Employee canteen recovery taxable; notice pay recovery treated as compensation and kept outside GST.

Recovery of a nominal employee contribution for subsidised canteen facilities was treated as consideration for a taxable outward supply of canteen services, because the canteen was maintained for factory employees and linked to the business under applicable factory law; the associated input tax credit on the canteen contractor's GST was held unavailable. Recovery of salary in lieu of unserved contractual notice period was treated as compensatory in nature, not as consideration for tolerating an act or situation, and was therefore held not liable to GST.

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Issues: (i) Whether recovery of a nominal amount from employees for canteen facility amounts to a supply of service under GST and whether input tax credit on GST charged by the canteen service provider is available; (ii) Whether recovery of salary in lieu of notice period from employees leaving without serving the contractual notice period is liable to GST.

Issue (i): Whether recovery of a nominal amount from employees for canteen facility amounts to a supply of service under GST and whether input tax credit on GST charged by the canteen service provider is available.

Analysis: The canteen arrangement was held to be connected with the business of the applicant because it was maintained for employees in the factory and was also mandated by the applicable factory law. The recovery from employees was treated as consideration for a taxable outward supply of canteen services by the employer to its employees. On input tax credit, the blocked credit provision was examined with the clarification that the proviso for employer-obligatory supplies under law applies to the whole clause, but the Authority concluded that in the present arrangement the credit on GST charged by the canteen service provider was not available to the applicant.

Conclusion: The nominal recovery from employees was held taxable as a supply of service, and ITC on the canteen contractor's GST was held not available to the applicant.

Issue (ii): Whether recovery of salary in lieu of notice period from employees leaving without serving the contractual notice period is liable to GST.

Analysis: The notice pay recovery was examined in the light of the CBIC clarification that amounts recovered for premature leaving of employment are penalties and not consideration for tolerating an act or situation. The Authority treated such recovery as compensatory in nature and not as a taxable supply.

Conclusion: Notice pay recovery was held not liable to GST.

Final Conclusion: The canteen recovery was brought to tax as an outward supply, the associated credit claim was denied, and notice pay recovery was excluded from GST.

Ratio Decidendi: A recovery from employees for subsidised canteen facilities can constitute consideration for a taxable supply by the employer, while contractual notice pay recovered for premature exit is not consideration for a taxable supply but a penalty for breach of employment terms.

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