Deduction Of Nominal Amount From Employee's Salary For Availing Food Facility Is Not 'Supply': Gujarat AAR

The Gujarat Authority of Advance Ruling (AAR) has ruled that deduction of nominal amount from employee's salary for availing food facility is not 'supply' under the provisions of Section 7 of the CGST Act, 2017.

The bench of Amit Kumar Mishra and Milind Kavatkar has observed that the exceptions are Schedule-I, which includes activities made or agreed to be made without consideration, and Schedule-III, which includes activities that shall not be treated as a supply of goods or services. The applicant's case is that they employ more than 300 employees who have been provided with canteen facilities in terms of Section 46 of the Factories Act, 1948. The applicant's primary role is that he provides a demarcated space and that the amount is paid by him to the CSP, a part of which is collected from the employees on behalf of the employees.

The applicant is engaged in the business of manufacturing and selling seamless stainless steel pipes and tubes along with high-resistance wires. They also rendered R&D services. The applicant states that they have employed more than 300 employees and are also registered under the Factories Act, 1948.

The applicant has sought an advance ruling on the issue of whether the deduction of a nominal amount by the applicant from the salary of the employees who are availing of the facility of food provided in the factory premises would be considered a "supply of service” by the applicant under the provisions of Section 7 of the Central Goods and Service Tax Act, 2017 and the Gujarat Goods and Service Tax Act, 2017.

Yet another issue raised was whether ITC, to the extent of the cost borne by the applicant, is available to the applicant on GST charged by the canteen service provider for providing the catering services.

The AAR has held that the deduction of a nominal amount made by the applicant from the salary of the employees who are availing of the facility of food provided in the factory premises would not be considered a 'supply' under the provisions of Section 7 of the CGST Act, 2017.

The AAR ruled that input tax credit (ITC) will be available to the applicant on GST charged by the service provider in respect of the canteen facility provided to its employees working in their factory. In view of the provisions of Section 17(5)(b) as amended effective February 1, 2019 and the clarification issued by CBIC via a circular dated 6.7.2022, read with the provisions of Section 46 of the Factories Act, 1948, and read with the provisions of the Gujarat Factory Rules, 1963, The ITC is restricted to the extent of the cost borne by the applicant for providing canteen services to its permanent employees, but disallows proportionate credit to the extent embedded in the cost of goods recovered from the employees.

Applicant's Name: Alleima India Private Limited

Click Here To Read The Ruling