The Gujarat Authority for Advance Ruling ( AAR ) clarified that GST is not applicable on the amount recovered from permanent employees for canteen facilities.
However, it was clarified that the company can claim Input Tax Credit ( ITC ) on the expenses related to these permanent employees. It was also noted that, “ITC on the above is restricted to the extent of the cost borne by the applicant for providing canteen services to its employees, but disallowing proportionate credit to the extent embedded in the cost of goods recovered from such employees”(for whom canteen facility which is obligatory under the factories Act, 1948, read with Gujarat Factories Rules, 1963).
M/s. Suzuki Motors Gujarat Pvt. Ltd. is in the business of manufacturing passenger cars and parts. They provide canteen services to their employees at subsidized rates as per the Factories Act, 1948.
The company covers 70% of the cost for permanent employees and employees of the parent company, while also offering these services to temporary workers. As a part of the canteen facility, the applicant provides meals which include breakfast, lunch, dinner, tea and snacks. The applicant has entered into an agreement dated 15.7.2020 with M/s. Shashi Catering Service Private Ltd, a canteen service provider [for short- CSP], to provide food and beverages to its employees.
The company sought clarity on whether their canteen services fall under GST and if they can claim ITC on related expenses like equipment and kitchen facilities.
The Authority Bench noted that as per the Central Goods and Services Tax Act, 2017, certain activities are excluded from GST, including perquisites provided by an employer to an employee as per their contract.
The AAR referred to relevant circulars and notifications stating that the GST rate for food or drink at canteens is prescribed without ITC. They clarified that temporary workers, employees on deputation, and those on business travel do not fall under the employer-employee relationship, hence their canteen services are subject to GST.
The Gujarat Authority Bench of CGST Member Amit Kumar Mishra and State GST Member Riddesh Raval ruled that the company can claim ITC only on expenses related to permanent employees, not on those related to temporary or deputed workers.
In conclusion, the applicant was ruled to be exempt from GST on canteen charges for permanent employees and can claim ITC accordingly. However, it was added that they must pay GST for similar services provided to temporary workers and others, without eligibility for ITC on those expenses. Additionally, ITC cannot be claimed on inputs like equipment and kitchen utensils.
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