The Gujarat AAR has held that no GST is payable on the amount representing the employees portion of canteen charges.
The Applicant, is engaged in the manufacture & supply of mining and construction equipment. They have set up their factory & business operations at various places across India. The applicant has employed more than 250 employees including contract workers in their factory and is also registered under the Factories Act, 1948.
The applicant further states that in terms of Section 46 of the Factories Act, 1948, they are statutorily mandated to provide canteen facility for their employees, including contract workers, at their factory premises. For this purpose, the Applicant has appointed a third-party canteen service provider (CSP) on contract basis, to provide canteen services at their factory.
In terms of the agreement between the Applicant and the CSP, the Applicant provides required space, utensils and other infrastructural facilities to the CSP to enable them provide the required canteen services. CSP raises tax invoice for providing the canteen service as per the agreed billing terms i.e. as per the dining strength which is ascertained based on the coupon collected from each employee and contract workers for tea/snacks and punching records for lunch and dinner, by charging GST at the rate of 5%.
The issue raised was whether GST is applicable on the amount recovered/collected by the applicant from the employees and contract workers towards canteen services provided by third party CSP at the canteen facility, which is obligatory for the applicant to provide and maintain under section 46 of the Factories Act, 1948.
Another issue raised was whether the applicant is eligible to avail ITC of the GST charged by the CSP for providing the canteen services, which is mandatory for the Applicant to provide and maintain under section 46 of the Factories Act, 1948.
The AAR ruled that GST, at the hands of the applicant, is not leviable on the amount representing the employees portion of canteen charges, which is collected by the applicant and paid to the CSP.
The AAR stated that GST, at the hands of the applicant, is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by the applicant and paid to the CSP.
The AAR stated that Input Tax Credit (ITC) will be available to the applicant on GST charged by the CSP in respect of canteen facility provided to its direct employees working in their factory and the corporate office, 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. 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.
“ITC on GST paid on canteen facility is not admissible to the applicant under Section 17(5)(b) of CGST Act, 2017, on the food supplied to contractual worker supplied by labour contractor,” the AAR ruled.