Companies registered under the Factories Act, 1948, generally provides canteen facility to its employees. Section 46 provides that any factory employing more than specified numbers i.e. more than 250 workers required to provide canteen facility either by self canteen or by third party contract to its employees, since this is mandatory.
It has been noticed that the companies provide working lunch or canteen services during office hours to employees at free of cost or at subsidized/discounted rates or by recovering certain portion towards the canteen services in cash payment from employees or deduction of such amount from salary of employees.
Now, the biggest worry to all businesses registered under the factories act, 1948 that whether the provision of canteen services through a third party contractor for a consideration collecting as mediator and that too is without incurring any profit constitute a supply under GST law ? This is really subject matter of confusion and likely to increase the dispute between businesses entities and GST department.
It was also clarified by the “AAA” i.e. Authority of Advance Ruling in various judgements in past and present against the business entities who have opted to go for “AAA” and got the adverse rulings of discharging GST on food facility provided by business entities or companies.
In the matter of Amneal Pharmaceuticals Pvt Ltd, (100% EOU), the AAR was filed in Feb’2019 seeking clarification on chargeability of GST on the amount recovering from employees on account of third party canteen services provided by company.
In the year July’ 2020. the AAR concluded in Advance Ruling no. GUJ/GAAR/R/50/2020 Dated 30.07.2020 that recovery of amount from employees on account of third party canteen services provided by the Company, which is obligatory under Section 46 of the Factories Act, 1948 would come under the definition of ‘outward supply’ as defined in Section 2(83) of the CGST Act, 2017 and therefore, taxable as a supply under GST.
Subsequently, company preferred to challenge the above judgement and filed appeal before the “The Gujarat Appellate Authority for Advance Ruling”. The authority held that, “allow the appeal filed by the appellant M/s Amneal Pharmaceuticals Pvt Ltd and modify the Advance Ruling no. GUJ/GAAR/R/50/2020 Dated 30.07.2020 issued by GAAR, by holding that the Goods and Service Tax is not applicable on collection, by appellant, of employees’ portion of amount towards food stuff supplied by third party/Canteen Service Provider”.
Comments: This judgement shall be applicable to Amneal Pharmaceuticals Pvt Ltd and not to other industries, however, considering substantial tax impact, other industries may opt for AAR and get out of future disputes and litigations.