Canteen charges from contractual workers are taxable, and input tax credit is blocked absent a legal obligation to provide the service.

AAAR held that recovery of canteen charges from contractual workers was taxable because they were not employees and the Schedule III exclusion applies only to services by an employee to an employer in the course of employment. The circular relied on was limited to employer-provided perquisites for employees, so the recovery constituted consideration for a taxable supply. It also held that input tax credit on GST paid for canteen services attributable to contractual workers was not admissible, because the proviso to section 17(5)(b) applies only where the employer is legally obliged to provide the service to its own employees. The advance ruling was therefore affirmed against the assessee.

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Issues: (i) Whether GST is leviable on the amount recovered by the appellant from contractual workers towards canteen charges; (ii) Whether input tax credit is admissible on GST paid on canteen facility supplied to contractual workers.

Issue (i): Whether GST is leviable on the amount recovered by the appellant from contractual workers towards canteen charges.

Analysis: The contractual workers were held not to be employees of the appellant, as the agreement expressly negatived any employer-employee relationship and the contractor remained responsible for labour-related obligations. The exemption in Schedule III applies only to services by an employee to an employer in the course of employment, and the circular relied upon by the appellant was confined to perquisites provided by an employer to its employees. The amount recovered from contractual workers towards canteen charges therefore constituted consideration for a taxable supply and did not fall within the Schedule III exclusion.

Conclusion: GST is leviable on the canteen charges recovered from contractual workers; the finding is against the assessee.

Issue (ii): Whether input tax credit is admissible on GST paid on canteen facility supplied to contractual workers.

Analysis: The proviso to section 17(5)(b) of the CGST Act, 2017 extends credit only where it is obligatory for an employer to provide the service to its employees under law. The statutory obligation under section 46 of the Factories Act, 1948 was treated as applicable to employees, not to contractual workers, and the record did not show failure by the contractor to discharge its own statutory duty under the labour contract regime. Since the canteen facility for contractual workers was not established as a mandatory obligation on the appellant, the blocked credit provision continued to apply.

Conclusion: Input tax credit on canteen services attributable to contractual workers is not admissible; the finding is against the assessee.

Final Conclusion: The impugned advance ruling was affirmed because the appellant failed to establish either that the recovery from contractual workers was outside the scope of taxable supply or that credit on such canteen services was saved by the statutory exception to blocked credit.

Ratio Decidendi: The statutory exception for credit on employee welfare services applies only where the employer is legally obliged to provide the service to its own employees, and a recovery made from non-employee contractual workers for canteen services is a taxable consideration not protected by the employment-based exclusion.

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