GST ITC Is Not Admissible On Amount Paid To Canteen Service Providers, Amount Recovered From The Employees: Uttarakhand AAR

The Uttarakhand Authority of Advance Ruling (AAR) has ruled that the Input Tax Credit (ITC) is not admissible on the amount paid to the canteen service providers and on the amount recovered from the employees.

The two-member bench of Rameshwar Meena and Anurag Mishra has observed that the nominal amount of recoveries made by the applicant from the employees who are provided food in the factory canteen would be considered a "supply."

The applicant is an engineering company engaged in the manufacture of precision steel tubes and strips for automotive and industrial chains, car door frames, and bicycles. The applicant has a factory in the state of Uttarakhand where more than 500 workers (both direct and indirect) are employed.

The applicant has entered into an agreement with the contractors to operate a canteen within the factory premises to provide food to their employees. The applicant recovered a nominal amount from the employees on a monthly basis, and such recoveries are shown as a deduction in the employees' monthly slips. They do not avail themselves of input tax credits (ITC) on the expenses incurred on the services provided by the canteen service provider and are absorbing the GST charged by the canteen service provider as a cost in the books of accounts.

The applicant sought an advance ruling on the issue of whether the nominal amount of recoveries made by the applicant from the employees who are provided food in the factory canteen would be considered a "supply."

Another question raised was whether GST should be levied on the amount recovered from employees for food provided in the factory canteen or on the amount paid by the applicant to the canteen service provider. Is it possible to claim an input tax credit (ITC) on the GST charged by canteen service providers?

The AAR has held that the supply of food by the employer, i.e., the applicant, to their employees is a composite supply of food held as a "supply of service" as per Schedule-II of the GST Act, and the amount collected by the applicant is a "consideration" on which GST is liable to be paid.

The authority noted that the input tax credit on goods and services tax paid on canteen facilities is barred under section 17(5)(b)(i) of the Central Goods and Services Act, 2017, and hence inadmissible.

Applicant's Name: Tube Investment of India Limited

Date: 24.11.2022

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