Mandatory factory canteen recovery is not a taxable GST supply, and credit applies only to the employer-borne tax burden.

A mandatory factory canteen provided under the Factories Act and employee policy is not an independent taxable supply under GST merely because a nominal amount is recovered from employees' salaries. The recovery is treated as part of the employment-related canteen arrangement, consistent with the exclusion for services by an employee in the course of employment and the CBIC clarification on employment perquisites. Input tax credit on canteen GST is blocked for food and beverages generally, but the statutory proviso permits credit where the employer is legally obliged to provide the facility. That credit is limited to the tax burden borne by the employer and excludes the employee-recovered portion.

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Issues: (i) Whether the nominal amount deducted from employees' salaries for canteen food supplied in the factory premises constitutes a supply of service under the GST law; (ii) Whether input tax credit of GST charged by the canteen service provider is available to the applicant, and if so, to what extent.

Issue (i): Whether the nominal amount deducted from employees' salaries for canteen food supplied in the factory premises constitutes a supply of service under the GST law.

Analysis: The applicant provided the canteen facility pursuant to statutory obligation under the Factories Act and in terms of its employee policy. The relevant GST framework treats supply as a transaction for consideration in the course or furtherance of business, while services by an employee to the employer in the course of employment are outside the scope of supply. The ruling also relied on the CBIC clarification that perquisites provided under the employment arrangement are not taxable as GST supply. On the facts, the nominal recovery from employees was treated as part of the employment-related canteen arrangement and not as an independent taxable supply.

Conclusion: The nominal deduction from employees' salaries does not amount to a supply of service under GST, and the answer is in favour of the applicant.

Issue (ii): Whether input tax credit of GST charged by the canteen service provider is available to the applicant, and if so, to what extent.

Analysis: Input tax credit in respect of food and beverages is generally blocked, but the statutory proviso preserves credit where it is obligatory for an employer to provide the facility under law. The canteen was mandated by the Factories Act, and the clarification issued by CBIC was applied to hold that the proviso extends to the whole blocked-credit clause. The credit, however, was confined to the tax relatable to the cost borne by the applicant and not the portion recovered from employees.

Conclusion: Input tax credit is available, but only to the extent of the cost borne by the applicant, and the ruling is in favour of the applicant to that limited extent.

Final Conclusion: The canteen recovery from employees was held not to be a taxable supply, and credit was allowed on the employer-borne portion of the canteen tax burden, with the recovery-linked portion excluded.

Ratio Decidendi: A mandatory canteen facility provided under labour-law obligations does not become a taxable supply merely because a nominal employee recovery is made, and blocked credit for food and beverages is available where the employer is legally required to provide the facility, but only to the extent of the employer's own cost burden.

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