Facts of the Case:
In tis case, the Applicant is an SEZ-based pharmaceutical manufacturer of oncology products, provides canteen facilities to its employees and contractual workers inside its SEZ factory. Canteen services are operated by an independent Canteen Service Provider (CSP). As the unit is located in an SEZ and canteen facility is an approved authorised operation, the CSP does not charge GST. Canteen services are availed through employee ID cards or coupons. The applicant pays the full amount billed by the CSP. A subsidised portion of meal cost is recovered from employees and contractual workers, while the remaining is borne by the applicant as staff welfare. For full-time employees and contractual workers, recovery is on actual consumption without any profit element.
The Applicant argued that contractual workers work under its control & supervision and should be treated as “employees.” The Applicant relied on several AAR/AAAR rulings and CBIC Circular 172/04/2022 clarifying that perquisites provided under employment contracts are not supplies.
Issue:
Whether subsidised deductions recovered from employees towards canteen facilities constitute “supply” under Section 7 of the CGST/GGST Act. Whether similar recovery from contractual workers constitutes a “supply”, and if yes, what valuation should apply.
Held that:
The Authority first addressed the applicant’s contention that the recovery of subsidized canteen charges from employees and workers does not amount to a “supply” under Section 7 of the CGST Act. It observed that, with respect to full-time employees, the CBIC Circular No. 172/04/2022-GST dated 06.07.2022 explicitly clarifies that perquisites provided by an employer to its employees in terms of the employment contract are not subject to GST, since such facilities arise out of the employee–employer relationship covered under Schedule III to the CGST Act.
Further, the Authority confirmed that the subsidized canteen facility is provided only in terms of employment conditions and statutory obligation under Section 46 of the Factories Act. Therefore, the nominal recovery from employees represents merely a partial reimbursement of the amount paid to the Canteen Service Provider and cannot be regarded as consideration for a supply by the employer. Consequently, no GST is leviable on the portion recovered from regular employees.
However, the Authority reached a different conclusion regarding contractual workers. After examining the agreement between the applicant and the labour contractor, it held that contractual workers are not employees of the applicant. The employer-employee relationship does not exist between the applicant and these workers, as they are engaged through an independent contractor, are not borne on the applicant’s payroll, and their remuneration is not paid by the applicant. While they may work under the supervision of the applicant, such supervision does not convert their status into that of employees for GST purposes. The Authority specifically disagreed with the applicant’s contention that the Supreme Court judgment in MMR Khan v. UOI mandated treating contractual workers at par with employees for all purposes. It held that such treatment under labour and welfare laws cannot automatically extend to GST determination unless the statute expressly provides so.
The AAR held that Recovery of subsidized canteen charges from full-time employees does not amount to a supply under Section 7 of the CGST Act, as it is covered by Schedule III and clarified by CBIC Circular 172/04/2022. Therefore, No GST is payable on the portion recovered from employees. Further, recovery of subsidized canteen charges from contractual workers amounts to a taxable supply, since contractual workers are not employees of the applicant and the transaction does not fall under Schedule III. GST is payable on the portion recovered from contractual workers.
Case Name: In Re: M/s. Zydus Hospira Oncology Private Limited dated 29.11.2025
To read the complete judgement 2025 Taxo.online 3137
