Factory canteen recoveries and outsourced canteen tax treatment: employee charges are taxable supply, and ITC on contractor GST is unavailable.

Nominal recoveries from employees for factory canteen food were treated as consideration for a taxable supply of service under GST because the canteen arrangement formed part of the business activity and was outside the employment contract. GST was therefore payable on both the employee recoveries and the amounts paid to the canteen service provider. Input tax credit on the canteen contractor's GST was denied because the service was treated under the applicable notified restaurant-service regime, which did not permit credit, and the statutory canteen obligation did not override that restriction.

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Issues: (i) Whether nominal recoveries from employees for food supplied in the factory canteen constitute a supply under the GST law and whether GST is payable on such recoveries and on the amount paid to the canteen service provider. (ii) Whether input tax credit is admissible on GST charged by the canteen service provider for canteen services provided in compliance with the statutory canteen obligation.

Issue (i): Whether nominal recoveries from employees for food supplied in the factory canteen constitute a supply under the GST law and whether GST is payable on such recoveries and on the amount paid to the canteen service provider.

Analysis: The canteen facility was held to be part of the applicant's business activity and not a mere recovery arrangement outside taxation. Food was supplied to employees for a nominal charge, the arrangement was not part of the employment contract, and the amount recovered was treated as consideration. The provision of cooked food in the canteen was treated as a supply of service under the GST framework, and the taxable value included both the payment to the canteen service provider and the nominal recovery from employees.

Conclusion: The nominal recovery from employees is a supply, and GST is payable on both the amount recovered from employees and the amount paid to the canteen service provider.

Issue (ii): Whether input tax credit is admissible on GST charged by the canteen service provider for canteen services provided in compliance with the statutory canteen obligation.

Analysis: The statutory canteen obligation under the Factories Act required the employer to maintain the facility, but the credit entitlement was tested against the blocking provision and the rate notification applicable to restaurant service. The circular clarifying section 17(5)(b) was relied upon, but the service was ultimately treated as restaurant service taxable at the prescribed concessional rate without ITC under the relevant notification regime. On that basis, the statutory exception did not assist the applicant in availing credit on the canteen contractor's GST.

Conclusion: Input tax credit is not admissible on GST charged by the canteen service provider.

Final Conclusion: The canteen recoveries are taxable supplies and the credit claim on the canteen service provider's tax is unavailable under the applicable GST rate notification structure.

Ratio Decidendi: Where an employer supplies canteen food to employees for a nominal charge in the course of business and the arrangement is outside the employment contract, the recovery constitutes consideration for a taxable supply of service, and ITC on the outsourced canteen service is unavailable where the applicable notified tax structure denies such credit.

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