Employee welfare recoveries taxed as supply, while GST credit allowed only for statutory canteen costs

Employee recoveries for canteen and bus transportation facilities were treated as consideration for taxable supply where the employer provided the facilities through third-party vendors and recovered part of the cost from employees. The unrecovered portion was characterised as a perquisite, but the amounts recovered were held taxable under GST. On input tax credit, credit was allowed only for canteen services to the extent the employer bore the cost, because the canteen obligation fell within the statutory exception; credit was denied for transportation services, which were treated as employee personal consumption and not covered by a comparable exception.

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Issues: (i) Whether nominal recoveries from employees towards canteen and proposed bus transportation facilities constitute a taxable supply of service under the GST law; (ii) Whether input tax credit is available on GST charged by the canteen service provider and the proposed transport service provider.

Issue (i): Whether nominal recoveries from employees towards canteen and proposed bus transportation facilities constitute a taxable supply of service under the GST law.

Analysis: The facilities were provided by the employer through third-party vendors, with a part of the cost recovered from employees and the balance borne by the employer. The Authority held that the activity of providing canteen and transportation facilities was connected with the employer's business and was not outside the scope of supply merely because it arose from a statutory obligation or employment policy. It further held that the amounts recovered from employees represented consideration for the facilities supplied by the employer to employees, while the unrecovered portion represented a perquisite. On that basis, the recoveries were treated as taxable supplies to the extent of recovery from employees.

Conclusion: The nominal recoveries from employees for canteen and transportation facilities were held taxable, and GST was held applicable on the amounts recovered.

Issue (ii): Whether input tax credit is available on GST charged by the canteen service provider and the proposed transport service provider.

Analysis: The Authority examined the restrictions under the GST credit provisions and the statutory obligation to provide a canteen under the Factories Act, 1948. For canteen services, it held that the proviso to the blocked-credit provision applied because the employer was under a legal obligation to provide the facility, but credit was confined to the extent of cost borne by the employer. For transportation services, it held that credit was not available because the service was treated as being for personal consumption of employees and not under a statutory obligation comparable to the canteen mandate. The cited notification framework on restaurant service and the motor-vehicle credit restriction were also applied in this analysis.

Conclusion: Input tax credit was held available only for the canteen service, to the extent borne by the employer, and not available for the transportation service.

Final Conclusion: The ruling treats employee recoveries for canteen and transportation as taxable in the hands of the employer, while allowing credit only in the limited statutory canteen context and denying credit for the transport facility.

Ratio Decidendi: Where an employer supplies employee welfare facilities for consideration recovered from employees, the recovery is taxable as consideration for supply; input tax credit depends on whether the underlying inward supply is covered by a specific statutory exception or remains blocked as personal consumption.

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