GST on Canteen Charges Recovered from Employees
The Tamil Nadu Authority for Advance Ruling decided that recovering subsidised canteen costs from employees is a taxable supply of service under GST.
- Ruling
- Advance Ruling No.108/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 this recovery is a supply of service.
- GST applies to the amount recovered from employees for canteen facilities.
In short
The company asked the Authority for Advance Ruling (AAR) if collecting money from employees for subsidised canteen food counts as a taxable supply under the Goods and Services Tax (GST) Act. The Authority decided that because the company receives money for the food, it is a supply of service, even if the company is legally required to provide the canteen.
What has changed
How it worked before
Many businesses assumed that providing canteen facilities to employees—especially when mandated by law—was a welfare activity and not a commercial supply, meaning no GST should apply to the recovered portion.
What has changed
The Authority ruled that any money recovered from employees for food is a 'consideration' for a service. This means businesses must now treat these recoveries as taxable supplies and pay GST on the amount collected from staff.
Who this affects
Manufacturing businesses or any employer that provides canteen facilities to staff and recovers a portion of the cost from their salaries or through direct payments.
An example
Imagine a textile factory in Tamil Nadu that charges employees 500 rupees per month for canteen meals. Under this ruling, the factory would need to pay GST on that 500 rupees. If the factory owner asks if they can stop paying this tax, this ruling suggests the answer is no, as the recovery is considered a taxable service.
What you should do
This ruling only applies to the specific company that asked the question. If you are in a similar position, do not automatically change your tax filings; consult with your tax advisor to see if this interpretation aligns with your specific circumstances and the current stance of your local tax office.
If you do nothing
If you assume this ruling applies to you and stop paying tax, or conversely, start paying tax based on this ruling without checking your own position, you risk non-compliance. A tax officer in your state may hold a different view, leading to potential penalties or interest charges. Always seek professional advice before changing your tax treatment based on a ruling issued to another company.
The terms explained
- Supply of service
- Any activity where a business provides something to another party for a payment, which then becomes subject to GST.
- Consideration
- Any payment or money received in return for providing goods or services.
- Advance Ruling
- A formal decision given by tax authorities to a specific business to clarify how tax laws apply to their particular situation.
The ruling in detail
Authority for Advance Ruling
M/s. Sundaram Clayton Limited
Advance Ruling No.108/AAR/2023 Dated:05.09.2023 · Tamil Nadu
Questions before the authority
- Whether recovery of subsidised value from employees for providing canteen facility would (a) amount to 'supply' under the CGST Act and (b) whether the recovery would attract GST?
Facts
The applicant operates a factory with over 250 workers and is mandated by the Factories Act, 1948 to provide canteen facilities. The applicant provides food to employees at concessional rates, recovering a portion of the cost from them while bearing the remaining cost. The applicant contends that this recovery is not a supply of services but a reimbursement of costs incurred for a statutory obligation.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether recovery of subsidised 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. The ruling applies specifically to the amount recovered from employees. |
The Authority ruled that the recovery of subsidised value from employees for providing canteen facilities amounts to a supply of services under the CGST Act. Consequently, the amount recovered by the applicant from its employees is liable to GST.
Reasoning
The Authority determined that the provision of food by the employer to employees for a consideration constitutes a supply of service under Section 7(1)(a) of the CGST Act, 2017. It held that the recovery of charges from employees is a 'consideration' as defined in Section 2(31) of the CGST Act. The Authority distinguished this from perquisites excluded from GST, noting that the circulars regarding perquisites apply to services provided free of cost, whereas here, a recovery is made. Therefore, the activity is considered a **supply of service** in the course or furtherance of business.
Provisions relied on
- Section 7(1)(a) 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
- Schedule II of the CGST/SGST Act, 2017
- Circular No.172/04/2022-GST dated 06.07.2022
For the practitioner
This ruling clarifies that any recovery of canteen charges from employees, even if subsidised, is subject to GST. It serves as a warning to employers that such recoveries are treated as a **taxable supply of service**. Practitioners should note that this ruling is binding only on the applicant and contradicts other AAR rulings that have held such canteen recoveries to be non-taxable.
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/108_sundram_clayton.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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