TaxTMI 
TaxTMI 
TaxTMI 
It is seen that Canteen and transportation facility is provided at a nominal rate in the course of employment in pursuance of the Factory Act and other statutory acts or under contractual obligation to employees. The facility is restricted to employees of the Company.
The question is whether this recovery of nominal amounts from employees are a supply u/s 7 of The CGST Act 2017. In this regard it is clarified by Circular No. 172/04/2022-GST dated 06.07.2022 as follows -
Q. Whether various perquisites provided by the employer to its employees in terms of contractual agreement entered between the employer and the employee are liable for GST?
1. Schedule III to the CGST Act provides that 'services by employee to the employer in the course of or in relation to his employment' will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment.
2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that perquisites provided by the employer to the employee in terms of contractual agreement entered between the employer and the employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee.
Therefore, where canteen is provided to employees as per statutory obligation of the employers under Factories Act and both transportation and canteen are provided under terms of employment, they would be regarded as perquisites provided to employees. The value of perquisite provided by employer to employees vide canteen or transportation facility would in these cases be considered as “net or recovery made” rather than the recovery being treated as a stand-alone supply u/s 7. The reason that there is no quid-pro-quo of service for consideration by employer to employee but on the contrary, there is a quid-pro-quo by the employee to employer, which is not a supply as per Schedule III of The CGST Act 2017.
Another question is whether the ITC is available in case of these Canteen and transportation facilities provided to employees. Again, in this regard, it is clarified by Circular No. 172/04/2022-GST dated 06.07.2022 as follows -
Q. Whether the proviso at the end of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the entire clause (b) or the said proviso is applicable only to sub-clause (iii) of clause (b)?
1. Vide the Central Goods and Service Tax (Amendment Act) 2018, clause (b) of sub-section (5) of section 17 of the CGST Act was substituted with effect from 01.02.2019. After the said substitution, the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act provides as under:
'Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.'
2. The said amendment in sub-section (5) of section 17 of the CGST Act was made based on the recommendations of GST Council in its 28th meeting. The intent of the said amendment in sub-section (5) of section 17, as recommended by the GST Council in its 28th meeting, was made known to the trade and industry through the Press Note on Recommendations made during the 28th meeting of the GST Council, dated 21.07.2018. It had been clarified 'that scope of input tax credit is being widened, and it would now be made available in respect of Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force.'
3. Accordingly, it is clarified that the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of sub-section (5) of section 17 of the CGST Act
Therefore, the restriction-imposed u/s 17(5), is not applicable in case the canteen facilities are extended to its employees as a part of the statutory obligations under the provisions of Factories Act or any other statue. Regarding transportation, on and from 1st Feb 2019, in case it is provided by a more than 13-seater vehicle, then the ITC is available. Hence in these circumstances the ITC is available too.
However, the following need to be noted as per the Gujarat AAR in the case ofIN RE: M/S. TATA AUTOCOMP SYSTEMS LTD - 2023 (7) TMI 142 - AUTHORITY FOR ADVANCE RULING, GUJARAT –
1. In case there is merely contractual (and no statutory obligation) to provide canteen services to employees, then no ITC will be available.
2. In case the motor vehicle is less than 13-seater (after 1st Feb 2019), then no ITC will be available. Before 1st Feb 2019, ITC will not be available in case of any motor vehicle.
3. ITC on GST charged by the service provider will be restricted to the extent of cost borne by the recipient only. For E.g., out of Rs.100 (excluding GST) charged by the service provider of canteen services, Rs. 5 is recovered from employees, then only the proportionate ITC on Rs.95 shall be available.