• Notification Date: 08-01-2022
• Notification No: N/A

GST is not applicable on Canteen and Transportation Facilities provided to Employees at Subsidized Rates in Factory and Office: AAR

According to the latest rule of the Maharashtra Authority of Advance Ruling (AAR), the GST is not payable on the recoveries made from the employees that they pay for the canteen facility at subsidized rates in the factories and offices.

An innovative provision has been initiated by the Appellant, M/s Emcure Pharmaceutical Company. The company has started developing, manufacturing, and marketing pharmaceutical products along with providing canteen and bus transportation facilities to its employees. This provision is a part of the company package that they offer to their employees and it is mentioned in the letter of employment along with the terms and conditions following the HR Policy.

The applicant has made a query regarding the payment of GST on the recoveries made from the employees towards the canteen and bus transportation facilities offered to them at subsidized rates in the offices and factories. He has also if the charges apply to the mentioned facilities then whether he is exempted from the same under Notification No. 12/2017 Central Tax (Rate). He also asked whether the GST is applicable on the notice pay recoveries. He has enquired if GST applies on the employees for not serving the full notice period. The Coram of Rajiv Mangoo and T.R Ramnani noted that the employee has agreed to pay the exact amount of his monthly salary while opting to resign from the company. In that case, the company has no objection, as the employee has acted as per the terms and conditions of the contract. Hence, there is no issue of forbearance or tolerance. Also, an employee has the right to resign at any moment during his employment period if he pays the notice period salary as compensation. In that case, the company cannot oppose or disapprove of his application. The employer does not have any activity in such a situation.

According to Sec. 2(31) (b) of the CGST Act, 2017, an act of consideration or forbearance arises only if there is a breach of contract. But in this case, there is no such breach of contract or forbearance as the employee has paid the compensation amount.

According to the AAR, GST would not be applied on the recoveries made on the canteen facilities provided to the employees at a subsidized rate at the office or factory. GST will also be excluded from the recoveries made from the employees for bus transportation facility. The employees are also not entitled to pay the GST amount on the recoveries of notice pay for not serving the full notice period.