Key Questions and Doubts:
Whether reimbursement of food expenses from employees for the canteen provided by company comes under the definition of outward supplies as taxable under GST Act?
- What is the cost on which GST shall be levied?
- Whether ITC credit is available?
- How shall the same be invoiced?
Few Important Facts for Canteen Services and Applicability of GST on the same:
a) The space for the canteen is provided by the Company, inside the factory premises.
b) The cook is employed by the Company and is paid monthly salary.
c) The vegetables and other items required for preparing the food items are purchased by the Company directly from the suppliers.
d) The amount for canteen services has been deducted directly from employees salary.
e) Daily and monthly recovery both mechanism is available for deduction.
f) The company does not make any profit while recovering the cost of the item from the employees.
g) only actual cost incurred by the company is received based on the actual expenditure of the previous year.
As per schedule 3 of CGST ACT 2017, Services by an employee to the employer in the course of or in relation to his employment will be neither a supply of goods nor a supply of services.
The above-mentioned entry only includes service and not goods. Further, the entry only covers those services provided by an employee to the employer and not vice versa.
Therefore, services such as canteen services by the employer to employees may possibly be regarded as a supply of service under Gst.
Further to this Entry 2 of schedule 1 cover the aspect of related party transaction. As per the same provisions, if activities of canteen services are made without consideration then also it shall be treated as supply.
So in my professional opinion, canteen service should come under the definition of outward supplies and GST is applicable where any service is provided by an employer to employees with or without any consideration.
In the above case, the supplier and recipient is a related party so valuation shall be made as per rule 28 and 30 of CGST rules.
Canteen services are covered under block credit under section 17(5) but in above mention case it is a statutory requirement under section 46 of factory acts 1948, ITC on inward credit is available.
Furthermore, as per section 31(2) of CGST act monthly, one invoice shall be raised.