Creating Knowledge Bank-CKB : Taxability of provision of Foods & Breakfast under KVAT,2003

Taxability of provision of Foods & Breakfast under Karnataka Value Added Tax Act,2003

Section-2(29) of the KVAT Act, 2003

The word “Sale” has been defined to mean every transfer of property in goods(other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment
or other valuable consideration and includes,-

(a) a transfer…………………………..;

(b) a transfer …………………………;

(d) a transfer ……………………….

Explanations.-

(1) A transfer of property……………...

(2) Every transaction of sale by way of or as a part of any service or in any other manner whatsoever, of goods, being food or any other article of human consumption or any drink (whether or not intoxicating) where such sale or service is for cash, deferred payment or other valuable consideration, shall be deemed to be a sale of those goods by the person making the sale and purchase of those goods by the person to whom such sale is made.

(3) Notwithstanding anything ……………………………..,

(a) ………………………………………………………., or

(b) ……………………………………………………….., or

(ii) …………………………………………………………., or

(iii) …………………………………………………………., or

(iv) …………………………………………………………., or

(4) …………………………………………………………., or

The essential elements of "sale" are :

(i) transfer of property or agreement to transfer property,

(ii) by seller to buyer,

(iii) pursuant to any bargain or agreement of sale or with mutual consent, and

(iv) for the payment or promise of payment of a price or for consideration,

What are situation may arise for taxability?

There may be following situations:-

1) Company have the canteen inhouse, which is run by its own and food is supplied to employees..

2) Company hires the contractor to run the canteen and all the inputs for preparation of food & breakfast are provided by the company and contractor is paid for labour charges only.

3) The canteen is run by Employees Welfare society and the amount is paid by company to such society.

4) The canteen is run by a Contractor who is paid charges on per diet basis.(Presently this practice is being adopted)

5) Meals and refreshment are bought by employer and provided to employees free or on subsidized basis

Situation:- (1) There would be no taxability as canteen is owned and run by company and food & breakfast is supplied to employees by the company in pursuant of an employment contract, the relationship between them can be said to be that of master and servant and not of seller and buyer. And such supply of the foods can be considered an amenity provided to employee as an incidence of contract of employment (i.e. contract of service) and not in pursuance of contract of sale or agreement to sale.

Situation: - (2) the position remains the same as in situation no. 1 except that the contract with the contractor will be a labour contract and not for transfer pf property in goods.

Situation: - (3) It would be taxable because Employees welfare society being a separate entity , the amount paid by company to such society towards provision of foods and breakfast by such society will be treated as sale by such society to company and it doesn’t affect that where & to whom supply is be made on instruction of the company and the amount paid by company will be treated as consideration of such sale.

Situation: - (4) It would be taxable as we have already discussed at the opening of this note..

Situation: - (5) Provision of bought out meals to employees will not be considered sale of such meals from employer to employees. Same logic & interpretation can be applied as we discussed in situation no:-1 above.

TDS Liability on Canteen contract

In case canteen is run by Contractor and he charges per diet basis, we should be guided by provisions of Section-18 of the KVAT Act,2003 as to deduction of tax at source.