Recovery of food expenses from employees for canteen services is liable for GST

Introduction

The Authority of Advance Ruling (AAR) has just ruled out a judgment that would impact all the factories across India. The AAR has ruled that recovered of food expenses from employees for canteen services is liable for GST in India. This judgment would impact all the factories that are offering food services to its employees.  

This judgment would have a long impact and it will further add to the food cost and that will ultimately befall on the shoulder of the employees and worker of the company. Let us understand the case in further detail and all the around facts relating to the judgment.

Facts of the case

The applicant is a private Limited company engaged in the manufacture of footwear. The total staff strength of the company is more than 250 workers and hence, it was also liable to offer canteen services to the staff member as per the Factories Act, 1948.

The detailed work is stated as follows:

• The space for the company is provided by the company, inside the factory premises.
   
• The cook is employed by the company and is paid monthly salary.
   
• The vegetables and other items required for preparing the food items are purchased by the company.
   
• The total expenditure incurred is them recovered from the employee through a deduction from their salaries. Also, the company does not make any profits from this activity.

The important contentions of the Company

The Company is of the opinion that this activity does not fall within the scope of supply as the same is not in the course or furtherance of the business of its business. The company is only facilitating the supply of food to the employees which are a statutory requirement and hence company is not liable to GST since it is not earning any profit out of the transaction.

Judgment by AAR

After analyzing the facts with the present law, the AAR concluded that recovery of food expenses from the employees for the canteen services provided by the company would come under the definition of ‘outward supply’ and therefore taxable as the supply of service under GST.

Issues that could arise from this judgment

The judgment is very clear however the impact of the judgment would create a mess for the time to come and the following issues may arise;

• Transaction value shall not be accepted as the valuation since it is a related party transaction and hence, the valuation shall be made according to the rules.
   
• Now, the GST impact would further add to the cost and the company will recover this from the employee which means more deduction from the salaries. This may not go well with the employees.

Conclusion

The above judgment may be correct as per the law, however, this transaction should be exempted by the government has done in the previous regime. So, let see what the government has to offer in the time to come.

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