Companies not to pay GST on employees’ share of canteen charge, rule AARs

Companies will not be required to pay GST on employees’ share of canteen charges collected by them and paid to the service provider. However, they will get input tax credit (ITC) on the on GST charged by the service provider in respect of canteen facility provided to its direct employees working in their factory, as per two rulings by Gujarat Authority for Advance Rulings (GAAR) and one by Andhra Pradesh AAR (APAAR).

Though authority on advance rulings (AAR) are applicable on applicant and jurisdictional tax officer only, still they are being relied upon in similar matter. Also, in many cases, they have become base of policy decision, applicable on all.

Applications with GAAR

Two applications on similar matter – first by AIA Engineering and second by Cadila Pharmaceuticals, were filed with GAAR. AIA, in its application, said that it provides canteen services to around 250 employees. The employees bear 50 per cent of canteen charges while the remaining is bone by the company. The total is paid to the canteen service provider.

The company sought advance ruling on two queries. First, whether GST is applicable on the amount representing the employee’s portion of canteen charges recovered/collected by the applicant from its employees and paid to the canteen service provider on behalf of the employee. Second, whether the company is eligible to take the input tax credit for the GST charged by the canteen service provider for the canteen services.

In its application, Cadila said that it pays full charges to the canteen service provider for services provided to employees. Part of those charges is recovered from the employees. The company makes payment to the service provider along with GST at 5 per cent but does not avail ITC.

It moved to GAAR to seek advance ruling on four queries. First, whether subsidized deduction made by the applicant from the employees who are availing food in the factory/corporate office would be considered as a supply. Second, if it is supply, what would be GST rate. Third, on what portion GST will be applicable i.e, amount paid by the applicant to the canteen service provider or only on the amount recovered from the employees. And fourth, whether ITC would be available to the company.

In the matter, before APPAAR, Brandix Apparel India just wanted to know whether GST would be applicable on the amount recovered from employees for canteen facilities provided to them.

GAAR ruling

After going through all the facts and arguments present in relation to application made by AIA, GAAR said that GST is not leviable on the amount representing the employee’s portion of canteen charges recovered/collected by the company and paid to the canteen service provider since it would not be considered as a supply. However, ITC will be available to the company on its share in total amount paid to the canteen service provider.

Similarly, while disposing application by Cadila, GAAR said that the subsidized deduction made by the applicant from the employees who are availing food in the factory/corporate office would not be considered as a ‘supply’. The ITC will be restricted to to the extent of the cost borne by the company for providing canteen services to its direct employees.

APAAR cited provisions of State’s Factory Act which mandates providing canteen services and concluded that GST would not be applicable on employees’ share of canteen charges.

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