GST has changed many things after it’s introduction in India. It comes with various benefits one of which was to eliminate various points of charge of indirect taxes prevailing in the earlier regime. In erstwhile regime, the excise was charged on the manufacture of goods, CST / VAT was charged on the sale of goods, and service tax was charged on providing of services.
GST has come with the single point of charging i.e. at the time of supply irrespective of its manufacturing or something else. Even it covers many transactions not taxable under earlier regime.
One of such transaction is providing canteen service by an employer to its workers and employees for a consideration even when recovering only the cost incurred by the company for the same. It is discussed in the next paragraphs in detail:
Section 2(17) – “Business” includes
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;(h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
Clause 6 of Schedule II to GST act:
The following composite supplies shall be treated as a supply of services, namely:—
(a) works contract as defined in clause (119) of section 2; and
(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
Section 2(31) – “Consideration” in relation to the supply of goods or services or both includes –
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;
Since the activity of charging the amount from employees covers the following six parameters to characterize a transaction as supply:
1. Supply of goods or services: Activity in discussion meets the definition of supply of services as per Clause 6 of Schedule II above.
2. Supply should be made for a consideration: Since the company recovers the amount from employees, it meet the definition of consideration.
3. Supply should be made in the course or furtherance of business: Supply of food by the company is a transaction incidental or ancillary to the business
4. Supply should be made by a taxable person: Employer should be a taxable person.
5. Supply should be a taxable supply: Supply of food is taxable.
Supporting Case: In an application filed by M/s Caltech Polymers Pvt. Ltd. for advance ruling
Even though the company held following contentions:
1. Service provided is not the business activity. As per the Factories Act, 1948, any factory employing more than 250 workers is required to provide canteen facility to its employees.
2. The company does not make any profit. The only actual cost incurred is recovered from the employees.
3. The company also referred Mega Exemption notification in Service tax whereby services in relation to supply of foods or beverages by a canteen maintained in factory covered under Factories Act, 1948 was exempted under Service tax.
Kerala AAR clarified that recovery of food expenses from the employees for the canteen services provided by the company would come under the definition of ‘outward supply’ under Section 2(83) of the Act, and therefore taxable as a supply.