Canteen GST treatment turns on employment nexus and statutory obligation for taxability and input tax credit

Recoveries for canteen facilities must be tested by the recipient's status and the existence of a statutory obligation. Amounts recovered from employees for canteen charges are treated as part of the employment arrangement and, following the GST circular, are not a separate taxable supply. Amounts recovered from contractual workers are treated as consideration for an outward supply and are liable to GST. Input tax credit on GST paid for canteen services is admissible for food supplied to employees where the employer is legally obliged to provide the facility, but it is not admissible for food supplied to contractual workers because that obligation does not rest on the applicant.

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Issues: (i) Whether the amount recovered by the applicant from employees towards canteen charges is liable to GST; (ii) Whether the amount recovered by the applicant from contractual workers towards canteen charges is liable to GST; (iii) Whether input tax credit on GST paid on canteen services is admissible in respect of food supplied to employees; (iv) Whether input tax credit on GST paid on canteen services is admissible in respect of food supplied to contractual workers.

Issue (i): Whether the amount recovered by the applicant from employees towards canteen charges is liable to GST.

Analysis: The arrangement for canteen facility for employees was treated as a perquisite arising from the employment relationship. In light of the employer-employee nexus and the clarification in Circular No. 172/04/2022-GST dated 06.07.2022, such recovery was not regarded as a separate activity in the course or furtherance of business and was not treated as taxable supply by the applicant.

Conclusion: The amount recovered from employees towards canteen charges is not liable to GST, in favour of the assessee.

Issue (ii): Whether the amount recovered by the applicant from contractual workers towards canteen charges is liable to GST.

Analysis: The contractual workers were held not to be employees of the applicant, and the canteen facility supplied to them was treated as a supply by the applicant. The recovery from such workers constituted consideration within the meaning of the CGST Act and the activity fell within outward supply in the course or furtherance of business.

Conclusion: The amount recovered from contractual workers towards canteen charges is liable to GST, in favour of Revenue.

Issue (iii): Whether input tax credit on GST paid on canteen services is admissible in respect of food supplied to employees.

Analysis: Since the canteen facility for employees was held to be obligatory under the statutory scheme, the proviso to Section 17(5)(b) was applied. The restriction on credit for food and beverages was not attracted where the employer was under a legal obligation to provide the facility.

Conclusion: Input tax credit on GST paid on canteen services for food supplied to employees is admissible, subject to the condition that the burden of GST has not been passed on, in favour of the assessee.

Issue (iv): Whether input tax credit on GST paid on canteen services is admissible in respect of food supplied to contractual workers.

Analysis: The statutory obligation to provide canteen facilities under the relevant labour law was held to rest on the contractor for contract labour, not on the applicant. As the applicant was not under a legal obligation to provide the facility to contractual workers, the proviso to Section 17(5)(b) did not apply and the credit restriction remained operative.

Conclusion: Input tax credit on GST paid on canteen services for food supplied to contractual workers is not admissible, against the assessee.

Final Conclusion: The ruling distinguishes between employee canteen recoveries and contractual worker canteen recoveries, allowing GST relief and credit only where the employer-employee relationship and statutory obligation are established.

Ratio Decidendi: A recovery linked to a canteen facility provided to employees under a contractual/employment arrangement and supported by a statutory obligation is not a taxable supply, whereas recoveries from non-employees for the same facility constitute taxable outward supply; input tax credit on food and catering services is available only when the employer is legally obliged to provide the facility.

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