The Authority for Advance Rulings, Maharashtra in the case of M/s. Ferrero India Pvt. Ltd. vide Case No.- GST-ARA-62/21-22/24-25/B-172 dated 27.03.2025, has ruled that recoveries from employees for canteen and transport (even if subsidized) are subject to GST.GST must be discharged on the amount recovered from employees. Only the portion subsidized/free may fall under Schedule III exemption (if forming part of employment contract). Further, in the light of CBIC Circular No. 178/10/2022-GST dated 3rd August 2022, it is clear that notice pay recoveries made by the employer from employees for not serving the notice period are not taxable under the GST laws.

Facts of the Case:  In the case, the Applicant was providing canteen and bus transportation facilities to its employees at subsidized rates. The Applicant recovers part cost of canteen facility provided to employees via salary deductions; facility is mandated under the Factories Act.

The Applicant contended that Canteen and bus transport facilities are integral to the employment contract and provided without any profit motive. Services are rendered by third-party vendors to the company, and a subsidized amount is recovered from employees. Such recoveries are nominal and not in the nature of consideration for an independent supply. Recovery is merely a partial reimbursement of the expense incurred, not a commercial supply by employer to employee.

Issue: Whether the recoveries made by the Applicant from the employees for providing canteen facility to its employees is taxable under the GST laws. Whether the recoveries made by the Applicant from the employees for providing bus transport facilities to its employees is taxable under the provisions of CGST Act. Also, whether notice pay recoveries made by the Applicant from its employees for not serving the notice period is taxable under the GST laws. 

AAR’s Rulings: The AAR held that the amount recovered from employees against these services is subject to GST, since it is considered a “supply of service” under Section 7(1)(a) of the CGST Act. Even if the Applicant does not profit from these services i.e. it’s at a subsidized cost, the recovery of costs itself constitutes consideration and hence falls under GST. The AAR emphasized the employer-employee relationship does not exclude such services from GST when there’s a recovery made.

Further, employees who leave without serving the full notice period are required to pay notice pay. The AAR ruled that such recoveries do not amount to ‘supply’ under GST, aligning with past AARs and CBIC clarifications. The amount paid is compensation for breach of contract and not consideration for any supply of goods or services. Therefore, it is outside the scope of GST, following the logic of Schedule III – Entry 5(e) of the CGST Act.