Employee perquisites and GST: contractual canteen and transport recoveries were not taxable, while transport credit was denied as personal consumption.

Recoveries from employees for canteen and transportation facilities provided as contractual perquisites were held not liable to GST, because such employee benefits supplied under the employment contract were treated as perquisites rather than taxable outward supplies. The ruling noted that where either facility is supplied as a taxable outward supply for consideration in the course of business, GST would apply. Input tax credit was allowed for canteen-related inward supplies only to the extent the canteen was a statutory obligation under law, but credit was denied for transportation-related inward supplies because employee commuting was treated as personal consumption and not as an input service used in the course or furtherance of business.

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Issues: (i) Whether recoveries from employees towards canteen and transportation facilities provided as contractual perquisites are liable to GST; (ii) whether input tax credit is available on inward supplies used for providing canteen and transportation facilities.

Issue (i): Whether recoveries from employees towards canteen and transportation facilities provided as contractual perquisites are liable to GST.

Analysis: Canteen facility was held to be a statutory as well as contractual obligation in the facts of the case, having regard to Section 46 of the Factories Act, 1948 and the employment contract. The clarification in Circular No. 172/04/2022-GST dated 06.07.2022 was applied to hold that perquisites provided by an employer to employees in terms of contract are not subjected to GST. Transportation facility, when provided as a perquisite under the employment contract, was also treated as not liable to GST. However, if either facility is supplied as a taxable outward supply for consideration in the course of business, GST would apply.

Conclusion: Recoveries for canteen and transportation facilities, when provided as employment perquisites in terms of contract, are not liable to GST.

Issue (ii): Whether input tax credit is available on inward supplies used for providing canteen and transportation facilities.

Analysis: Input tax credit on canteen services was allowed to the extent the canteen is obligatory to be provided under law, in view of the proviso to Section 17(5)(b) of the CGST Act and the corresponding State provision. For transportation services, the facility was treated as personal consumption and not as an input service used in the course or furtherance of business within Section 2(60) of the CGST Act. On that basis, the bar under Section 17(5)(g) was applied and credit was denied for transportation-related inward supplies.

Conclusion: Input tax credit is available for canteen facilities where the statutory obligation exists, but it is not available for transportation facilities used for employee commuting.

Final Conclusion: The ruling accepts the tax-free treatment of employee perquisites for recoveries on canteen and transportation facilities, but differentiates the credit position by allowing canteen-related credit subject to statutory obligation and denying credit for transportation on the ground of personal consumption.

Ratio Decidendi: Employee perquisites supplied under a contractual or statutory obligation are not taxable as such, while input tax credit is available only where the law obliges the employer to provide the facility and is otherwise barred for goods or services used for personal consumption.

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