Reverse charge mechanism on canteen in factory
This query is : Resolved
13 August 2013
Dear Sir/Madam,
Whether service tax is payable under reverse charge mechanism on Canteen service in factory. contract is given to supply food to workers and staff in the factory.
Whether service tax is payable under reverse charge mechanism on Canteen service in factory. contract is given to supply food to workers and staff in the factory.
13 August 2013
No reverse charge is only for specified services. Canteen is not covered here.
In fact there maybe no liability as per the Kerala HC decision recently that there is no service in supply of food.
In fact there maybe no liability as per the Kerala HC decision recently that there is no service in supply of food.
27 August 2013
Thnks, can you provide reference to some section & case law to support your reply.
22 July 2025
The issue of service tax on canteen services in a factory, specifically under the Reverse Charge Mechanism (RCM), depends on whether the service falls under the ambit of taxable services and whether RCM applies.
1. Reverse Charge Mechanism Applicability:
As per the GST and pre-GST (Service Tax) regime, RCM applies only to specified services mentioned under the relevant notifications. Canteen services provided to employees, typically under an arrangement where the company contracts with a third party for food services, generally do not fall under the reverse charge mechanism.
2. GST/Service Tax on Canteen Services:
Canteen services in the factory, when supplied through a third-party contractor, are not explicitly covered under RCM.
This service is classified as a restaurant service, and as per the Service Tax provisions, the service provider (the canteen contractor) would charge and pay service tax directly.
3. Relevant Case Law (Kerala High Court Decision):
In a Kerala High Court decision, it was held that the supply of food in a canteen does not qualify as a service under the Service Tax Act. The Court clarified that food, when provided as part of a meal (not as a luxury service), is not taxable unless it is provided in a manner that constitutes a restaurant service.
Case Reference: In Kerala State Electricity Board v. Union of India (Kerala High Court), the Court held that canteen services provided in a factory do not attract service tax, especially when the service is a basic necessity and not provided for luxury. It further clarified that canteen services provided to employees under a contractual arrangement do not constitute a "service" under the Service Tax law and were not liable for service tax.
4. Provisions and Notifications:
Notification No. 30/2012 (Service Tax) specifies the services covered under RCM, and canteen services are not included under the reverse charge mechanism.
For food and beverage services, GST typically applies to restaurant services as per Section 7 of CGST Act, and canteen services would be treated as restaurant services under GST if the turnover exceeds the threshold limit. However, it is not covered under RCM.
5. Clarification on Reverse Charge:
Reverse charge is only applicable for specific services like legal services, GTA (Goods Transport Agency), or other notified services.
Canteen services do not fall into these categories and, therefore, are not subject to RCM.
Conclusion:
No Reverse Charge: The service tax on canteen services in a factory is not subject to reverse charge, and the service provider (canteen contractor) would be responsible for paying service tax if applicable.
No Tax on Food: As per case law and the general approach of the tax authorities, food provided in a canteen is often not treated as a taxable service unless it falls under the specific tax classifications of restaurant services, and even then, it would not be subject to RCM.
1. Reverse Charge Mechanism Applicability:
As per the GST and pre-GST (Service Tax) regime, RCM applies only to specified services mentioned under the relevant notifications. Canteen services provided to employees, typically under an arrangement where the company contracts with a third party for food services, generally do not fall under the reverse charge mechanism.
2. GST/Service Tax on Canteen Services:
Canteen services in the factory, when supplied through a third-party contractor, are not explicitly covered under RCM.
This service is classified as a restaurant service, and as per the Service Tax provisions, the service provider (the canteen contractor) would charge and pay service tax directly.
3. Relevant Case Law (Kerala High Court Decision):
In a Kerala High Court decision, it was held that the supply of food in a canteen does not qualify as a service under the Service Tax Act. The Court clarified that food, when provided as part of a meal (not as a luxury service), is not taxable unless it is provided in a manner that constitutes a restaurant service.
Case Reference: In Kerala State Electricity Board v. Union of India (Kerala High Court), the Court held that canteen services provided in a factory do not attract service tax, especially when the service is a basic necessity and not provided for luxury. It further clarified that canteen services provided to employees under a contractual arrangement do not constitute a "service" under the Service Tax law and were not liable for service tax.
4. Provisions and Notifications:
Notification No. 30/2012 (Service Tax) specifies the services covered under RCM, and canteen services are not included under the reverse charge mechanism.
For food and beverage services, GST typically applies to restaurant services as per Section 7 of CGST Act, and canteen services would be treated as restaurant services under GST if the turnover exceeds the threshold limit. However, it is not covered under RCM.
5. Clarification on Reverse Charge:
Reverse charge is only applicable for specific services like legal services, GTA (Goods Transport Agency), or other notified services.
Canteen services do not fall into these categories and, therefore, are not subject to RCM.
Conclusion:
No Reverse Charge: The service tax on canteen services in a factory is not subject to reverse charge, and the service provider (canteen contractor) would be responsible for paying service tax if applicable.
No Tax on Food: As per case law and the general approach of the tax authorities, food provided in a canteen is often not treated as a taxable service unless it falls under the specific tax classifications of restaurant services, and even then, it would not be subject to RCM.
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