Dr. Sanjiv Agarwal
Under Entry No. 19Aof Exemption Notification No. 25/2012-ST dated 20.06.2012, Air Conditioned or Air-heated Canteen maintained in a Factory are exempt from Service Tax w.e.f. 22.10.2013.
Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948, having the facility of air-conditioning or central air-heating at any time during the year are exempt from Service Tax vide Notification No. 14/2013-ST dated 22.10.2013. The meaning of the word “factory” is same as defined in Factory Act, 1948.
According to section 2(m) of the Factories Act, 1948, ‘factory’ means any premises including the precincts thereof –
(i) Where ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or
(ii) Where twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on.
The term “Manufacturing Process” is defined in Section 2(k) of the Factories Act, 1948 and accordingly, “Manufacturing Process” means any process for-
(i) Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use sale, transport, delivery or disposal, or
(ii) Pumping oil, water, sewage or any other substance; or
(iii) Generating, transforming or transmitting power; or
(iv) Compositing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding;
(v) Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;
(vi) Preserving or storing any article in cold storage;
It may be noted that canteen is a statutory requirement under the provisions of section 46 of the Factories Act, 1948 where the factory is employing more than 250 employees.
Therefore, any factory canteen which is air-conditioned or air-heated provides services in relation to serving of food or beverages are out of service tax net w.e.f. 22.10.2013.
A factory can provide and maintain a canteen in any of the following ways: –
a) a canteen can be run by the factory, directly, by forming a managing committee, which includes representation of workers also.
b) a canteen can be run by a co-operative society, formed for the purpose of providing subsidized food to the employees, by forming a managing committee including the elected representatives of the workers.
c) The organization can engage canteen contractors of providing canteen facilities and giving subsidized food to the employees.
The facility of air –conditioning or air-heating if available in the part of the year, even then such exemption is available to such factory canteen. Such exemption is not applicable to the canteen run in an office or any other place. This exemption should be applicable both to an employer who is maintaining the canteen on its own as well as to those who are getting the services from an outdoor caterer.
On combined reading of entry 19 and 19A of the exemption notification, it can be said that it has been the intention of the Government to grant exemption from Service Tax in relation to services provided for serving of food and / or beverages by a canteen maintained in a factory which is covered under or governed to the Factories Act, 1948, whether or not having the facility of air-conditioning or air-heating at any point of time in a year. While entry 19 uses the word eating joint (which is much wider in scope), entry 19A is specific to canteen only. The services provided by a canteen maintained in a factory, whether air-conditioned or not, would be exempt under entry 19A.