Mumbai: The GST-Authority for Advance Rulings (AAR), Tamil Nadu has held that a nominal cost recovered from employees for providing canteen facilities is subject to goods and services tax (GST). This has turned the tables as, in the past, several benches of the AAR had held that nominal sums recovered from employees are not subject to GST. 

In the case of Kothari Sugars and Chemicals, which provided such facilities at two of its factories, the AAR bench held, “The applicant has established canteen facilities as mandated under section 46 of the Factories Act, 1948, and supplies food at a nominal cost either directly or through a third-party vendor. The supply of food by the applicant is a ‘supply of service’ to employees as the same is not part of the employment contract.” In its order, the AAR bench added that the nominal cost, which is recovered from the salaries of the respective employees as deferred payment, is ‘consideration’ for the ‘supply’ and GST is liable to be paid. 

Kothari Sugars and Chemicals pointed to several past rulings such as those made in the case of Cadila Healthcare or Tata Motors (both reported by TOI), which had held that the nominal collection from employees who are availing of subsidised food in the canteen would not be a supply subject to GST. In this context, the TN bench pointed out, “Prima facie, advance rulings extended to one applicant cannot be generalised and applied in all cases.” Further, it said that, in this case, the provision of canteen facilities was not under an employment contract but mandated under the Factories Act.By and large, tax experts are treating this ruling as an aberration. Sunil Gabhawalla, founder of a CA firm, told TOI, “The ruling may not call for amendment of long-term employment contracts. In any case, the stakes involved are very minuscule to deserve a tinkering of employment contracts.”