It is a case study regarding, whether Food provided by employer to their employee shall be included in Supply of Goods or not?

1. CASE STUDY ON IN RE: CALTECH POLYMERS
PVT. LTD. 2018 (4) TMI 582
SUBJECT: INDIRECT TAX
Class: BA LLB Vth Year
Submitted by:
Sarrah Kaviwala

2. “EMPLOYEES WHO BELIEVE THAT MANAGEMENT IS CONCERNED
ABOUT THEM AS A WHOLE PERSON- NOT JUST AN EMPLOYEE-
ARE MORE PRODUCTIVE, MORE SATISFIED, MORE FULFILLED.
SATISFIED EMPLOYEES MEAN SATISFIED CUSTOMERS, WHICH
LEADS TO PROFITABILITY.”
SAID ANNE M. MULCAHY, FORMER CEO OF XEROX
CORPORATION.
But the decision of the Kerala Advance Ruling Authority
in its order No. CT/531118-C3 Dated 26/03/2018 is quite
contrary to the above concept which wrongly assumes
that the employee is getting benefited out of subsidized
lunch instead of the employer. Let us analyse this ruling:

3. MATTER OF THE CASE
• M/s. Caltech Polymers Pvt.
Ltd., Malappuram in Kerala
(applicant/company) has
preferred an application for
Advance Ruling on whether
recovery of food expenses
from employees for the
canteen services provided by
the applicant comes under
the definition of outward
supplies and are taxable
under Goods & Services Act.

4. FACTS OF THE CASE
• Applicant is incurring the canteen running expenses
and are recovering the same from its employees
without any profit margin.
• As per the provision of Factories Act, 1948, any
factory employing more than 250 workers is required
to provide canteen facility to its employees.

5. THE APPLICANT DETAILED WORK INVOLVED THE
FOLLOWING ACTIVITIES AS FOLLOWS:
a. The space for the canteen is provided by the company, inside the factory
premises.
b. The cook is employed by the company and is paid monthly salary.
c. The vegetables and other items required for preparing the food items are
purchased by the company directly from the suppliers.
d. The number of items, the canteen facility is availed, each day, by the
employees is tracked on a daily basis.
e. Based on the details above, the expenditure incurred by the company on the
vegetables and other items required for preparation of food is recovered from
the employees, as a deduction from their monthly salary, in proportion to the
foods consumed by them.
f. The company does not make any profit while recovering the cost of the food
items, from the employees. Only the actual cost incurred for the food items is
recovered from the employees.

6. FACTS OF THE CASE
• The company is of the opinion that this activity does not fall within the scope of
‘supply’, as the same is not in the course of furtherance of its business. The
company is only facilitating the supply of food to the employees, which is a
statutory requirement and is recovering only the actual expenditure incurred in
connection with the food supply, without making any profit.
• The term “business” is defined in Section 2(17) of the GST Act, which reads like
this:- ‘business’ includes:
a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or
any other similar activity, whether or not it is for a pecuniary benefit.
b) Any activity or transaction in connection with or incidents or ancillary to sub-
clause (a); from the plane reading of the definition of ‘business’, it can be
safely concluded that the supply of food by the applicant to its employees
would definitely come under clause (b), as a transaction incidental or ancillary
to the main business.

7. FACTS OF THE CASE
• Schedule II to the CGST Act, 2017 describes the activities to be treated as
supply of goods or services. As per clause 6 of the Schedule, the
following composite supply is declared as supply of service:- “supply, by
way of or as part of any service or in any other manner whatsoever, of
goods, being food or any other article for human consumption or any
drink, where such-supply or service is for cash, deferred payment or
other valuable consideration.” Even though there is no profit as claimed
by the applicant on the supply of food to its employees, there is “supply”
as provided in section 7(1)(a) of the CGST Act, 2017. the applicant would
definitely come under the definition of “Supplier” as provided in section 2
of the CGST Act, 2017.
• Since the applicant recovers the cost of food from its employees, there is
consideration as defined in section 2(31) of the CGST Act, 2017.

8. RULING BY AAR (AUTHORITY FOR ADVANCE
RULING)
• In the light of the aforesaid facts, AAR
hereby clarified that recovery of food
expenses from the employees for the
canteen services provided by company
would come under the definition of
‘outward supply’ as defined in section
2(83) of the Act, 2017, and therefore,
taxable as a supply of services under
GST.
• From this ruling, it is clear that if the
food expenses would not have been
charged from the employees, it is not
subject to GST. But as per Schedule I
of the CGST Acct, 2017, if the goods
or services are supplied without
consideration to the related person
or distinct person, even though the
same shall be treated as supply.
Therefore this transaction is otherwise
also taxable.

9. APPEAL TO AAAR (AUTHORITY OF
APPELLATE ADVANCE RULING)
• Aggrieved by the Advance Ruling, an appeal was preferred before the AAAR. It
was contended that if an activity is not in the course or in furtherance of one’s
business, it does not constitute supply unless it is an import of service as
mentioned under section 7(1) of the CGST Act, 2017. Further, supply of
subsidized food was not its business and that it would not constitute a ‘supply’
u/s7 of the CGST, Act, 2017.
• As per the requirement of Factories Act, 1948 for an industry having more then
250 employees, canteen facility shall be provided. To comply with the statutory
requirements, the company provided food to the employees and cash is
recovered from their salary

10. RATIO DECIDENDI OF AAAR (AUTHORITY
OF APPELLATE ADVANCE RULING)
• The AAAR observed that crucial issues involved are that of ‘consideration’ and
‘supply’. It held that in spite of the absence of any profit, the activity of supplying
food and charging price for the same from the employees would surely come
within the definition of ‘supply’ as provided in section 7(1)(a) of the GST Act,
2017. Consequently, the appellant would definitely come under the definition of
‘supplier’ as provided in sub-section(105) of section 2 of the GST Act, 2017.
Moreover, since the appellant was recovering the cost of food items from their
employees, there was ‘consideration’ as defined in section 2(31) of the GST Act,
2017.

11. FINAL RULING OF AAAR (AUTHORITY
OF APPELLATE ADVANCE RULING)
• In conclusion, the appeal was
dismissed and advance ruling
confirmed. The supply of food
items to the employees for
consideration in the canteen run by
the appellant company would
come under the definition of
‘supply’ and would be taxable
under GST.