from employees for canteen services provided by company is an 'outward supply', hence taxable: AAR

Published: Apr 12, 2018

By TIOL News Service

THIRUVANANTHAPURAM, APRIL 12, 2018: AN application for Advance Ruling was preferred on the point whether recovery of food expenses from employees for the canteen service provided by the applicant company comes under the definition of outward supplies and are taxable under Goods& Services Tax Act.

It is submitted by the applicant that the service provided to the employee is not being carried out as a business activity but as mandated under section 46 of the Factories Act, 1948.

The applicant also informs that the company does not make any profit while recovering the cost of the food items from the employees but only recovers the actual cost incurred.

Contending that this activity does not fall within the scope of 'supply' as the same is not in the course or furtherance of its business, the applicant submits that the same is not liable to GST. The applicant also refers to the Mega Exemption Notification No. 25/2012-ST wherein services in relation to supply of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 was exempted under the Service Tax Law.

The Authority noted that there is no similar exemption prevailing under the GST laws.

Adverting to the definition of "business" given in Section 2(17), clauses (a) and (b) of the CGST Act the Authority observed that upon a plain reading of the same, it could be safely concluded that the supply of food by the applicant to its employees would definitely come under clause (b) of Section 2(17) as a transaction incidental or ancillary to the main business.

It was further observed –

++ Even though there is no profit as claimed by the applicant on the supply of food to its employees, there is "supply" as provided in Section 7(1)(a) of the GST Act, 2017. The applicant would definitely come under the definition of "Supplier" as provided in sub-section (105) of Section 2 of the GST Act, 2017.

++ Since the applicant recovers the cost of food from its employees, there is consideration as defined in Section 2(31) of the GST Act, 2017.

The AAR, therefore, ruled -

+ Recovery of food expenses from the employees for the canteen services provided by company would come under the definition of 'outward supply' as defined in Section 2(83) of the Act, 2017, and therefore, taxable as a supply of service under GST.

(See 2018-TIOL-01-AAR-GST)