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December 5, 2022

Companies are perplexed by conflicting GST judgments on Canteen facilities

by CA Shivam Jaiswal in GST

Companies are perplexed by conflicting GST judgments on Canteen facilities

The nominal amount that is recovered from employees for the provision of subsidised canteen facilities shall be subject to the goods and services tax, according to the Uttarakhand bench of the GST Authority for Advance Rulings (GSTAAR) (GST). The ruling came recently in the case of an engineering company.

The bench ruled that the applicant, Tube Investment of India, established canteen facilities as required by the Factories Act and supplies through a thirdparty vendor at a nominal cost. The applicant company’s supply of such food to its employees is a “supply of service.” This is because it is not part of the employment contract, but rather mandated by the Factories Act. The nominal cost, which is recovered from salary as a delayed payment, qualifies as “consideration” for the supply and GST is liable to be paid.

In the case of Kothari Sugars and Chemicals, the Tamil Nadu bench had adopted a similar view. But a significant majority of judgments handed down by various benches have held the otherwise.The Kothari Sugars and Chemicals Case law given below .

Order No. 20/AAR/2022 Date : 31.05.2022

Name of the applicant : Kothari Sugars and Chemicals Limited

TN-20-AAR-2022-kothari-sugars-and-chemicals-limited

These include the Gujarat bench in the cases of Cadila Healthcare held that GST, at the hands of the M/s Cadila, is not leviable on the amount representing the employees portion of canteen charges, which is collected by M/s Cadila and paid to the Canteen service provider.

Advance Ruling No. GUJ/GAAR/R/2022/19
(In Application No. Advance Ruling/SGST&CGST/2022/AR/5)

Date of application : 24/01/22

Name of the applicant: M/s. Cadila Healthcare Limited,

19-cadila_Ruling_Final-1

Tata Motors case it was held that GST, at the hands on the applicant, is not leviable on the amount representing the employees portion of canteen charges, which is collected by the applicant and paid
to the Canteen service provider as well as the Haryana bench in the case of RITES, a business established under the aegis of Indian Railways.

Advance Ruling No. GUJ/GAAR/R/39/2021
(In Application No. Advance Ruling/SGST&CGST/2021/AR/24)

Name of the applicant : M/s Tata Motors Ltd

Guj_AAR_39_2021_30.07.2021_TML

In the RITES ruling, the bench held that it was mandatory for the company to provide canteen facilities under the Factories Act. So, the transaction of recovering part payment of the meals from the staff is outside the purview of ‘scope of supply’ and no GST incidence arises.

While advance rulings do not establish a legal precedent, they do have a persuasive value in the course of assessments. According Tax experts view that despite the industry generally not paying GST on canteen recovery because to inconsistent decisions, the tax authorities are bringing up this issue during GST audits. The result is unjustified lawsuits.

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