Statutory canteen recoveries and input tax credit: employment-linked food supply in a mandatory factory canteen is not taxable.

A statutory canteen maintained under the Factories Act, 1948 was treated as an employment welfare obligation, not a business supply in the course or furtherance of business. Subsidised recoveries from regular and contract employees for food supplied in that canteen were held outside taxable supply under the CGST Act and Schedule III, supported by the GST circular on employment-related perquisites. The ruling also held that the restriction on input tax credit for food and beverages does not apply where such provision is obligatory under law. Accordingly, input tax credit on inward supplies used for the mandatory canteen was admissible, and partial recovery from employees did not affect eligibility.

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Issues: (i) Whether GST is chargeable on subsidised recoveries made from employees on the rolls and contract employees towards food supplied in a canteen maintained under the Factories Act, 1948; (ii) Whether input tax credit is admissible on inward supplies used for the statutory canteen.

Issue (i): Whether GST is chargeable on subsidised recoveries made from employees on the rolls and contract employees towards food supplied in a canteen maintained under the Factories Act, 1948.

Analysis: The canteen was treated as a statutory welfare facility rather than a business activity undertaken in the course or furtherance of business. The canteen policy formed part of the employment framework and applied to both regular and contract workers. Food supplied under such statutory or employment-linked obligation was regarded as an employment-related perquisite, falling outside the concept of taxable supply. The obligation under Section 46 of the Factories Act, 1948, read with the inclusive definition of "worker" in Section 2(1) of that Act, extended the canteen obligation to contract labour as well. The clarification in Circular No. 172/04/2022-GST dated 06.07.2022 supported the view that such perquisites are not taxable supplies under Section 7 of the Central Goods and Services Tax Act, 2017 and Schedule III of that Act.

Conclusion: GST is not chargeable on the subsidised amount recovered from both regular and contract employees for food supplied in the statutory canteen.

Issue (ii): Whether input tax credit is admissible on inward supplies used for the statutory canteen.

Analysis: The general restriction on credit for food and beverages under Section 17(5)(b) of the Central Goods and Services Tax Act, 2017 was held to be subject to the proviso permitting credit where provision of such goods or services is obligatory under law. Since the canteen was mandatory under Section 46 of the Factories Act, 1948, the restriction did not operate to deny credit. Partial recovery from employees was held not to affect eligibility, so long as the GST burden was not passed on to them.

Conclusion: Full input tax credit on inward supplies used in the statutory canteen is admissible.

Final Conclusion: The ruling grants tax relief on subsidised canteen recoveries and permits credit on canteen-related inward supplies because the facility is a statutory employment welfare obligation.

Ratio Decidendi: A canteen maintained under a statutory employment obligation is not a taxable supply when food is provided as an employment-related perquisite, and the proviso to the input tax credit restriction applies to allow credit on inward supplies used for that mandatory facility.

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