Canteen at plant, Goods and Services Tax - GST

[POLYPLEX CORPORATIONLTD]

We have an canteen at plant having more than 250 Employees & will pay canteen contractor full amount. We are providing subsidized foods to employees i.e. 50% will recover from their salary.

Question 1 - Whether We pay GST on 5% on the recovery amount from employees salary or GST will be payable by us on full Value of Canteen Contractor Invoice?

2. If we pay gst full value on contractor Bill & don’t recover anything from employees then ITC is eligible?

Posts / Replies

[Madhavan iyengar]

Answering the query in parts

effective from 01/02/2019 as per cgst amendment act if it is obligatory for an employer to provide food and beverage to its employees under any law for time being in force

so if factories act prescribes that food / beverage is required to be provided to employees then the ITC credit can be availed by the employer extract of cgst amendment act below:

17(5) (b) the following supply of goods or services or both- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”

Recovery from employees - treatment

Question 1 - Whether We pay GST on 5% on the recovery amount from employees salary or GST will be payable by us on full Value of Canteen Contractor Invoice?

reply:

If we are recovering from salary some amount then also we need to discharge gst on market value as employer employee is a related party hence we can discharge the gst on the market value ie the bill of canteen service provider @18% . ( why not at 5% the reason being we are not in that business hence 18% rate)

2. If we pay gst full value on contractor Bill & don’t recover anything from employees then ITC is eligible?

If nothing is recovered then there is no consideration but employer / employee being related party then even without consideration the taxability would arise in my view experts may differ on t his

however as mentioned by you that you are covered by factories act then ITC can be claimed from 01/02/2019 but as a caution please get it confirmed from your HR and labour law consultant that factories act applies to your company and it is mandatory to provide food to employees otherwise this can lead to litigation.

[Mahir S]

Where an employer decides to recover some amount from employees towards foods provided in the canteen i.e. if there is an outward supply in the hands of the employer, certainly the amended Section 17(5) of the CGST Act, with the rate notification No.11/2017 – C.Tax as amended by Notification No. 13/2018 – CT will become applicable.

Then as per the conditions laid down in the said notification, the employer does not have any choice but to apply GST @5% on such recovery and forego the corresponding credit.

[Mahir S]

Where an employer decides not to recover any amount from employees towards foods provided in the canteen i.e. when there is no outward supply in the hands of the employer, certainly the aforesaid rate notification along with conditions laid down therein will not have any aplicability and as a result the employer can avail the corresponding credit by virtue of Section 17(5)(b) w.e.f 01.02.2019.

[Spudarjunan S]

Dear Sir,

PFB the brief reply to your queries -

Issue 1 - Taxability and Valuation

If you are recovering a subsidised cost from your employees, then it amounts to supply, and employee being a related party under explanation provided in section 15 of CGST Act, the Rules come into play for valuation - Rule 28 where you to discharge GST on Open Market Value which can be your Canteen Contractor Invoice to You.

If you are not recovering anything from you employees for canteen services and providing it as a common facility to all of your employees, then you may get sheltered under press release dated 10th July 2017 regarding applicability of GST on perquisites given to employees free of cost without recovery.

Issue 2 - Input Tax Credit

W.e.f 01.02.2019, vide CGST Amendment Act, 2018 - if any of the restricted services covered in limb (b) of Section 17(5) is obligatory to the employer to provide the same to its employees under any law for the time being in force, then input tax credit in respect of such goods and/or services are available.

However, if you are recovering and paying GST on supply to employees @ 5%, the issue arises from the condition prescribed to such rate, i.e. "Provided that credit of input tax charged on goods and services used in supplying the service has not been taken" Moreover, In explanation given after the entry Sl.no.7(vi) it is stated that the rate and conditions prescribed are mandatory, which is against the principles of equity and natural justice that rates with condition can't be made mandatory. Other option available (Need to litigate) - If you want to avail ITC of your supplier's invoice, discharge GST @ 18%.

[POOJA AGARWAL]

The answers to the above queries are as under-

Scenario 1 : Where the amount is recovered from the employees towards the food supplied

In such case the activity shall be treated as outward taxable supply and GST liability has to be discharged on fair market value as per Rule 28 of CGST Rules, 2017 in as much as the employee and employer are related parties. Further as per the conditions laid down in the NN 20/2019 CT (Rate), the GST liability shall be discharged @ 5% and no corresponding input tax credit can be availed.

Scenario 2: Where no amount is recovered from the employees

When no amount is recovered from employees and the food is supplied free of cost, the same shall not be an outward taxable supply. Also as per Schedule I of CGST Act, 2017 the gifts not exceeding the value of ₹ 50,000 by an employer to employee shall not be treated as outward supply (assuming that the value of food provided doesn’t exceed ₹ 50,000/- per employee in a financial year). Hence no GST payable on such services supplied without any consideration.

Regarding admissibility of input credit, the issue is subject to legal interpretation. As per section 17(5) of CGST Act, 2017 the input tax credit of food and beverages etc. cannot be claimed; however w.e.f. 01/02/2019 as per section 17(5)(f) of the CGST Act the same shall be available where ‘it is obligatory for an employer to provide the same to it’s employees under any law for the time being in force’. That making canteen facilities available is a legal obligation under section 46 of Factories Act 1948, hence the input tax credit shall be available.

It is further advised to make these services a part of employment contract, so that it also becomes a contractual obligation in addition to the obligation under Factories Act, 1948. On being part of employment contract, these services become a part of consideration for servicers offered by employee to the employer and hence being part of salary/perquisites, not liable to GST. Press release dated 10/07/2017 issued by CBIC confirms that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. If the services are provided free of cost without any contractual obligation; it may be treated as gift hence the value of the same has be kept under ₹ 50,000/- (per employee) in a financial to avoid the GST liability.

The above reply is given as per our understanding of law and issues related to legal interpretation may be subjected to litigation. The company may take the decision on the basis of cost benefit analysis.

[POLYPLEX CORPORATIONLTD]

Thanks a lot everyone for your valuable replies.