GST applicable on canteen expenses provided to employees for complying Factory Act Provisions

As per the Factories Act, if a company has more than 250 employees, they are required to provide canteen facilities to employees working in a factory. Now whether these canteen supplies will come under the scope of GST or not? The case study referred here will solve this query. The parties in the case are M/s Caltech Polymers vs. AAR.

Caltech Polymers is the applicant who asked for this query. The main business of the Caltech polymers is the sale of footwear. They are providing canteen facilities exclusively to the employees working in the factory and recovering the expenses from them without any profit margin. They are doing this because of the mandatory provision given in the Factories Act. They clarified that providing canteen facility is not part of their business. They think that this facility should not come under the scope of GST as it is not the Supply. They are doing it to comply with the statutory requirement, which is not a business and recovering expenses without any profit. They also refer a notification no 25 that was issued in 2012 according to which canteen facilities to employees were exempt under service tax law.

AAR referred Schedule II to the GST Act which says that Supply in any manner or as a part of service of goods including food or any other goods used for human consumption will come under the scope of GST. AAR concluded that the Supply of food to employees would be treated as Supply under the GST Act. The applicant will be treated as a supplier under section 2 (105) of the GST Act. Moreover, since the company is recovering food expenses from employees, there is a consideration under section 2(31) of the GST Act. Hence such canteen facilities will be charged under GST and will be treated as outward Supply.

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