Premise of Advance Ruling Judgment in the case of Caltech Polymers Pvt. Ltd., Kerala -
1. The said Co. maintained its canteen on its own i.e. purchase of food/cooking and serving was directly managed by the Co. on a direct cost basis.
2. Further such cost per employee was deducted directly from the salary of the employees without charging any margin.
3. Advance Ruling Held – Supply of food in Canteen by the employer to employee is covered under the definition of supply. [Sec 7(1)(a) of the CGST Act]
4. The Canteen facility is a business activity carried by the co. ancillary to its main business activity i.e. manufacturing. [being taxable under Schedule II Clause 6 of CGST Act]
5. Cost recovered from the employees is covered under the term consideration. [under Section 2 (31)]
Hence, the recovery of expenses/cost per meal from employees is taxable under GST.
Review of GST liability in view of the above ruling
1. Services by an employee to the employer in the course or in relation to the employment is exempt from GST liability [As per Schedule III Clause 1.]
2. However, no such exemption is being provided for the supply of services from an employer to an employee.
3. Further, the relationship by an employer and employee is deemed to be of the related person, warranting for valuation of supply to be at open market value or services of like kind [As per Rule 28 of CGST Rules].
4. Hence, from the above inference, the Dept. may propose to levy GST on the fair/open market value of such canteen services per employee and not at cost recovered from its employees.
Applicability/Impact of Caltech’s Advance Ruling on Other Assessees
1. Most of the Companies provide canteen facility to its employees in its manufacturing plants (covered under the Factories Act) through registered Catering Vendors wherein a fixed rate per meal per employee is paid by the Companies to the Vendor, with or without a minimum pax guarantee which is already subject to GST.
2. Herein the Co. recovers a cost or part of the cost (say of only Rs.100 per month) from its employees through a deduction from its monthly salary.
3. In this case, the supply of food is made to by Vendor to employees and not by the Co. itself as in case of Caltech.
4. Hence, the premise of advance ruling i.e. supply of canteen services from employer to an employee cannot be directly applied herewith.
5. However, the applicability of GST on the cost Rs.100/month recovered from each employee can be a subject to dispute.
6. Notwithstanding the above, the captioned Advance Ruling is applicable and binding on the party who has sought such Advance Ruling.
7. But, without a doubt, the same opens the Pandora’s Box of disputes which assessees shall encounter in future. i.e. the Dept. may dispute our contention and may levy GST on the open market value of food supplied to each employee since July 2017 to till date.