Order dated: 10 August 2022

Facts

• The applicant, M/s Troikaa Pharmaceuticals Limited, provides canteen facilities to its employees and workers as per Factories Act, 1948.
• The applicant made arrangement of food (lunch and dinner) through an outside party, who prepares the food and supplies it to the applicant's employees and the contractual workers. The food supplier vendor raises an invoice of the food bill as per the agreed billing frequency (said invoice is raised on the basis of the actual number of the food plates consumed) by charging 5% GST.
• The Applicant provides the canteen facility at a subsidized rate of 50% (i.e. @ Rs.30 per plate amount as the amount charged by the food supplier vendor is Rs.60) to its employees and contractual workers.
• The food supplier raises the invoice amount on the applicant against food supplied to the employees. The applicant bears 10% of food amount and recovers the balance 50% of the food amount from the applicant employee’s salary pay out. The applicant pays full invoice value raised to the food supplier. In case of the security service contractor workers, the food supplier vendor raises the bill for the 50% amount (i.e. @ Rs.30 per plate) + GST 5% only as the balance 50% of food amount (i.e. @ Rs.30 per plate) is being directly paid by the individual worker to the vendor.
• The applicant submits that recoveries for providing canteen facility is not covered under the ambit of "supply" under Clauses of Section 7 of the CGST Act, 2017.

Issue

• Whether GST shall be applicable on the amount recovered by the Applicant from employees or contractual workers, when provision of third-party canteen service is obligatory under section 46 of the Factories Act, 1948?
• Whether input tax credit of GST paid on food bill of the Canteen Service Provider shall be available, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948?

Order

• The authorities clarified that any prerequisite provided by employer to employee in terms of contractual agreement are not liable to GST. Further, circular 172/04/2022 dated 06 July 2022 has settled the position which was many times accepted by the authority of Advance Ruling of various states including Gujarat.
• Further, it is clarified that the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the whole of said clause (b) of sub-section(5) of section l7 of the CGST Act. It is crystal clear that when the any of the expenditure as mentioned in clause(b) of Section 17(5) is obligatory on the part of employer, its credit is allowable and it  cannot be considered as block credit forming part of Section 17(5).
• 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 Canteen service provider.
• GST, at the hands of applicant is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider.
• ITC on GST paid on canteen facility is admissible under Section l7 (5)(b) of CGST Act on the food supplied to employees of the applicant subject to the condition that burden of GST have not been passed on to the employees of the applicant.
• ITC on GST paid on canteen facility is not admissible to the applicant under Section 17 (5(b) of CGST Act on the food supplied to contractual worker supplied by labour contractor.