EXEMPTION TO FACTORY CANTEENS

[Dr. Sanjiv Agarwal]

Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948, having the facility of air-conditioning or central air-heating at any time during the year are exempt from Service Tax w.e.f. 22.10.2013 vide Notification No. 14/2013-ST dated 22.10.2013 under Entry No. 19A of exemption Notification No. 25/2012-ST dated 20.06.2012. The meaning of the word “factory” is same as defined in Factory Act, 1948.

According to section 2(m) of the Factories Act, 1948, 'factory' means any premises including the precincts thereof –

1. Where ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or
2. Where twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on.

The term “Manufacturing Process” is defined in Section 2(k) of the Factories Act, 1948 and accordingly, “Manufacturing Process” means any process for-

1. Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use sale, transport, delivery or  disposal, or 
2. Pumping oil, water, sewage or any other substance; or
3. Generating, transforming or transmitting power; or
4. Compositing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding;
5. Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;
6. Preserving or storing any article in cold storage;

It may be noted that canteen is a statutory requirement under the provisions of section 46 of the Factories Act, 1948 where the factory is employing more than 250 employees.

Therefore, any factory canteen which is air-conditioned or air-heated provides services in relation to serving of food or beverages are out of service tax net w.e.f. 22.10.2013.

On combined reading of entry 19 and 19A of the exemption notification, it can be said that it has been the intention of the government to grant exemption from Service Tax in relation to services provided for serving of food and / or beverages by a canteen maintained in a factory which is covered under or governed to the Factories Act, 1948, whether or not having the facility of air conditioning or air heating at any point of time in a year. While entry 19 uses the word eating joint (which is much wider in scope), entry 19A is specific to canteen only. The services provided by a canteen maintained in a factory, whether air conditioned or not, would be exempt under entry 19A.

The facility of air –conditioning or air-heating if available in the part of the year, even then such exemption is available to such factory canteen. Such exemption is not applicable to the canteen run in an office or any other place.

Discussions to this article

[vishnumurthi holla]

Dear Sir,

I have liked your explanation on Entry No 19 and 19 A. But Both entries are referring the Air conditioned or Air Heated and not referring to Non-Air conditioned or Non-Air Heated.

However you have concluded this article by------

The services provided by a canteen maintained in a factory, whether air conditioned or not, would be exempt under entry 19A.

Will you be able to clarify the above.

Please refer the Entry 19, 19A

Notification No. 25/2012-Service Tax

19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages;

 

Notification No. 14/2013-Service Tax

In the said notification, in the opening paragraph, after entry 19, the following entry shall be inserted, namely:-

“19A. Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.

But as per Circular No.173/8/2013 – ST F.No.334/3/2013-TRU New Delhi, 7^th October, 2013

Subject: Restaurant Service- clarification -regarding

 

As part of the Budget exercise 2013, the exemption for services provided by specified restaurants extended vide serial number 19 of Notification 25/2012-ST was modified vide para 1 (iii) of Notification 3/2013-ST. This has become operational on the 1^st of April, 2013.

2. In this context, representations have been received. On the doubts and questions raised therein clarifications are as follows:

	Doubts	Clarifications
1.	In a complex where air conditioned as well as non-air conditioned restaurants are operational but food is sourced from the common kitchen, will service tax arise in the non-air conditioned restaurant?	Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year (hereinafter referred as ‘specified restaurant’) attracts service tax. In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in a non air-conditioned or non centrally air- heated restaurant will not be liable to service tax. In such cases, service provided in the non air-conditioned / non-centrally air-heated restaurant will be treated as exempted service and credit entitlement will be as per the Cenvat Credit Rules.