Mandatory canteen GST treatment excludes employee recoveries from taxable supply and limits input credit to employer-funded costs.
Statutorily mandated subsidised canteen facilities provided under an employer-employee arrangement do not constitute a taxable supply when employee deductions represent meal charges under the employer's canteen policy. The employment-perquisite exclusion applies where canteen provision is compulsory under applicable factory or employment legislation, so GST does not apply to employee recoveries. Input tax credit for canteen services remains available where provision of the facility is legally obligatory, but only for the cost borne by the employer. Credit attributable to the portion recovered from employees is blocked.
Issues: (i) Whether employee recoveries for subsidised mandatory canteen facilities amount to a taxable supply. (ii) Whether input tax credit on canteen services is available and, if so, to what extent.
Issue (i): Whether employee recoveries for subsidised mandatory canteen facilities amount to a taxable supply.
Analysis: Section 7 of the Central Goods and Services Tax Act, 2017 requires a supply for consideration in the course or furtherance of business. The canteen facilities at the factory and research facility were obligatory under Section 46 of the Factories Act, 1948, while the corporate-office canteen was obligatory under Section 23 of the Gujarat Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2019. The facilities were governed by the employer's canteen policy and the employee deductions represented subsidised meal charges. Circular No. 172/04/2022-GST treats employment perquisites provided under the employer-employee arrangement as outside GST.
Conclusion: The recoveries from employees towards canteen facilities are not a supply and do not attract GST. The issue is decided in favour of the assessee.
Issue (ii): Whether input tax credit on canteen services is available and, if so, to what extent.
Analysis: The proviso to Section 17(5)(b) of the Central Goods and Services Tax Act, 2017, as clarified by Circular No. 172/04/2022-GST, applies to the whole of clause (b) and permits input tax credit where provision of the relevant facility is obligatory under law. Since the canteen facilities were statutorily mandatory, the blocked-credit restriction did not apply to the employer's cost. Credit attributable to the portion of canteen cost recovered from employees remains unavailable.
Conclusion: Input tax credit on canteen services is admissible only to the extent of the cost borne by the assessee; proportionate credit embedded in the amounts recovered from employees is disallowed. The issue is partly decided in favour of the assessee.
Final Conclusion: Statutorily mandated subsidised canteen facilities provided as part of the employment arrangement fall outside taxable supply, while the associated credit entitlement is confined to the employer-funded portion of the facility.
Ratio Decidendi: Where an employer provides a statutorily mandatory canteen under an employment arrangement, employee recoveries do not constitute taxable supply, and input tax credit is available only for the cost borne by the employer.