The Authority for Advance Rulings (AAR), Gujarat in the case of M/S. KOHLER INDIA CORPORATION PVT LTD., vide Order No. GUJ/GAAR/R/2024/03 dated 05.01.2024, held that deduction of amount by the applicant from the salary of the employees who are availing facility of food provided in the factory premises would not be considered as a ‘supply’ under the provisions of section 7 of the CGST Act, 2017 and the GGST Act, 2017. Hence, Input Tax Credit (ITC)  is restricted to the extent of the cost borne by the applicant for providing canteen services to its employees.

In this case, the applicant to comply with requirement of Factories Act, 1948, entered into a contract with a canteen service provider (CSP) to provide canteen facilities to their workers at their factory premises. The invoice is raised by the CSP on the basis of the consumption by the employees of the applicant, which is tracked based on employees of the applicant who avail the canteen facility. A part of the canteen charges is borne by the applicant whereas the remaining part is borne by their employees. Further, The employees’ portion of canteen charges is collected from employee’s salaries and paid to the CSP by the applicant on behalf of employees. The amount so collected is without any commercial objective.

The Applicant sought advance ruling on issues as under:

i) Whether the deduction of nominal amount made by the applicant from the employees who are availing food in the factory premises would be considered as a ‘supply’ under the provisions of section 7 of the CGST Act, 2017.

ii) Whether the applicant is eligible to take the ITC for the GST charged by the CSP for canteen services, where the canteen facility is mandatory in terms of section 46 of the Factories Act, 1948.

The AAR, Gujarat held as under:

i) In accordance with the Circular No. 172/04/2022-GST, it is clarified that perquisites provided by the ‘employer’ to the ‘employee’ in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee.

ii) There is no dispute as far as [a] the canteen facility is provided by the applicant as mandated in Section 46 of the Factories Act, 1948 is concerned; and [b] the applicant has provided a sample copy of the HR Manual which provides that all the employees are governed at a subsidized rate. 

iii) Accordingly, the deduction made by the applicant from the employees who are availing food in the factory would not be considered as a ‘supply” under the provisions of section 7 of the CGST Act, 2017.

iv) 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 employees other than contract 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. However, such ITC shall be restricted to the extent of the cost borne by the applicant for providing canteen services to its employees, but disallowing proportionate credit to the extent embedded in the cost of goods recovered from such employees.

To read the complete Ruling 2024 Taxo.online 55