Order Date – 21 November 2022

Facts –

• The Applicant, M/s. Eimco Elecon (India) Limited is engaged in manufacturing and supplying mining and construction equipment with more than 250 employees, including contract workers.
• They provide canteen services in compliance with Section 46 of the Factories Act, 1948, through a third-party canteen service provider (CSP).
• The company recovers a portion of canteen expenses from employees and contract workers without any profit margin.

Issue –

• Whether GST is applicable on canteen services provided by a third-party CSP, and if the company can avail Input Tax Credit (ITC) for the GST charged by the CSP?

Order –

• The AAR observed that in terms of circular No. 17210412022-GS't, 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.
• Further, 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 an extract of HR policy on canteen facility to employees.
• Hence it was held that the subsidized 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. However, the aforementioned finding is only in respect of employees i.e. permanent employees.
• It is clear from the contract agreement that the contract is entered between the applicant and the contractor not with the contract worker, hence the canteen services provided by the applicant would fall within the ambit of the definition of outward supply as per section 2(83) of the CGST Act, 2017, and liable to tax under GST.
• ITC will be available to the appellant in respect of food and beverages as canteen facility is obligatorily to be provided under the Factories Act, 1948, read with Gujarat Factories Rules, 1963 as far as provision of canteen service for full time/direct employees working on permanent basis at the factory is concerned. It is further held that the ITC on GST charged by the canteen service provider will be restricted to the extent of cost borne by the appellant only.