Higher GST may push up prices of canteen food

Food served in canteens of offices and factories is likely to become expensive and may burden businesses with higher employee cost.

The Gujarat Authority for Advance Ruling recently held that meal services at work establishments were akin to outdoor catering and should attract 18 per cent Goods and Services Tax with no input credit.

AAR is a quasi-judicial body that helps taxpayers find out potential tax liabilities in advance. The Gujarat order came on an application by Rashmi Hospitality Services Private Limited, an industrial canteen contractor, which had sought clarity on the GST on its services.

Abhishek Jain, tax partner at EY India, said the ruling will spawn discontent. "It would open up a Pandora's box for industries as well as employees, with increased cost of meals; where the cost of meals is borne by businesses and corresponding credit of such input GST being restricted," he said.

The levy on supply for food and beverages services to businesses or factory premises for employees was a vexed issue even under service tax. The service tax on outdoor catering was 15 per cent which was raised to 18 per cent, similar to all services, under GST.

"All service providers who were at 15 per cent have moved to 18 per cent. An exception can't be made for outdoor caterers," said a tax expert, who did not want to be named.

Today, the GST rate applicable to restaurants is 5 per cent without input tax credit (ITC). According to the expert, GST rates on canteen and mess depended on how they were operated. The confusion arises from its definition and whether it can be taken as an item of personal consumption by employees.

"Primarily, because of the fact that when you think of meal to the employees, it is very difficult to distinguish how much is for personal consumption and how much is for professional consumption," said M S Mani, Partner, Deloitte India. He said the AAR was looking at food supplied to offices and factories "as an article of personal consumption".

Many tax experts were not surprised at the ruling of AAR as it was bench chaired by commissioners of Central Board of Indirect Tax and Customs (CBIC) and so any decision was likely to be "pro-revenue".

Deloitte's Mani said the AAR order will likely be challenged in the Appellate AAR. "It is necessary to take a holistic view on what constitutes personal consumption and what does not."

However, with states and the Centre yet to notify and set up appellate authority and the CBIC to nominate members to the AAAR, any move to challenge the ruling will have to wait. Till such time, factories and offices will have to swallow the higher tax costs of meals for their employees.