GST on Canteen Deductions for Employees and Contract Workers
The Gujarat Authority for Advance Ruling decided that canteen deductions from direct employees are not taxable, but deductions from contract workers are.
- Ruling
- ADVANCE RULING NO. GUJ/GAAR/R/2025/49 dated 19.11.2025
- Dated
- 19 Nov 2025
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Deductions from direct employees are not a supply under GST.
- Recoveries from contract workers are considered a taxable supply.
- The ruling relies on the existence of an employer-employee relationship.
In short
Zydus Hospira Oncology Private Limited asked if recovering canteen costs from employees and contract workers counts as a taxable supply under the Goods and Services Tax (GST) Act.
What has changed
How it worked before
Businesses were often unsure if recovering any portion of canteen costs from staff or contractors triggered a GST liability.
What has changed
The authority ruled that because direct employees have an employer-employee relationship, their canteen deductions are not a supply. However, since the company does not have that same relationship with contract workers, recovering costs from them is a taxable service.
Who this affects
Companies that provide canteen facilities to both direct staff and third-party contract workers.
An example
A manufacturing firm provides meals to its staff and security guards hired through an agency. The firm deducts a small amount from the guards' pay for these meals. Based on this ruling, the firm would likely need to pay GST on the amounts recovered from the security guards, even though the deductions from their own staff remain exempt.
What you should do
This ruling only applies to the company that asked for it. If your business has a similar setup, you should consult your tax advisor to see if your specific contracts create an employer-employee relationship that might exempt your deductions.
If you do nothing
If you assume this ruling applies to you and stop paying GST on contract worker deductions, you risk a tax demand from your local officer. You may be required to pay the unpaid tax plus interest and penalties if the department disagrees with your interpretation.
The terms explained
- Supply
- Any form of sale, transfer, or exchange of goods or services made for a price that attracts GST.
- Employer-employee relationship
- A formal legal connection where a company has direct control and supervision over a worker, which often exempts certain benefits from tax.
- Taxable supply
- A transaction that is subject to GST under the law.
The ruling in detail
Authority for Advance Ruling
M/s. Zydus Hospira Oncology Private Limited
ADVANCE RULING NO. GUJ/GAAR/R/2025/49 dated 19.11.2025 · Gujarat
Questions before the authority
- Whether subsidized deduction made by the applicant from the employees and workers towards canteen facility provided by the canteen service provider at the canteen facility would be considered as a 'supply' by the applicant under the provisions of Section 7 of the CGST Act, 2017 and GGST Act, 2017.
- In case answer to above is yes, Whether GST is payable on the amount recovered as deduction from the salaries of employees to worker contractors or an open market value?
Facts
The applicant is a pharmaceutical company that provides canteen facilities to its employees and contractual workers through a third-party canteen service provider. The applicant recovers a portion of the meal costs from the employees' salaries and from the payments made to the contractors for the contractual workers. The applicant treats the balance amount as a staff welfare expense.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether subsidized deduction from employees is a supply | No Not considered a supply under Section 7 of the CGST Act |
| Whether subsidized deduction from contractual workers is a supply | Yes Considered a supply under Section 7 of the CGST Act |
| Whether GST is payable on the amount recovered from contractual workers | Yes GST is payable on the amount recovered as deduction from the payment to the worker's contractor |
The authority held that the subsidized deduction from employees does not constitute a 'supply' under the CGST Act. However, the recovery of amounts from contractual workers for canteen services is considered a 'supply' and is liable to GST.
Reasoning
The authority relied on the **employer-employee relationship** to exclude the deduction from employees from the scope of supply, citing Schedule III of the CGST Act and CBIC Circular No. 172/04/2022-GST. Regarding contractual workers, the authority determined that no such relationship exists, as the applicant has no control or supervision over them. Consequently, the recovery of canteen charges from contractual workers is treated as a **taxable supply** of service, incidental to the applicant's business, under Section 7 of the CGST Act.
Provisions relied on
- Section 7 of the CGST Act, 2017
- Section 2(17) of the CGST Act, 2017
- Section 2(31) of the CGST Act, 2017
- Section 2(83) of the CGST Act, 2017
- Section 46 of the Factories Act, 1948
- Schedule III of the CGST Act, 2017
- CBIC Circular No. 172/04/2022-GST dated 06.07.2022
For the practitioner
This ruling clarifies that while canteen deductions from direct employees are exempt from GST as perquisites, similar deductions from **contractual workers** are taxable. Practitioners should note that the authority strictly interprets the **employer-employee relationship** based on the terms of the contract with the service provider. It confirms that the applicant's lack of administrative control over contractual workers makes the canteen facility a taxable supply in that specific context.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/49_zydus_hospira_oncology_pvtltd_compressed.pdf
Legibility of the scan, as read: high.
Prepared 14-10-2026.
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