Mandatory factory canteen recoveries are not taxable supply, and GST credit is allowed only on the employer-borne cost.

A mandatory factory canteen provided under the Factories Act, with nominal salary recoveries from employees, does not create a taxable supply under section 7 because the recovery is only toward a subsidised statutory and not a separate consideration in the course of business. Input tax credit on GST charged by the canteen service provider is available despite the blocked-credit rule for food and beverages, because the statutory-obligation proviso applies where the employer must provide the facility. However, credit is restricted to the employer's own cost and is proportionately disallowed to the extent of employee recoveries.

---

---

Issues: (i) Whether deduction of a nominal amount from employees' salary for canteen food in the factory premises constitutes a supply under section 7. (ii) Whether input tax credit is available on GST charged by the canteen service provider for the canteen facility, and to what extent.

Issue (i): Whether deduction of a nominal amount from employees' salary for canteen food in the factory premises constitutes a supply under section 7.

Analysis: Supply under section 7 requires a taxable element of consideration in the course or furtherance of business, subject to the exclusions in Schedule III. The canteen facility was provided as a statutory obligation under the Factories Act and as part of the employment-linked canteen policy. The nominal deduction was only a recovery mechanism for the subsidized facility and did not create a taxable supply in the hands of the employer.

Conclusion: The deduction from salary for availing the canteen facility does not constitute a supply under section 7, and the answer is in favour of the assessee.

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

Analysis: Input tax credit on food and beverages is ordinarily blocked under section 17(5)(b), but the proviso permits credit where the employer is under a legal obligation to provide such to employees. The canteen was mandatory under the Factories Act, and the 2022 CBIC circular clarified that the proviso applies to the whole of clause (b). Credit was therefore admissible, but only to the extent of the cost borne by the employer, with proportionate credit disallowed for the employee-recovered portion.

Conclusion: Input tax credit is available on the canteen service GST, restricted to the employer's own cost, and this issue is in favour of the assessee.

Final Conclusion: The ruling holds that employee salary deduction for the subsidized factory canteen is not taxable as a supply, and that credit on mandatory canteen services is admissible only to the limited extent borne by the employer.

Ratio Decidendi: Where a canteen facility is statutorily mandated for employees, employee recoveries for subsidized canteen do not amount to a taxable supply, and the blocked-credit restriction yields to the statutory-obligation proviso in respect of GST on the inward canteen service, subject to proportionate disallowance for amounts recovered from employees.

---