Mandatory canteen recoveries are not taxable supply, while input tax credit is allowed only to the employer's actual cost.

Employee recoveries for a subsidised canteen provided to meet a statutory obligation under the Factories Act, 1948 do not constitute supply under section 7 of the GST law where the recovery is only the employees' share and no profit element or independent commercial objective exists. Input tax credit on GST charged by the canteen service provider is available for the mandatory canteen facility because the proviso to the blocked-credit rule applies where the facility is legally obligatory, but the credit is restricted to the employer's actual cost and cannot extend to the portion recovered from employees. The ruling therefore treats the employee contribution as outside supply and limits credit to the employer-borne expenditure.

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Issues: (i) Whether the amount recovered from employees towards subsidised canteen facility constitutes supply under section 7 of the GST law. (ii) Whether input tax credit is available on GST charged by the canteen service provider for mandatory canteen facility, and to what extent.

Issue (i): Whether the amount recovered from employees towards subsidised canteen facility constitutes supply under section 7 of the GST law.

Analysis: The canteen facility was provided in compliance with the statutory obligation under the Factories Act, 1948, and the material showed that the recovery from employees was only towards their share of the canteen charges. The recovery was made without profit element or independent commercial objective. The clarification issued by the tax administration on employer-employee perquisites was also applied to the factual arrangement.

Conclusion: The recovery from employees towards the canteen facility does not constitute a supply under section 7 of the GST law.

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

Analysis: Although credit on food and beverages is generally blocked, the proviso allows credit where provision of such facility is obligatory under law. The canteen was mandatory for the employer under the Factories Act, 1948, and the clarification in Circular No. 172/04/2022-GST was applied to hold that the proviso extends to the entire relevant clause. However, credit could be claimed only to the extent of the cost borne by the employer, and not on the portion recovered from employees.

Conclusion: Input tax credit is available for the mandatory canteen facility, subject to restriction that credit is limited to the cost borne by the employer.

Final Conclusion: The ruling accepts that employee recoveries for the subsidised canteen are outside the scope of supply, and permits input tax credit only to the limited extent of the employer's own expenditure on the mandatory canteen facility.

Ratio Decidendi: A mandatory employee welfare facility supplied to meet a statutory obligation does not become taxable supply merely because a nominal employee contribution is recovered, and credit otherwise blocked for food and beverages is available where the law obliges the employer to provide the facility, but only to the extent of the employer's actual cost.

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