GST applicable on recoveries made from employees who are provided food in the factory canteen: AAR

This is an application under Sub-Section (1) of Section 97 of the Central Goods & Service Tax Act, 2017 and Uttarakhand State Goods & Service Tax Act, 201 7 (hereinafter referred to as CGST/SGST Act) and the rules made there under filed by M/s Tube Investment of India Limited, 230 & 231, Gangnouli, Laksar, Haridwar, Uttarakhand-247663 (herein after referred to as the “applicant”) and registered with GSTIN 05MDCT1398N1ZW under the CGST Act, 2017 read with the provisions of the UKGST Act, 2017.

2. In the application dated 26.08.2022, the applicant submitted that:

(a) That they are a leading engineering company engaged in manufacture of precision steel tubes and strips, automotive, industrial chains, car door frame and bicycles. And they have a factory in the state of Uttarakhand where in more than 500 workmen (both direct and indirect) are employed.

(b) They have entered into agreement with the contractors to operate canteen within the factory premises to provide food to their employees.

(c) They recover nominal amount from the employees on monthly basis and such recoveries are shown as a deduction in the monthly slip of the employees.

(d) They do not avail input tax credit (ITC) on the expenses incurred on the services provided by the canteen service provider and are absorbing the GST charged by the canteen service provider as a cost in the books of accounts.

(e) They discharge GST @5% on the cost of the canteen service provider total taxable value plus 10% notional mark up.

Advance Ruling Required:

a. Whether the nominal amount of recoveries made by the Applicant from the employees who are provided food in the factory canteen would be considered as a “Supply” by the applicant under the precisions of Section 7 of Central Goods and Service Tax Act, 2017

b. Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the Applicant to the Canteen Service Provider

c. Whether input tax credit (ITC) is available to the on GST charged by the Canteen Service Providers for providing the catering services of the factory where it is obligatory for the Applicant to provide the same to Its employees as mandated under the Factories Act, 1948, even if the answer to question (a) is “No”

d. Whether input tax credit (ITC) can be availed on GST charged by the Canteen service providers, the answer to the question (b) is “Yes.

Ruling by AAR:

a. Whether the nominal amount of recoveries made by the Applicant from the employees who are provided food in the factory canteen would be considered as a “Supply” by the applicant under the precisions of Section 7 of Central Goods and Service Tax Act, 2017 – Yes, it is a supply.

b. Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the Applicant to the Canteen Service Provider – GST is applicable on both the amount i.e. amount paid to the canteen service provider and also on the nominal amount recovered from the employees.

c. Whether input tax credit (ITC) is available to the on GST charged by the Canteen Service Providers for providing the catering services of the factory where it is obligatory for the Applicant to provide the same to Its employees as mandated under the Factories Act, 1948, even if the answer to question (a) is “No” – Benefit of ITC is not admissible on the GST on the amount paid to the canteen service providers and also on the amount recovered from the employees.

d. Whether input tax credit (ITC) can be availed on GST charged by the Canteen service providers, the answer to the question (b) is “Yes.- No, ITC is not admissible on the GST on the amount paid to the canteen service providers.

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