No GST applicable on canteen expenses collected from employees: AAR

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Canteen expenses collected from employees will henceforth be outside the scope of the Goods and Services Tax, The Economic Times has reported.

The Gujarat Authority for Advance Ruling (AAR) has ruled that GST does not apply to the money collected from employees for canteen costs and paid to the canteen service provider.

The Economic Times quoted tax experts as saying that this has been a point of contention among enterprises that are required by law to provide food canteens.

The AAR held that GST cannot be charged in circumstances when the company is not earning any profit on the money and is only acting as an intermediary.

In the earlier two AAR rulings, a different view was taken by two different authorities.

Canteen services

The AAR had held that GST is not chargeable on such an amount in the case of Tata Motors, but had taken a different view in the case of Amneal Pharmaceuticals.

In 2018, the government announced that banks could claim life insurance premiums paid by security guards as an input tax credit, hospitals could claim medical insurance premiums paid by nurses as an input tax credit, and businesses could claim canteen fees charged to labourers as an input tax credit.

The input tax credit is a system that allows a firm or a bank to deduct a portion of the GST paid on input services or raw materials from future tax liabilities.

However, the government clarification also meant that in some situations, GST might be charged to canteen prices. The exception indicates that any legally compelled service given by any employer will be eligible for an input tax credit, the report quoted tax experts as saying.

The new AAR decision goes even further. According to the AAR judgment, any service offered by an employer without the purpose to profit shall be exempt from GST.

The Economic Times quoted Rakesh Nangia, managing partner of Nangia Andersen India, as saying that the supply of canteen services for employees and the payment of GST on those services has been a topic of debate in the industry, with numerous judgments in favour of and against the applicant.

“In the backdrop of differing opinions from various authorities, appropriate clarification from the Central Board of Indirect Taxes and Customs may put to rest this issue and enable the industry to adopt a correct clear view,” he added,