Kerala firms with canteens to now pay GST on employee food bills

Employers in Kerala who provide canteen facilities to employees will now have to pay the goods and services tax (GST) on food and beverages the latter buy. Appellate Authority of Advanced Ruling (AAAR) in the state has upheld the Advance Authority for Ruling (AAR) order to impose the tax.

Experts said this will force companies to re-evaluate what facilities they provide employees. The central government had earlier said any service made by an employer to an employee, as part of a contractual agreement, would not come under the GST ambit.

“It is critical for companies to evaluate what benefits they can provide employees and what the GST implication of these will be,” said Harpreet Singh, partner, indirect taxes, KPMG.

Earlier, footwear maker Caltech Polymers had approached the Kerala AAR to find out if there would be a GST on money charged from employees for canteen facilities — even if it was without any profit.

The company had argued this could not be treated as part of its business.

The AAR had held that GST was applicable to money employees paid for food and beverages they bought at the company canteen. Then, Caltech Polymers moved the AAAR, Kerala.

The AAAR ruled: “The supply of food items to the employees for a consideration in the canteen run by the appellant company would come under the definition of supply and would be taxable under the GST.” It said Caltech Polymers had admitted it was charging employees — albeit without a profit — for food in their canteen, and this would come under the definition of “supply” in Section 7(1)(a) of the GST Act, 2017.

NEW RULES

• Companies providing canteen services on no profit basis have to pay GST on expenses recovered from employees

• Kerala’s appellate authority upholds order by authority for advance ruling 

• Judgments are state-specific, but have persuasive value in other states

• Experts say providing food and beverages was like providing laptops and it should therefore not be under the GST ambit

In a press release on July 10 last year, the Centre had dealt with the subject of taxability of perquisites. It had clarified that any supply made by an employer to its employee, as part of contractual agreement, would not be subjected to the GST.

Experts said providing food and beverages at the canteen was like providing laptops to employees and should therefore not be under the GST ambit.