GST On Employee Canteen Facility: AAR Examines Taxability of Subsidised Meals Provided by Employer

GST On Employee Canteen Facility: AAR Examines Taxability of Subsidised Meals Provided by Employer

The applicant, M/s KSB Limited, is a company engaged in the manufacture and sale of liquid handling pumps and operates multiple manufacturing facilities across Maharashtra. In compliance with Section 46 of the Factories Act, 1948, which mandates provision of canteen facilities in factories employing more than 250 workers, the applicant provides canteen services to its employees.

At certain locations, the canteen facility is managed through third-party vendors who provide meals and allied services such as cleaning, hygiene maintenance and pest control, for which a fixed per-meal charge is levied on the applicant. From September 2021 onwards, all canteen operations across locations were outsourced to third-party service providers. The applicant incurs an expenditure of approximately Rs. 2,200 to Rs. 2,500 per employee per month towards the canteen facility.

The applicant approached the Maharashtra Authority for Advance Ruling seeking clarity on whether GST is applicable on canteen services provided to employees, including situations where no amount is recovered from employees or where part or full cost is recovered from them.

Issue Raised: Whether provision of canteen facility by an employer to its employees, either without recovery or with partial or full recovery of cost, constitutes a supply of goods or services in the course or furtherance of business and is liable to GST.

AAR’s Ruling: The Maharashtra Authority for Advance Ruling examined the nature of canteen facilities provided by the applicant and the statutory obligation under the Factories Act. It noted that KSB Limited is not engaged in the business of supplying canteen or catering services and that the facility is provided solely as an employee welfare measure mandated by law. The Authority observed that the activity of facilitating canteen services through third-party vendors does not form an integral, incidental or ancillary part of the applicant’s core business of manufacturing and selling pumps.

It was further held that merely recovering part or full cost of food from employees, without retaining any margin and without an independent intention to supply such services, does not alter the character of the transaction. The provision of canteen facilities, whether free of cost or on a cost-recovery basis, was found not to be a supply made in the course or furtherance of business. Thus, the Authority ruled that GST is not applicable on canteen facilities provided by the applicant to its employees in the facts of the case.

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