Employee canteen recoveries are taxable, canteen ITC is denied, and notice pay recovery falls outside GST.

Recovery from employees for canteen facility was treated as consideration for a taxable supply, because the canteen arrangement formed part of the employer's business and the employer supplied the service to employees through salary deduction; GST was payable on the employee recovery. Input tax credit on GST charged by the canteen service provider was denied on the facts, despite the statutory canteen obligation, because the applicable rate conditions and notification restrictions prevented availment. Salary recovered in lieu of notice period was held not taxable under GST, as it was a contractual recovery and not consideration for tolerating an act or situation.

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Issues: (i) Whether recovery of a nominal amount from employees for canteen facility constitutes a supply of service and whether GST is payable on such recovery; (ii) whether input tax credit on GST charged by the canteen service provider is available and, if so, whether it is restricted to the cost borne by the applicant; (iii) whether salary recovered in lieu of notice period from employees is taxable under GST.

Issue (i): Whether recovery of a nominal amount from employees for canteen facility constitutes a supply of service and whether GST is payable on such recovery.

Analysis: The canteen arrangement was held to be part of the applicant's business because it was incidental and ancillary to manufacturing activity and was supplied to employees for consideration through salary deduction. The employer recovered a part of the canteen cost from employees, while the balance was borne by the employer, and the employer was treated as the supplier of the service to employees. The employee-side recovery was treated as consideration for a taxable supply and the perquisite exclusion was confined to the employer-borne portion.

Conclusion: The recovery from employees for canteen facility is a supply of service and GST is payable on the amount deducted from employees' salaries.

Issue (ii): Whether input tax credit on GST charged by the canteen service provider is available and, if so, whether it is restricted to the cost borne by the applicant.

Analysis: Although canteen facility was obligatory under the factory law, the authority held that the canteen contractor supplied restaurant service taxed at the concessional rate without ITC, and that the applicant could not claim ITC merely because it engaged a contractor instead of running the canteen itself. The blocking provision was considered inapplicable to the extent of the statutory obligation, but the applicable rate notification and its conditions prevented availment of ITC in the present arrangement.

Conclusion: ITC on GST charged by the canteen service provider is not available to the applicant.

Issue (iii): Whether salary recovered in lieu of notice period from employees is taxable under GST.

Analysis: The recovery of notice pay was treated as a contractual recovery made to deter premature resignation and not as consideration for agreeing to tolerate an act or situation. The amount did not represent a taxable supply because the employee received nothing in return for the recovery and the circular clarification was applied to such recoveries.

Conclusion: Notice pay recovery is not taxable under GST.

Final Conclusion: The ruling treats employee canteen recoveries as taxable supplies, denies ITC on the canteen tax charged by the service provider, and holds notice pay recovery to be outside GST.

Ratio Decidendi: A recovery from employees for canteen is taxable where the employer supplies the service for consideration in the course of business, but notice pay recovered under an employment contract is not consideration for a taxable supply; ITC depends on the applicable statutory and notification-based restrictions governing the inward supply.

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