GST ON CANTEEN SERVICES

Case Name : In re  Troikaa Pharmaceuticals Ltd (GST AAAR Gujarat)

Appeal Number : Ruling No. GUJ/GAAAR/APPEAL/2025/07 dated 28.02.2025

Herein the above advance ruling , the government emphasise on the GST impact on canteen services provided to its employees and corresponding utilisation of ITC.

The petitioner is a pharmaceutical company provide canteen services to its employees including contractual employees.  The company recovers 50% cost from its employees by deducting from their salaries while the contractual employees directly paid their share to canteen service provider.

Now the question is whether the sum recovered from its employees will be treated as "Supply" and subject to GST and whether ITC on such services are admissible or not.

The Gujarat Advance Ruling Authority concludes that:

The amount recovered from its Employees is not an supply as per circular no 172/4/2022 which clarifies that such service provided to employees is an obligation under the employer and employee relationship and mandated under Section 46 of the Factories Act. Hence the amount recovered from Employees will not be treated as Taxable Supply.

However the amount directly paid to canteen Service Provider will be treated as Taxable Supply as there is no employer employee relationship between such contractual employees and the Company. It is obligatory on the part of the labour contractor to provide canteen services to its employees. 

Hence the amount directly reimbursed to canteen service provider by the contractual employees will be treated as taxable  supply and subject to GST.

Regarding ITC, the ruling separated  employees and contractual workers. ITC on canteen charges for employees was allowed under Section 17(5)(b) of the CGST Act, as the service is obligatory under the Factories Act. 

However, ITC will not be available  for canteen services provided to contractual workers. The AAAR  explained that  the obligation to provide such facilities lies with the contractor under the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA). The absence of a statutory mandate for the Company to provide canteen facilities to contractual workers blocks ITC under Section 17(5)