This guidance note seeks to provide a comprehensive understanding of the Goods and Services Tax (GST) implications for canteen services offered by employers to their employees, based on the Authority for Advance Rulings (AAR), Gujarat, in the case of Suzuki Motor Gujarat (P.) Ltd. It explores GST liability, differences in service provision to permanent and temporary employees, and Input Tax Credit (ITC) eligibility issues.
1. Introduction to the Case
The AAR Gujarat's decision in Suzuki Motor Gujarat (P.) Ltd. addresses several aspects of GST implications on canteen services provided to employees, distinguishing between permanent and temporary staff and detailing the eligibility for Input Tax Credits on related expenses.
2. GST on Canteen Services for Permanent Employees
Situation:
Employers provide canteen facilities to their permanent employees, covering 70% of the costs, with employees bearing the remaining 30%.
Ruling:
The AAR determined that the cost recovered from permanent employees for canteen services does not attract GST. This is because the transaction is not considered a 'supply' under Section 7 of the GST law, in alignment with Notification 172/04/2022-GST.
3. GST on Canteen Services for Temporary Employees or Those on Deputation
Situation:
Canteen services are also provided to employees of SMC on deputation, employees of MSIL on business travel, and temporary employees, including leased employees.
Ruling:
For temporary employees or those on deputation, the provision of canteen services is taxable under GST. This supply is deemed incidental or ancillary to the main business and thus qualifies as an 'outward supply,' making it liable to tax.
4. Input Tax Credit (ITC) Eligibility
Canteen Services:
The ITC on GST charged by the canteen service provider for facilities provided to employees is not permissible, as per Section 17(5)(b)(i), which restricts ITC on food and beverages.
Kitchen Utensils and Equipment:
ITC is also not available for GST on kitchen utensils and equipment provided to the CSP, in accordance with Notification No. 13/2017-Central Tax (Rate).
Overview Table
| Aspect | Permanent Employees | Temporary Employees/On Deputation |
|---|---|---|
| GST on Canteen Services | Not taxable as it does not constitute a 'supply'. | Taxable as it constitutes an 'outward supply'. |
| Input Tax Credit (ITC) | - ITC not available for food and beverages. | - ITC not available for food and beverages. |
| - ITC not available for kitchen utensils and equipment. | - ITC not available for kitchen utensils and equipment. |
5. Conclusion and Best Practices
The AAR's rulings clarify the GST treatment for canteen services provided by employers, highlighting important considerations for compliance and tax optimization. Employers must differentiate between services provided to permanent versus temporary employees or those on deputation, recognizing the taxable supply in the latter scenario. Furthermore, it is crucial to note the restrictions on ITC claims related to these services and related inputs.
Employers are advised to reassess their practices regarding canteen services to ensure alignment with the guidelines and legal precedents established by the AAR, Gujarat, adjusting their GST reporting and ITC claims as necessary.
