No GST ITC on Provision of Third-Party Canteen Services to Contractual Workers: AAAR [Read Order]

In a notable ruling, the Gujarat Appellate Authority for Advance Ruling ( AAAR ) has ruled that no Input Tax Credit ( ITC ) may be availed by an employer on the Goods and Services Tax ( GST ) paid for canteen services provided to contractual workers.

The decision was rendered by the Gujarat AAAR while adjudicating an appeal filed by M/s. Troikaa Pharmaceuticals Ltd. (Troikaa Pharmaceuticals) against a ruling passed by the Gujarat Authority for Advance Ruling (AAR), which denied ITC to the Applicant on the ground that providing food to contractual workers was not a statutory requirement under any law.

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Troikaa Pharmaceuticals is engaged in the manufacture, sale, and distribution of pharmaceutical products and provides canteen facilities to both its employees and contractual workers through a third-party service provider, recovering 50% of the food costs from employees and contractual staff while bearing the remaining expenses itself.

The Applicant queried before the AAAR whether they could claim ITC on the GST paid for these canteen services rendered to both employees and contractual workers, in light of the fact that provision of canteen facilities to employees is a mandatory requirement under Section 46 of the Factories Act, 1948.

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In the preceding ruling, AAR had ruled that while ITC was available for GST paid on food provided to employees, it could not be claimed for contractual workers since the contractual workers do not share an employer-employee relationship with the company. Thus there persists no obligation on the employer to provide canteen services to the contractual workers under any statutory mandate.

Troikaa Pharmaceuticals, appearing through Chartered Accountants Sandip Gupta and Arun Govlani reiterated their submissions that, as the principal employer, they have a duty to provide canteen facilities when the labor contractor fails to do so.

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The AAAR Bench, comprising Rajeev Topno SGST Member and B.V. Siva Naga Kumari, CGST Member, upheld the GAAR ruling stating that since contractual workers are not statutory employees, ITC on their canteen costs is blocked under Section 17(5)(b) of the CGST Act, 2017.

Another key issue raised was the applicability of Circular No. 172/04/2022-GST, which clarifies that GST is not applicable on perquisites provided by an employer to its employees under a contractual agreement. The AAAR ruled that the provisions of the circular do not apply to contractual workers since they do not fall within the definition of “employees” under the GST regime.

To Read the full text of the Order CLICK HERE

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