Authority for Advance Ruling, Kerala has recently clarified that recovery of food expenses from the employees for the canteen services provided by company would come under the definition of outward supply defined in section 2(83) of the Act, 2017 and, therefore, would be taxable as a supply of service under GST. The interpretations done by the advance ruling authority have caused apprehensions regarding the taxability of other reimbursements, as such reimbursements may face the GST heat. The ruling, though solely based on the interpretation of the expressions ‘business’, ‘composite supply’& ‘consideration’, nevertheless, the views taken in this advance ruling are worth discussions.
Brief facts of the case
M/s. Caltech Polymers Pvt. Ltd., Malappuram (hereinafter referred to as the ‘Applicant’) was engaged in the manufacture and sale of footwear. The applicant provided canteen facility to its employees wherein actual expenses incurred in running a canteen were recovered from employees as a deduction from their monthly salary in proportion to the foods consumed by them. The Contention put forth by the applicant was that it was only facilitating the supply of food to the employees which was a statutory requirement and was recovering only the actual expenditure incurred in connection with the food supply without making any profit, thus, such activity would not fall within the scope of supply as the same was not in the course or furtherance of its business.
The question before the Advance Ruling authority (AAR) was whether reimbursement of food expenses from employees for the canteen services provided by company would come under the definition of outward supplies as taxable under GST Act?
AAR was of the view that the activity of providing a canteen facility wherein the company is recovering the canteen running expenses from its employees without any profit margin is well covered within the expression ‘business’ defined in section 2(17) of the GST Act, thereby treating it as a transaction incidental or ancillary to the main business.
The authority also observed that the activity of providing a canteen facility is a composite supply in view of clause 6 of schedule II to the CGST Act which lays down the activities to be treated as supply of goods or supply of services. Further, the authority is of the view that since the applicant recovers the cost of food from its employees, there is a consideration as defined in section 2(31) of the CGST Act, 2017. Hence, the recovery of food expenses from employees is a taxable service, thereby attracting goods and service tax.
- The Advance Ruling Authority did not view the transaction from the angle of provisioning of services by employees in the course of or in relation to his employment. Needless to say the canteen facility is provided to employees in the course of performing their official duties for which subsidized price is charged. if deductions of food expenses incurred by employer are made from the employee’s salary it is clear that it forms part of the employment contract.
- This advance authority ruling has revived the disputes over the taxability of employer-employee transactions. Most of the transactions between employer and employee can be brought under the ambit of GST on the similar view taken in the ruling. This may lead to greater challenges for the employers, so far as the valuation of such supplies is concerned, since employer and employee are related persons. Now ambiguities are revolving around the rate of tax to be charged on such supplies.