GST on Employee Canteen Services: Tamil Nadu Advance Ruling TN/107/AAR/2023
The Tamil Nadu Authority for Advance Ruling decided that recovering subsidized canteen costs from employees is a taxable supply under GST.
- Ruling
- Advance Ruling No. 107/AAR/2023 Dated: 05.09.2023
- 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
- The company asked if recovering canteen costs from employees is a taxable supply.
- The Authority ruled that these recoveries are taxable services under the GST Act.
- This applies whether the company runs the canteen or a subsidiary does.
- The ruling rejects the view that these recoveries are non-taxable perquisites.
In short
Businesses often provide canteen facilities to employees as required by the Factories Act. The Tamil Nadu Authority for Advance Ruling (AAR) examined whether collecting a portion of the food cost from employees counts as a taxable supply of services under the Goods and Services Tax (GST) law.
What has changed
How it worked before
Many businesses assumed that recovering subsidized canteen costs from employees was a non-taxable perquisite or a simple reimbursement, rather than a commercial supply of services.
What has changed
The Authority decided that these recoveries are taxable because they are provided in the course of business. This means companies must now treat these employee contributions as taxable supplies and pay GST on them.
Who this affects
Manufacturing businesses or any company that provides canteen facilities to employees and recovers a portion of the cost from them.
An example
A factory in Chennai provides a canteen for its workers and deducts a small amount from their salaries to cover part of the food cost. Under this ruling, the factory must pay GST on the amount collected from the employees. If the factory ignores this, they may face tax demands and penalties during an audit.
What you should do
This ruling only binds the company that asked and its specific tax office. If you are in a similar situation, you should consult your tax advisor to evaluate your specific canteen arrangement, as other states may have different views.
If you do nothing
If you assume this ruling applies to you and stop paying tax, or conversely, if you ignore the risk and fail to pay when your local officer expects it, you may face a tax demand. Tax officers can issue notices for unpaid tax, interest, and penalties. Relying on a ruling that does not apply to your specific case can lead to costly legal disputes.
The terms explained
- Furtherance of business
- Any activity done in connection with or incidental to the main business operations.
- Consideration
- Any payment or value received in return for providing goods or services.
- Supply
- Any form of sale, transfer, or exchange made for a payment in the course of business.
The ruling in detail
Authority for Advance Ruling
M/s. Sundaram Clayton Limited
Advance Ruling No. 107/AAR/2023 Dated: 05.09.2023 · Tamil Nadu
Questions before the authority
- Whether recovery of subsidized value from employees for providing canteen facility would amount to 'supply' under the CGST Act
- Whether the recovery would attract Goods and Services Tax (GST), under the following two models: (i) Canteen operated by the Applicant within the factory premises (ii) Canteen run by Applicant's subsidiary company operating within common premises for which the subsidiary company recovers charges from the Applicant.
Facts
The applicant is a manufacturer of die-casting parts that provides canteen facilities to its employees in compliance with the Factories Act, 1948. The applicant operates two models: one where they run the canteen directly, and another where a subsidiary company provides the service. In both models, the applicant recovers a portion of the food costs from employees at subsidized rates.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether recovery of subsidized value from employees for providing canteen facility amounts to 'supply' and attracts GST | Yes, it amounts to 'supply' and GST is to be levied on the amount recovered from employees. Applicable to both models: canteen operated by the applicant and canteen run by a subsidiary. |
The Authority ruled that the recovery of subsidized amounts from employees for canteen services constitutes a supply of services under the GST Act. Consequently, the applicant is liable to pay GST on the amounts recovered from employees for the provision of these canteen facilities in both models.
Reasoning
The Authority determined that providing canteen facilities is an activity in the **furtherance of business** and is mandated by the Factories Act. It held that the recovery of charges from employees constitutes **consideration** for the supply of services under Section 7(1)(a) of the CGST Act. The Authority rejected the applicant's argument that this was a non-taxable perquisite, stating that the exemption for perquisites only applies when the service is provided free of cost. Furthermore, it held that the applicant cannot claim to be a 'pure agent' in the subsidiary model because the service is provided by the applicant to the employees.
Provisions relied on
- Section 7(1)(a) of the CGST Act, 2017
- Section 2(17) of the CGST Act, 2017
- Section 2(83) of the CGST Act, 2017
- Section 2(105) of the CGST Act, 2017
- Section 15 of the CGST Act, 2017
- Schedule II of the CGST Act, 2017
- Section 46 of the Factories Act, 1948
For the practitioner
This ruling clarifies that any recovery of costs from employees for canteen services, even if subsidized, is **taxable under GST**. It settles the debate against the view that such recoveries are merely non-taxable perquisites or reimbursements. Practitioners should note that this ruling is specific to the Tamil Nadu AAR and contradicts some other state-level rulings on the same subject.
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/107_sundram_clayton.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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