Canteen charges collected from employees will now be outside the gamut of goods and services tax following a tax ruling that offers some relief to several large industrial and manufacturing units.

In a recent ruling, the Gujarat Authority for Advance Ruling (AAR) said that GST is not applicable on the amount collected from the employees towards canteen charges, which is paid to the canteen service provider.

Tax experts say this has been an issue of debate amongst several companies that have to provide food canteens as part of the existing law.

In most cases, a token amount is collected from the employees.

The AAR ruled that in cases where the company is not making any profits on this amount and merely acting as an intermediary, GST cannot be levied.

In earlier two AAR rulings, a different view was taken by two different authorities.

In the case of Tata Motors, the AAR had ruled that GST is not applicable on such an amount while in the case of Amneal Pharmaceuticals, a contrary view was taken in the ruling.

"The provision of canteen services for employees and GST payment thereon has been a matter of discussion across the industry and various rulings have been pronounced in favour of and against the applicant in the said matter," said Rakesh Nangia, managing partner of Nangia Andersen India. "In the backdrop of differing opinions from various authorities, appropriate clarification from the Central Board of Indirect Taxes and Customs may put to rest this issue and enable the industry to adopt a correct clear view."

GST on the canteens and the input tax credit available to the companies has also caused confusion earlier.

In 2018, the government had said that banks could take input tax credit of life insurance premiums paid by security guards, hospitals can take credit of medical insurance premium paid by nurses and companies can take credit of canteen fees charged to labourers.

Input tax credit is a mechanism where part of the GST paid by a company or a bank on input services or raw material can be set off against future tax liabilities.

Yet, the government clarification also meant that GST could be applied on canteen charges in certain cases. Tax experts point out that the exception means that any service provided by any employer that's mandated by the law will be eligible for an input tax credit.

The recent AAR ruling takes it a step further. The AAR ruling means that any service provided by an employer without an intention to make profit should be outside the gamut of GST.