GST on Free Supply to Employees, Goods and Services Tax - GST

[Ethirajan Parthasarathy]

A GST registered person provides free of cost, snacks and hot beverages to it’s employees as per terms of appointment. The suppliers of such hot beverages are un registered persons.

Please find below the extract from press release dt:10/07/2017:-

Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

At one place in above press release, it is stated that services by employer to employees as per contractual obligation will not be treated as supply.

In another place, it is stated that exemption of such transaction is available only if tax is “paid” at the time of purchase of inputs provided free of cost to employees.

I request the experts to clarify the correct interpretation on free supply of snacks etc to employees but purchased from unregistered persons.

The press release provides for tax exemptions if there is tax “paid” at the time of purchase. Assuming the supplier is under “composition tax”, there will be no tax collection by the vendor and hence condition that tax should be paid on procurement will not be satisfied.

How to address the GST issues raised in my query.

Posts / Replies

[Shilpi Jain]

Facilities provided free to all staff for the purpose of executing their job roles should not be regarded as a separate supply.

If considered taxable then it would lead to absurd situation of even regarding the infrastructure provided to the employees (like chair, computer, desk, etc.) as a taxable supply!!!

The worst thing that one can do about this is apply for an advance ruling!!!! Pls do not do this.

[Padmanathan Kollengode]

As per the facts mentioned, tea and snacks is provided to all employees in organisation and it is part of the employment terms. Hence, it is only part and parcel of C2C and there is no separate deemed supply involved.

In my opinion, "appropriate GST" should cover situations where GST is not chargeable also (like composition or unregistered where appropriate GST paid would be nil).  Besides, binding nature of press release is a separate discussion in its self. 

[Sadanand Bulbule]

Dear querist

Press statements and flyers issued by the CBIC are not binding on the department/taxpayers unless there is official notification issued to that effect.

[KASTURI SETHI]

Yes, Sir. Because CBIC 's flyers/circulars and press statements/releases have no statutory force.

[Amit Agrawal]

Please refer to Serial No. 5 from Circular No. 172/04/2022- GST dated 6th July 2022, which is issued by CBIC in exercise of its powers conferred by section 168 (1) of the CGST Act, 2017 and hence, same is binding of Dept. officers. 

Kindly also refer to elaborate discussion we had under Issue-ID: 118561 bearing subject-line as 'Input & OutPut Tax on Susidised Casnteen'

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

In above post, please read as .......... binding on Dept. officers.

[Ethirajan Parthasarathy]

Thanks Mr.Amit Agrawal..