Gujarat AAR: Canteen Services for Employees Does Not Attract GST

The Gujarat Authority for Advance Ruling (AAR) ruled that Goods and Services Tax (GST) does not apply to the amount collected from the employees towards canteen charges, which is paid to the canteen service provider. Hence, the canteen charges collected from employees will now be out of the scope of GST.

This ruling provides some relief to several large industrial and manufacturing units. Few companies providing food as per the existing law are debating the applicability of GST on canteen charges. In most scenarios, nominal charges would be collected from the employees for providing food in the canteens.

The AAR ruled that the company is not making a profit on the amount collected from employees. However, it is merely acting as an intermediary, so the GST cannot be levied.

In the earlier two AAR rulings, a different view was taken by two different authorities. In the case of M/s Tata Motors, the AAR had ruled that GST is not applicable on the amount collected from employees for providing food in canteens. However, in the case of M/s Amneal Pharmaceuticals, the AAR ruled that GST is applicable on such an amount.

The provision of canteen services for employees and GST payment thereon has been discussed across the industry. Various rulings have been pronounced in favour of and against the applicant in the said matter. 

Amid these different rulings on the same issue, appropriate clarification from the Central Board of Indirect Taxes and Customs (CBIC) may provide more clarity on this issue. Such a circular would also enable the industry to adopt a correct view. Also, the GST on the canteens and Input Tax Credit (ITC) availability have been confused earlier.

In 2018, the government said banks could claim the 

• ITC of life insurance premiums paid by security guards
• Hospitals can take ITC of the medical insurance premium paid for nurses
• Companies can take ITC for canteen fees charged to labourers.

The government clarification meant that GST could be applied on canteen charges in some instances. It is to be noted that the above clarification means that any service provided to employees mandated by the law will be eligible for the ITC. The recent AAR ruling takes it a step further. The AAR ruling means that any service provided by an employer without an intention to make a profit should be outside the scope of GST.

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For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in