GST on employee recoveries and input tax credit: AAR distinguishes taxable canteen and car lease facilities from non-taxable insurance and transport recoveries.

The Tamil Nadu AAR examined GST treatment of employee recoveries and input tax credit on workplace-related expenses. It held that canteen recoveries and car lease recoveries were taxable because the applicant supplied those facilities on its own account, while recoveries for medical insurance premium and employee transportation were not taxable as the applicant acted only as a facilitator and no taxable supply arose. It also allowed input tax credit on canteen-related inward supplies, subject to proportionate reversal of the employee-recovered portion, but denied credit on vaccination and other employee wellness expenses as blocked credits. Input tax credit was allowed on gardening expenses for maintaining the factory green belt because they were incurred under statutory environmental obligations.

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Issues: (i) Whether GST is payable on recoveries from employees towards canteen service, medical insurance premium, transportation facility, and car lease facility; (ii) Whether input tax credit is available on canteen-related inward supplies and on employee wellness expenses such as vaccination and medical benefits; (iii) Whether input tax credit is available on gardening expenses incurred to maintain the factory green belt.

Issue (i): Whether GST is payable on recoveries from employees towards canteen service, medical insurance premium, transportation facility, and car lease facility.

Analysis: The canteen facility was held to be a supply of service when operated by the applicant on its own account, and the amount recovered from employees, whether nominal or otherwise, was treated as consideration. For medical insurance premium and employee transportation provided through third-party service providers, the applicant was found to be only a facilitator, with no supply of service by the applicant and no taxable consideration accruing to it. The recovery of such amounts was treated as part of a contractual employment arrangement and outside GST. In contrast, the proposed car lease facility was held taxable because the applicant itself provided the facility on its own account and the recovery from employees did not qualify as a perquisite.

Conclusion: GST is payable on canteen recoveries and on the car lease facility, but not payable on recoveries towards medical insurance premium or transportation facility.

Issue (ii): Whether input tax credit is available on canteen-related inward supplies and on employee wellness expenses such as vaccination and medical benefits.

Analysis: Input tax credit on canteen-related inward supplies was allowed where the canteen obligation arose under law and the establishment had more than 250 direct employees, but the credit was restricted to the employer-borne portion and proportionate credit attributable to employee recoveries was required to be reversed. For vaccination and other medical benefits, the claim for credit was rejected because such expenses were treated as blocked credits for personal consumption or health services, and the statutory exception was not established on the facts.

Conclusion: Input tax credit is available on canteen-related inward supplies subject to proportionate reversal, but it is not available on vaccination and other employee wellness expenses.

Issue (iii): Whether input tax credit is available on gardening expenses incurred to maintain the factory green belt.

Analysis: Gardening and maintenance of the green belt were held to be mandated by the pollution control conditions and therefore incurred in the course or furtherance of business. The inward services were treated as eligible input services, and the statutory mandate distinguished the case from ordinary non-business expenditure.

Conclusion: Input tax credit is available on gardening expenses incurred for the factory green belt.

Final Conclusion: The ruling grants partial relief by excluding GST on medical insurance and transportation recoveries and by allowing credit on canteen-related and gardening expenses, while sustaining GST on the canteen and car lease recoveries and disallowing credit on employee wellness expenses.

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