Mandatory canteen facility recoveries are not a taxable supply, and ITC is allowed only for the employer-borne cost.

Employee recoveries towards subsidised canteen charges for a mandatory factory canteen were held not to be an independent taxable supply under section 7 of the CGST Act, because the recovery was only a cost-sharing mechanism for a service provided to satisfy a statutory obligation under the Factories Act and carried no profit element. Input tax credit on GST charged by the canteen service provider was allowed only to the extent the employer bore the cost of the compulsory canteen facility, since the blocking provision for food and beverages is relaxed by its proviso where the employer is legally required to provide the service. Credit was denied on the employee-recovered portion.

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Issues: (i) Whether the amount recovered from employees towards subsidized canteen charges and paid to the canteen service provider is liable to GST as a supply under section 7 of the CGST Act, 2017; (ii) Whether input tax credit is available on GST charged by the canteen service provider for canteen services provided to direct employees where the canteen facility is mandatory under the Factories Act, 1948.

Issue (i): Whether the amount recovered from employees towards subsidized canteen charges and paid to the canteen service provider is liable to GST as a supply under section 7 of the CGST Act, 2017.

Analysis: Section 7 taxes only those supplies made for consideration in the course or furtherance of business, subject to the exclusions in Schedule I and Schedule III. The canteen facility was being provided to direct employees in fulfilment of a statutory obligation under section 46 of the Factories Act, 1948 read with the applicable factory rules. The recovery from employees was only a cost-recovery mechanism, with no profit element, and the amount was paid to the service provider for administrative convenience. In the light of the contractual employment terms and the CBIC clarification on employer-provided perquisites, the recovery did not constitute an independent taxable supply by the employer.

Conclusion: The employee-share recovery towards canteen charges is not liable to GST as a supply under section 7 of the CGST Act, 2017.

Issue (ii): Whether input tax credit is available on GST charged by the canteen service provider for canteen services provided to direct employees where the canteen facility is mandatory under the Factories Act, 1948.

Analysis: Section 17(5)(b) blocks input tax credit on food and beverages and allied services, but the proviso permits credit where it is obligatory for an employer to provide the service under any law for the time being in force. The canteen was statutorily mandated for the factory's direct employees, and the CBIC circular clarified that the proviso applies to the whole of clause (b). Accordingly, credit is available for the employer's borne portion, but not for the portion recovered from employees.

Conclusion: Input tax credit is available to the extent of the cost borne by the applicant for providing mandatory canteen services to its direct employees, and is not available on the employee-recovered portion.

Final Conclusion: The ruling grants relief on GST liability for employee recoveries and allows input tax credit only to the extent attributable to the employer's own cost of the mandatory canteen facility for direct employees.

Ratio Decidendi: A statutory canteen facility provided to direct employees, where employee recovery is only a cost-sharing mechanism, is not an independent taxable supply; and the blocked-credit provision for food and beverages yields to its proviso when the employer is under a legal obligation to provide the facility, with credit confined to the employer-borne cost.

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