Gujarat AAR: Amount Deduction from Employees Profiting Food Not Considered Under GST Supply

The Gujarat Authority for Advance Ruling (AAR) ruled that support in deduction made by the applicant from workers who get food at work would not be regarded as a “supply” under the GST Act.

The applicant would receive the input tax credit (ITC) on the GST collected by the service provider of the cafeteria facilities that are given to its direct employees working in their factory and corporate office, according to the ruling of the two-judges bench of Amit Kumar Mishra and Milling Kavatkar.

The applicant manufactures, provides, and distributes a range of pharmaceutical items. The applicant has hired about 2745 people for full-time work. Additionally, they are registered following the 1948 Factories Act.

The company’s factory and main headquarters both have canteens open to workers. Under Section 46 of the Factories Act of 1948, the applicant is liable to offer the canteen facilities. The Act requires businesses to establish and maintain a canteen for their employees.

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Because the factory’s location is far from the city. As a result, the applicant hires a separate canteen service provider to provide a canteen facility. The employees are also issued ID cards at the joining time for the company to gain access to the canteen service. And only on the days that the ID card is punched, charges apply. A set percentage from the salary of the respective employee is also taken accordingly.

The applicant expected an early decision on the matter. It concerned whether the applicant’s subsidised deduction from the employees would be regarded as a “supply” under the terms of Section 7 of the CGST Act of 2017 and the GGST Act of 2017. The question of whether the GST will be applied to the applicant’s payment to the canteen service provider or simply to the amount recovered from the employees.

The Authority of Advance Ruling observed that the applicant provides the full-time employees of its corporate office with a space for food. The Gujarat Shops and Establishments (Regulation of Employment and Conditions of Service Act, 2019)’s Section 23 made it mandatory. The relief in the deduction provided by the applicant from the employees who are using the canteen service at the corporate office would not be regarded as a “supply” under the terms of Section 7 of the CGST Act, 2017, according to the application.

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The Factories Act, 1948, read with Gujarat Factories Rules, 1963, and Gujarat Shops and Establishments (Regulation of Employment and Condition of Service) Act, 2019, according to the consideration of the provision of canteen services for full-time or direct employees working permanently at the factory or corporate office, determined that the appellant will receive the input tax credit in respect of food and beverages. It is further directed that the canteen service provider be limited to only charging the appellant for ITC on GST expenses.