No Supply on Salary deductions for Canteen Services & ITC available if Obligatory

Last updated: 27 September 2024

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The Gujarat Authority for Advance Ruling (AAR) has determined that deductions from employee salaries for canteen food are not considered a 'supply' under GST law. This means no GST is applicable on these deductions. Furthermore, employers who are legally obligated to provide canteen facilities under the Factories Act can claim Input Tax Credit (ITC) on GST paid to canteen service providers, but only up to the cost they bear themselves.

Court :
Gujarat AAR

Brief :
The Gujarat AAR, in the case of M/s Allemia India Private Limited, In Re [Ruling No. GUJ/GAAR/R/2024/17 dated. July 02, 2024] ruled that the deduction made by the Applicant from employees' salaries for food provided at the factory premises does not qualify as a "supply" under Section 7 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and Gujarat Goods and Services Tax Act, 2017("the GGST Act"). Further, the Applicant is entitled to Input Tax Credit ("ITC") on GST charged by the canteen service provider ("CSP"), in accordance with Section 17(5)(b) (amended from February 1, 2019) and CBIC Circular No. 172/04/2022-GST dated July 6, 2022, read with Section 46 of the Factories Act, 1948 and Gujarat Factories Rules, 1963. However, ITC is restricted to the cost borne by the Applicant, excluding the proportionate credit embedded in amounts recovered from employees.

Citation :
Ruling No. GUJ/GAAR/R/2024/17 dated. July 02, 2024

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