Canteen services provided by an employer to its employees fall under the scope of GST because the employer recovers the amount from its employees and such services are provided in the course or furtherance of business. Here is how such services get covered under the scope of GST.
What does supply mean?
Supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Schedule-I: Activities to be treated as supply even if made without consideration
Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business.
Schedule-III: Activities or transactions which shall be treated neither as a supply of goods nor a supply of services
Services by an employee to the employer in the course of or in relation to his employment. However, services provided outside the ambit of employment for consideration would qualify as supply.
Some important Facts
The company provides canteen facilities to its employees as per the Factories Act, 1948. Section 46 stipulates that any factory employing more than 250 workers is required to provide canteen facilities to its employees. Since this is mandatory, ITC of canteen services provided to employees should be available in view of the proviso to section 17(5)(h) of the CGST Act. This clause is inserted vide CGST (Amendments) Act, 2018 w.e.f. 01-02-2019.
On the other side, if the Company recovers some amount from employees for such services. Therefore, it becomes a part of supply & assessee is liable for tax payment.
Clarification: As per Schedule-III, services by an employee to the employer in course of or in relation to his employment are neither supply of services nor supply of goods. However, In the above case, service is provided by the employer, not by employee & also it is outside the ambit of employment. Therefore, such transaction is not covered under schedule III & It shall be treated as supply.
Note: Taxable value for the purpose of GST is the open market value of such services.
In simple words, the company is providing services to employees for consideration in the course or furtherance of business and it falls under the definition of supply. Therefore, it will create a tax liability for the company.
For the purpose of ITC, section 17(5)(h) of CGST (Amendments) Act, 2018, the company is eligible for taking ITC on inputs used for providing such canteen services.
Alternatively, the Company can pay GST @5% on canteen services without taking ITC on inputs of such services. However, this rate is under dispute. Therefore, it is advisable to charge GST @18% & take ITC on inputs.