Maharashtra AAR Holds GST Payable on Employee Canteen and Transport Recoveries, Not on Notice Pay Recoveries

Background and Issues:
The applicant, Thyssenkrupp Industries India Pvt. Ltd., sought advance rulings on whether GST is payable on (1) recoveries from employees for subsidized canteen facilities, (2) recoveries for bus transportation facilities, and (3) notice pay recoveries from employees not serving the full notice period. The applicant argued that such recoveries are not in the course or furtherance of business and thus should not be treated as taxable supplies under the CGST Act, 2017.

Canteen and Transportation Recoveries:
The Authority examined the statutory framework, particularly Section 7 and Section 2(17) of the CGST Act, which define “supply” and “business.” The AAR reasoned that while the applicant’s principal business is manufacturing and supply of industrial plants, the provision of canteen and transportation services to employees is incidental or ancillary to the main business. The Authority emphasized that the definition of “business” is inclusive and covers activities that support or are necessary for the principal activity, including those required by law such as canteen facilities under the Factories Act.

The AAR distinguished between two transactions: (i) the supply of services by third-party providers to the employer (applicant), and (ii) the supply of those services by the employer to its employees. The Authority found that the applicant, by recovering a portion of the cost from employees, is supplying these services for consideration, even if subsidized. Thus, the recoveries constitute taxable supplies under Section 7(1) of the CGST Act.

The Authority also referred to CBIC Circular No. 172/04/2022-GST, which clarifies that perquisites provided by employers to employees under contractual agreements are not subject to GST. However, the AAR held that only the value of the perquisite (i.e., the portion not recovered from employees) is exempt, while the amount actually recovered from employees is subject to GST. The ruling further clarified that the exemption for perquisites does not extend to amounts recovered from employees, which are considered consideration for supply.

Notice Pay Recoveries:
On the issue of notice pay recoveries, the AAR relied on CBIC Circular No. 178/10/2022-GST, which states that amounts recovered from employees for not serving the notice period are not consideration for tolerating an act, but rather penalties to deter premature resignation. The Authority concluded that such recoveries do not constitute a taxable supply and are not liable to GST.

Final Ruling:
The Maharashtra AAR ruled as follows:
1. GST is applicable on amounts recovered from employees for canteen and bus transportation facilities. The taxable value is limited to the amount recovered from employees, and no input tax credit (ITC) is available on such supplies.
2. GST is not applicable on notice pay recoveries from employees who do not serve the full notice period.

This decision provides clarity on the GST treatment of common employer-employee transactions, affirming taxability on recoveries for facilities but excluding notice pay recoveries from the GST ambit.