Advance Ruling- Supply- Input Tax Credit- The applicant is engaged in the business of manufacture, supply and distribution of various pharmaceutical products. The applicant has employed around 2745 full time permanent employees in their factory and corporate office. They are also registered under the Factories Act, 1948.

The applicant provides canteen facility to its employees at the factory and its corporate office. The reasons provided by the applicant for providing the aforementioned facility is that in terms of section 46 of the Factories Act, 1948, they are mandated to provide and maintain canteen for the use of its employees. Since the factory premises is located far away from the city limits, the applicant provides canteen facility by appointing a canteen service provider.

The applicant has filed this application for advance ruling to ascertain the GST implication on the existing arrangement of canteen facility being provided to all the employees at the factory and the corporate office of the applicant. Vide the aforesaid application, the applicant has raised the following question for advance ruling viz,-

(i) Whether the subsidized deduction made by the applicant from the employees who are availing food in the factory/corporate office would be considered as a 'supply' under the provisions of section 7 of the CGST Act, 2017 and the GGST Act, 2017?

(ii) If yes, whether GST is applicable on the amount deducted from the salaries of its employees?

(iii) If yes, on what portion GST will be applicable ie amount paid by the applicant to the canteen service provider or only on the amount recovered from the employees?

(iv) Whether ITC of GST charged by the canteen service provider would be eligible for availment to the applicant?

Authority for Advance Ruling, Gujarat held that :- 

1. The subsidized deduction made by the applicant from the employees who are availing food in the factory/corporate office would not be considered as a 'supply' under the provisions of section 7 of the CGST Act, 2017 and the GGST Act, 2017.

2 & 3. Since the answer to the above is not in the affirmative, the ruling sought in respect of the second and the third question is rendered infructuous.

4. Input Tax Credit (ITC) will be available to the applicant on GST charged by the service provider in respect of canteen facility provided to its direct employees working in their factory and the corporate office, in view of the provisions of Section 17(5)(b) as amended effective from 1.2.2019 and clarification issued by CBIC vide circular No. 172/04/2022-GST dated 6.7.2022 read with provisions of section 46 of the Factories Act, 1948 and read with provisions of Gujarat Factory Rules, 1963 and Gujarat Shops and Establishment (Regulation of Employment and Condition of Service) Act, 2019. ITC on the above 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.