In Re Kion India Pvt Ltd. (GST AAR Maharashtra)
The Maharashtra Authority for Advance Ruling (AAR) has ruled that nominal amounts recovered by an employer, Kion India Pvt Ltd., from its employees for providing subsidized canteen facilities and non-air-conditioned bus transportation are subject to Goods and Services Tax (GST). The AAR addressed two key questions raised by the applicant, a manufacturing company mandated under the Factories Act, 1948, to provide canteen facilities to its workers. The company recovers a portion of the canteen costs from employee salaries and also proposes to deduct a nominal amount for transportation services provided through a third-party contractor due to the factory’s remote location.
Regarding the canteen services, the AAR rejected the applicant’s argument that the recovery is not a taxable supply as it is ancillary to the primary business and a contractual perquisite. The authority stated that the provision of canteen services constitutes “business” under the Central Goods and Services Tax (CGST) Act, 2017, as it is incidental to the company’s main activity and involves consideration in the form of salary deductions. Consequently, the AAR concluded that the supply of canteen services is taxable under GST on the amount recovered from the employees.
On the issue of Input Tax Credit (ITC) on the GST paid to the canteen service provider, the AAR disallowed it. While Section 17(5) of the CGST Act generally blocks ITC on food and beverages, a proviso allows it when the provision is obligatory under any law. The applicant argued that providing a canteen was mandatory under the Factories Act. However, the AAR referred to Notification No. 11/2017-Central Tax (Rate), as amended, which specifies a mandatory concessional GST rate of 5% for restaurant services without the option of availing ITC in non-specified premises, which includes the applicant’s factory. The AAR also noted that even if the applicant ran the canteen directly, it would be liable to pay GST at 5% without ITC. Therefore, engaging a third-party contractor does not entitle the applicant to claim ITC.
