Employee canteen recoveries not taxable supply, while input tax credit remains available for mandatory statutory canteen services

Employee recoveries for subsidised canteen food were held not to constitute a taxable supply under GST because the canteen was provided under the employment contract and a statutory factory obligation, with only partial cost recovery and no profit element; the levy did not apply. Input tax credit on GST charged by the third-party canteen contractor was allowed because the employer was legally required to maintain the canteen under the Factories Act and Uttar Pradesh Factories Rules, bringing the inward supply within the statutory exception to the restriction on food and beverage credit.

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Issues: (i) Whether subsidized recovery from employees towards canteen food constituted a taxable supply under the GST law. (ii) Whether input tax credit of GST charged by the third-party canteen contractor was admissible where the canteen was maintained under a statutory obligation.

Issue (i): Whether subsidized recovery from employees towards canteen food constituted a taxable supply under the GST law.

Analysis: The arrangement for providing canteen food to employees was made under the employment contract and was supported by the statutory requirement to maintain a canteen in the factory. The amount recovered from employees was only a partial recovery of the cost and no profit element was retained. In view of the treatment of services rendered in the course of employment under Schedule III and the clarification that contractual perquisites to employees do not amount to supply, the recoveries could not be characterised as consideration for an independent taxable supply by the employer.

Conclusion: The subsidized deduction from employees for canteen food was not a supply and was not liable to GST.

Issue (ii): Whether input tax credit of GST charged by the third-party canteen contractor was admissible where the canteen was maintained under a statutory obligation.

Analysis: Input tax credit on food and beverages is generally restricted, but the proviso to section 17(5)(b) allows credit where the employer is under a legal obligation to provide the facility. The canteen was required to be maintained under the Factories Act and the Uttar Pradesh Factories Rules. The statutory obligation brought the inward supply within the permitted exception, and the departmental circular on section 17(5)(b) was treated as supportive of that position.

Conclusion: Input tax credit on GST paid to the canteen contractor was admissible.

Final Conclusion: The ruling holds that the employee recoveries towards canteen charges are outside the GST levy and that credit of GST paid on the mandatory canteen service is available to the applicant.

Ratio Decidendi: A facility provided to employees under the employment contract and under a statutory mandate does not amount to a taxable supply when the employer merely recovers part of the cost, and input tax credit is available where the inward supply is one the employer is legally obliged to provide.

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