Order Date – 31 March 2023 

Facts –  

• The Applicant, M/s. Cadila Pharmaceuticals Ltd, is engaged in the business of manufacture, supply and distribution of various pharmaceutical products. The applicant provides canteen facility to its employees at the factory and its corporate office in terms of section 46 of the Factories Act, 1948, as they are mandated to provide and maintain canteen for the use of its employees. 
• The Applicant has entered into an agreement with Canteen Service Provider (CSP) that a portion of the said amount is recovered from the employees and the remaining part is borne by the applicant; that the amount so borne by the applicant is treated as staff welfare expenses towards subsidized food served to employees.

Issue – 

• Whether the canteen facility provided by the applicant at the factory and its corporate office is liable to GST? 

Order – 

• The AAR observed that it is clear that the canteen facility is provided by the applicant as mandated in Section 46 of the Factories Act, 1948. It is also evident that the canteen facility is provided by the applicant to the full time employees of its corporate office as mandated in Section 23 of the Gujarat Shops and Establishment (Regulation of Employment and Condition of Service) Act, 2019. 
• Hence, it was held that in terms of Circular No. 172/04/2022-GST the subsidized deduction made by the applicant from the employees who are availing food in the factory and the Corporate Office would not be considered as a 'supply' under the provisions of section 7 of the CGST Act, 2017. 
• It was also held that Input Tax Credit 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. ITC 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. 

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