GST not applicable on subsidized deduction made in canteen charges collected from employees: AAR

The applicant is engaged in the manufacturing of high chrome grinding media balls and parts of machinery for grinding and crushing. The applicant has employed more than 250 employees and is also registered under the Factories Act, 1948.

The applicant provides canteen facility to its employees at their Moraiya-Sanand factory. The primary reasoning for provision of the aforementioned facility is that in terms of section 46 of the Factories Act, 1948, they are mandated to provide and maintain canteen for their employees.

The applicant has arranged canteen service providers [for short – CSP] on contract basis. The CSP raises invoices along with applicable GST [if registered] for its canteen services. The invoices are based on the consumption, tracked on the biometric punching by the employees, availing the canteen facility. The employees bear 50% canteen charges while the remaining 50% is bome by the applicant on behalf of their employees. Further, it is the applicant’s contention that the amount collected from the employees is without any commercial objective, without profit margin and is credited to expense account while the applicant treats the canteen expense by booking it as an expense in their P&L account.

The applicant has filed this application for advance ruling to ascertain the GST implication on the existing arrangement of canteen facility being provided to the employees at the factory by raising the following question for advance ruling vtz

(i) Whether GST is applicable on the amount representing the employee’s portion of canteen charges recovered/collected by the applicant from its employees and paid to the canteen service provider on behalf of the employee.

(ii) Whether the Company is eligible to take the input tax credit for the GST charged by the canteen service provider for the canteen services for its employees where the canteen facility is mandatory in terms of section 46 of the Factories Act, 1948.

Advance Ruling:

1. GST is not leviable on the amount representing the employee’s portion of canteen charges recovered/collected by the applicant from its employees and paid to the canteen service provider on behalf of the employee since it would not be considered as a supply under the provisions of section 7 of the CGST Act, 2017 and the GGST Act, 2017.

2. Input Tax Credit (ITC) will be available to the applicant on GST charged by the service provider in respect of canteen facility provided to its direct employees working in their factory, in view of the provisions of Section 17(5)(b) as amended effective from 1.2.2019 and clarification issued by CBIC vide circular No. 172/04/2022-GST dated 6.7.2022 read with provisions of section 46 of the Factories Act, 1948 and read with provisions of Gujarat Factory Rules, 1963. ITC on the above is restricted to the extent of the cost borne by the applicant for providing canteen services to its direct employees but disallowing proportionate credit to the extent embedded in the cost of goods recovered from such employees.

For Official Ruling Download PDF Given Below: