The decision also highlighted that the Input Tax Credit (ITC) is limited to the cost borne by the company for offering these canteen services.

Kohler India, in compliance with the Factories Act, 1948, had entered into an agreement with a canteen service provider (CSP) to supply meals to its workers. The CSP invoices the company based on the employees’ consumption, which is tracked through the factory’s system. While the company bears a portion of the canteen costs, the remainder is deducted from employees’ salaries without any profit motive.

The key issues addressed in the ruling were whether the nominal deduction from employees’ salaries for meals would be regarded as a ‘supply’ under the CGST Act, 2017, and whether the company could claim ITC for GST charged by the CSP for canteen services provided as mandated by the Factories Act, 1948.

The AAR concluded that the perquisites given by an employer to an employee under a contractual agreement are not subject to GST. Additionally, the provision of canteen facilities, as required by Section 46 of the Factories Act, 1948, is undisputed. The company’s HR Manual stipulates that employees receive these services at a subsidised rate. Therefore, the salary deductions for meals are not considered a ‘supply’ under the CGST Act, 2017.

Furthermore, the company can claim ITC for the GST paid on canteen services, but only to the extent of its share of the costs, excluding the proportionate credit embedded in the employees’ share of the cost.

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