GST on Employee Canteen Recoveries Upheld as Taxable Due to Consideration Element

In re Piaggio Vehicles Pvt Ltd (GST AAR Maharashtra)

The Authority for Advance Ruling (AAR), Maharashtra, examined an application filed under Section 97 of the CGST Act and MGST Act by a manufacturing company seeking clarity on two issues: (i) whether GST is payable on recoveries made from employees towards subsidized canteen facilities, and (ii) whether GST applies to notice pay recoveries from employees who do not serve the full notice period.

Regarding the canteen facility, the applicant provides subsidized meals to employees as part of its employment terms and in compliance with obligations under the Factories Act, 1948. The facility is operated through a third-party service provider who invoices the applicant with GST. The applicant bears a portion of the cost and recovers the balance from employees via salary deductions.

The applicant contended that such recoveries should not qualify as “supply” under Section 7 of the CGST Act, arguing that canteen services are neither part of its principal business nor incidental or ancillary to it. It further argued that such facilities are covered under Schedule III as employment-related services and should therefore be excluded from GST.

However, the AAR rejected these arguments. It held that the definition of “business” under Section 2(17) is broad and includes activities incidental or ancillary to the principal business. Since providing canteen facilities supports employees who are essential to manufacturing operations, such activity qualifies as incidental or ancillary to business and therefore falls within the scope of “business.”