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Tamil Nadu’s Authority for Advance Ruling (TNAAR) has ruled that employee’s share for canteen services will be subjected to Goods & Services Tax (GST). This is contrary to earlier rulings by Gujarat AAR (GAAR) in the matter of two pharmaceutical companies.
“The applicant has established canteen facilities as mandated under Section 46 of of the Factories Act, 1948 and supplies food at a nominal cost either directly or through third-party vendor. The supply of food by the applicant is ‘Supply of Service’ by the applicant to their employees as the same is not a part of the employment contract and the canteen facility is provided under the Factories Act. The nominal cost, which is recovered from the salary as deferred payment is ‘consideration’ for the supply and GST is liable to be paid,” TNAAR said while disposing the application filed by Chennai based Kothari Sugars and Chemaicals Limited.
The applicant said it has engaged a third party vendor for canteen facility as mandated by the Factories Act. The company bears part of the payment made to the vendors while the rest is recovered from employees. It does not retain any profit margin in this activity of collecting employee’s portion of canteen charges.
After going through all the facts and arguments, TNAAR said the recovery of cost from the delayed payments do not alter the fact of the service provided and the person providing the said supply. The third part has entered into agreement with the applicant for running of the canteen in one of units and is paid service charges which is a supply made by the third party vendor to the applicant. “The supply of the food by the employer, i.e., the applicant to their employees is composite supply of food held as ‘Supply of Service’ as per Schedule-II of the GST Act,” AAR said and ruled GST to be paid.
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No generalisation
AAR rulings are applicable only on the applicant and related tax jurisdiction, though can be referred in similar matter. Interestingly, the applicant mentioned the GAAR’s decision in the case of Emcure along with others, but TNAAR made it clear that the advance ruling granted to one application could not be applied universally . In the matter of Emcure, GAAR had held that company not required to pay Goods and Services Tax on employees’ share for canteen services and free transportation services. In the similar matter of Cadila, GAAR held the same.
“We are not inclined to accord this canteen service facility provided by Cadila to its employees as an activity made in the course or furtherance of business, deeming it a Supply by Cadila to its employees,” GAAR said and ruled no GST to be levied. In the matter of Emcure, it said that GST is leviable neither on the employee portion of canteen charges, nor on the free bus transportation facility provided to its employees. ITC will be admissible in the case of GST paid on the hiring of a bus (with capacity of more than 13 persons), but not on GST paid for canteen facility.
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