Applicability of GST on Food offered at concessional rate at Factory Canteen

 

This issue came up for consideration before the Gujarat ARA in the case of Cadila Pharmaceuticals Limited and the following arguments were placed before them   

1. Section 48 of the Factories Act requires factory with >250 workers to provide for Canteen Facility. State Government to make Rules relating to the same - Relevant for Manufacturing Set Up

2. Section 23 of the Gujarat Shops and Establishment (Regulation of Employment and Conditions of Services) Act, 2019 requires an Employer employing >100 workers to provide a Canteen Facility - Relevant for Corporate Office

3. Circular 172/2022 clarifies that perquisites to employees are not liable to GST and ITC is available on services which are required to be extended to the Employees under any law

4. Company had issued a Circular wherein the details of canteen facility being provided, cost to be incurred by the Company and the cost to be incurred by the Employees were mentioned. Circular also provided that Tea / Coffee will be provided free of charge to Employees in the Meeting Rooms

5. Canteen Operator cannot enter into agreement with all the Workers and hence entered into Agreement with the Factory and hence Factory merely acts as a pass through for services being rendered by Canteen Operator to Workers

After considering the above arguments, the ARA held that

1. Concessional Food to Employees is a perquisite and hence cannot be treated as a supply even if amount is recovered from the employees

2. Since the service in question is being rendered based on an obligation under the Factories Act / Shops and Establishment Act, ITC to the extent cost borne by the Factory / Employer will be available

Few points for consideration

1. Check the Employer / Factory Policy relating to Canteen - If required, amend the Offer Letter / Employment Contract

2. Basis the Factories Act, each of the States have issued their own Rules which govern the running and maintenance of Factory [Refer Rule 92 of Karnataka Factories Rules, 1969] - ITC can be availed by the Factory

3. Unlike Section 23 of Gujarat Shops and Establishment Act, I could not find a similar provision under Karnataka Shops and Establishment Act which provides for operating and maintenance of Canteen for Shops employing >100 employees - State Specific and hence reference to the relevant State Act needs to be made