No ITC available for canteen expenses incurred for contract workers


The AAR, Gujarat, in M/s. Eimco Elecon India Ltd. [Advance Ruling No. Guj/Gaar/R/2023/28 dated August 24, 2023] ruled that, assessee will not get Input Tax Credit (“ITC”) of GST on canteen facility provided to contract worker because contract worker are not employees of the assessee but are employees of the Contractor and there is no obligation on the assessee to provide canteen facility to such contract worker.


M/s. Eimco Elecon India Ltd. (“the Applicant”) is engaged in the manufacturing and supply of mining and construction equipment.

The Applicant sets up factory at various places across India and had employed more than 250 employees including contract workers in the factory and is also registered under the Factories Act, 1948.

The Applicant contended that they are statutorily mandated to provide canteen facility for their employees, including contract workers, at their factory premises.

Accordingly, the Applicant entered into an agreement with canteen service provider (“CSP”) on contract basis, to provide canteen services to the employees in the factory.

CSP raises tax invoice for providing the canteen service as per the agreed billing and is charging GST @ of 5%.

The Applicant contended that as per Circular No. 172/04/2022-GST dated July 06, 2022, any perquisites offered by the employer to the employee as per employment contract are considered compensation for the employee’s services to the employer. Consequently, perquisites provided in accordance with the employment contract are exempt from GST.

However, in relation to canteen facility provided to contract workers, the Applicant recovered some portion of cost of food from the worker and the remaining cost is borne by the Applicant.

The Applicant contended that they are merely receiving the part of payment from contract worker and pay the same to the CSP without retaining the profit margin, therefore, there is only one supply from CSP to contract worker. Accordingly, there is no supply from the Applicant to the contract worker.

Accordingly, the Applicant stated that they are eligible to avail the credit of canteen services provided to employees and contract workers. In the case of direct workers, canteen services is provided as per the employment agreement and is perquisite.

In relation to contract workers, the Applicant made a reference to the Contract Labour Act according to which when the contractor fails to provide canteen services the principal employer is liable to provide the canteen services. Thus, the Applicant is under the obligation to provide the canteen services to the contract worker.


Whether the Applicant is eligible to avail ITC of the GST charged by the CSP for providing the canteen services?


The AAR, Gujarat, in Advance Ruling No. Guj/Gaar/R/2023/28 held as under:

  • Noted that, the subsidized deduction made by the Applicant from the permanent employees would not fall under the definition of ‘Supply’ in light of Circular 172/04/2022-GST dated July 06, 2022 wherein it has been clarified that perquisites provided by employer to the employees as per contractual agreement are not supply.
  • Held that, in relation to ITC on GST charged by the canteen service provider will be restricted to the extent of cost borne by the Applicant only.
  • In relation to contractual worker, noted that, they do not fall within the ambit of employee and it not obligatory for the Applicant to provide canteen facility to the contractual worker as per provisions of CLRA.
  • Held that, recovery from contractual worker on account of third-party canteen services provided by the Applicant would fall within the ambit of definition of ‘outwards supply’ and therefore liable to tax under GST.
  • In relation to ITC, noted that Section 17(5)(b)(i) of the Central Goods and Services Tax, 2017 (“the CGST Act”) allows ITC on food and beverage only in case where it is obligatory under law and since, the contract worker and the Applicant are not employee and employer and providing canteen facility to the contract worker is not obligatory for the Applicant, therefore the Applicant is not liable to the ITC on food supplied to contract workers.

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