GST on Canteen Charges Collected from Employees: Analysis of In re KSB Limited (AAR Maharashtra)

1. Background of the Advance Ruling

M/s KSB Limited approached the Authority for Advance Ruling, Maharashtra under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017. The core issue was the GST impact on canteen facilities arranged for its employees through third-party caterers.

The applicant is engaged in manufacturing and selling liquid handling pumps and operates multiple factories in Maharashtra. In line with Section 46 of the Factories Act, 1948, it is mandatory for its factories, employing more than 250 workers, to provide a canteen facility. To comply with this statutory requirement, KSB Limited engages external canteen service providers at all its factory locations and incurs an expenditure of approximately INR 2,200 to INR 2,500 per employee per month on canteen services.

The applicant sought clarity from the AAR on three specific questions:

  1. Whether GST is leviable on the canteen facility provided by KSB Limited to its employees through a third-party canteen service provider.
  2. If GST is otherwise applicable, whether GST is payable where KSB Limited does not recover any amount from employees for the canteen facility.
  3. If GST is otherwise applicable, whether GST is payable where KSB Limited recovers part or entire canteen cost from employees.

For convenience, references to the “GST Act” in the ruling cover both the CGST Act, 2017 and the MGST Act, 2017, as the provisions are substantially identical unless otherwise specified.

2. Key Facts Presented by the Applicant

2.1 Business Operations and Locations

  • KSB Limited is registered under the Central Goods and Services Tax Act, 2017, Maharashtra Goods and Services Tax Act, 2017 and Integrated Goods and Services Tax Act, 2017 with GSTIN 27AAACK5918J1ZC.
  • The manufacturing facilities in Maharashtra are located at Pimpri, Chinchwad, Shirwal, Vambhori and Nasik.
  • Its main business is manufacturing and selling liquid handling pumps, as reflected in its Memorandum of Association.

2.2 Canteen Arrangements

  • In compliance with Section 46 of the Factories Act, 1948, KSB Limited provides canteen facilities for workers at its factories.
  • At locations such as Shirwal, Vambhori and Nasik, the company has engaged external canteen contractors (“vendors”) responsible for:
    • Supplying breakfast, tea, snacks, lunch, dinner
    • Maintaining hygiene and cleanliness in the kitchen and dining areas
    • Performing ancillary services such as utensil cleaning and pest control
  • Vendors charge the applicant a fixed rate per meal per employee plus applicable GST.
  • Earlier, at Pimpri and Chinchwad, KSB operated the canteen in-house through its own staff; from September 2021 onwards, those facilities also shifted to third-party caterers.
  • The applicant bears monthly canteen expenditure of around INR 2,200 to INR 2,500 per employee.

3.1 Canteen Facility Not a “Supply in Course or Furtherance of Business”

The applicant argued that providing a canteen facility does not constitute a “supply” for GST purposes because it is not made “in the course or furtherance of business” as required under Section 7(1)(a) of the CGST Act, 2017 read with Section 9.

Their submissions included:

  • The term “business” in Section 2(17) of the CGST Act primarily covers activities such as trade, commerce, manufacture, profession, etc., and other similar activities.
  • KSB’s core business is manufacturing and selling pumps, not running canteens or supplying food.
  • The object clause in its Memorandum of Association confirms that the company exists to manufacture and sell pumps.
  • Providing subsidised food to employees is an employee welfare measure, not a revenue-generating or profit-oriented activity.
  • The canteen outgo (about INR 2,200–2,500 per employee per month) is a cost centre and not a source of income. If it were a business line, the assessee would logically recover its full cost plus a margin.
  • Hence, canteen services are not part of its “business” and are neither its principal activity nor an incidental or ancillary activity under Section 2(17)(b).

3.2 Not Incidental or Ancillary to Main Business

To rebut the argument that canteen services could be considered incidental or ancillary to manufacturing, the applicant submitted:

  • “Incidental” and “ancillary” should be understood, based on general and judicial interpretation, as activities integrally and inextricably connected to the main business.
  • Decisions cited by the applicant, such as:
    • Keshaodeo Shivprasad vs. Union of India (1992 (61) E.L.T.