GST Applicable on Deduction made on Employees’ Salary for Canteen Facility: AAR*

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By Fathima Karama AM – On December 12, 2022 7:11 pm

The Authority for Advance Ruling (AAR) Karnataka has ruled that the GST would be applicable on the deduction made on the employees ‘salary for the canteen facility.

The applicant Federal Mogul Goetze India Limited was the manufacturer of automobile parts and had provided a canteen facility to its employees with the help of Mithra Priya Enterprises. The cost of meals provided was deducted by the applicant from the salary of the employee. The applicant had sought advance ruling on whether the GST would be applicable on the deduction made on the salary of the employee, that is whether it would amount to supply under Section 7 of the CGST Act 2017.

Neethu James, on behalf of the applicant submitted that the canteen was formed only because of the mandatory provision without any legal intention to form contractual relationship and therefore would not create supply. She further referred to R.J Tolsama vs Inspector, which held that the intention to form a contract with the employees which was the basic requirement to form supply was not met and GST would not be applicable.

  The authority of MP Ravi Prasad (state Member) and Kiran Reddy T (Central Member) observed that Providing canteen facility to the employee were the legal requirement of the applicant and were not an option to the applicant and the contractual relationship between employee and applicant was also established by the authority as meal price was already pre decided and charged. The authority further observed that the canteen facility also had helped the progress of the company by saving meal time for employees.

The authority has ruled that the subsidized deduction made by the applicant on the canteen facility would be considered as supply under Section 7 of CGST Act 2017 and GST would be applicable.To Read the full text of the Order CLICK HERE

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