Canteen recovery and input tax credit: statutory employee meal facilities were treated as non-taxable, with credit limited to employer-borne cost.

A legally mandated canteen facility provided to employees on a cost-sharing basis does not create a taxable supply under section 7 where the recovery is merely an administrative arrangement for statutory employee welfare. The employee contribution was therefore treated as non-taxable. Input tax credit on GST charged by the canteen service provider was held available because the employer was under a legal obligation to provide the facility, but the credit was restricted to the tax burden borne by the employer. Credit attributable to the amount recovered from employees was denied.

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Issues: (i) Whether subsidized recovery from employees for canteen facilities provided at the factory and corporate office constitutes a supply under section 7; (ii) Whether input tax credit on GST charged by the canteen service provider is available, and if so, to what extent.

Issue (i): Whether subsidized recovery from employees for canteen facilities provided at the factory and corporate office constitutes a supply under section 7.

Analysis: The canteen facility was found to be provided under statutory compulsion at the factory under the Factories Act and at the corporate office under the State shops and establishments law. The arrangement with the canteen service provider was treated as an administrative mechanism for providing meals to employees on a cost-sharing basis. Relying on the GST circular clarifying that perquisites provided by an employer to employees in terms of the employment arrangement are not liable to GST, the recovery made from employees was held not to amount to a taxable supply.

Conclusion: The subsidized deduction from employees for canteen food is not a supply under section 7.

Issue (ii): Whether input tax credit on GST charged by the canteen service provider is available, and if so, to what extent.

Analysis: Input tax credit on food and beverages is generally blocked, but the proviso permits credit where the employer is legally obliged to provide the facility. Since the canteen was mandated by law for the employees covered by the ruling, credit was held admissible. The credit was, however, limited to the tax burden borne by the employer, and proportionate credit attributable to the amount recovered from employees was denied.

Conclusion: Input tax credit is available, but only to the extent of the cost borne by the employer.

Final Conclusion: The ruling grants relief on both substantive questions by treating the employee recovery as non-taxable and permitting restricted credit for the employer's obligatory canteen expense.

Ratio Decidendi: A canteen facility mandated by law and operated on a cost-sharing basis does not create a taxable supply from employer to employee, and input tax credit on such inward supply is available only to the extent the employer bears the statutory canteen cost.

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