Maharashtra AAR Holds GST Payable on Nominal Recoveries for Employee Canteen and Transport Facilities; Exemption Under Notification 12/2017 Not Applicable

Background and Issues:
The applicant, Wika Instruments India Pvt. Ltd., sought advance rulings on the GST implications of providing canteen and passenger transport facilities to its employees, specifically where only nominal amounts are recovered from employees. The applicant contended that such recoveries should not be treated as ‘supply’ under GST, arguing these facilities are not in the course or furtherance of business and should be considered perquisites excluded from GST by virtue of Schedule III and relevant CBIC circulars.

Applicant’s Contentions:
The applicant argued that the provision of bus and canteen facilities is not incidental or ancillary to its core manufacturing business and thus falls outside the definition of ‘business’ under Section 2(17) of the CGST Act. It further submitted that, even if considered a supply, the exemption under Sr. No. 15(b) of Notification No. 12/2017 (for non-air-conditioned contract carriage) should apply. Regarding input tax credit (ITC), the applicant claimed ITC should be available to the extent of the cost borne by the employer.

Department’s Submissions:
The jurisdictional officer countered that any recovery, even nominal, constitutes consideration, making the provision of such services a taxable supply under Section 7 of the CGST Act. The officer also noted that the exemption under Notification No. 12/2017 applies only to services provided directly by a contract carriage permit holder, which was not the case here, as the applicant was not the permit holder. The officer further argued that ITC is not available on exempt supplies and that canteen services provided for consideration to employees are taxable.

Court’s Reasoning and Findings:
The AAR examined the definition of ‘business’ under Section 2(17) and held that providing canteen and transportation facilities to employees is incidental or ancillary to the principal business activity and thus falls within the scope of ‘business’. The authority found that there are two distinct supplies: (i) from the third-party service provider to the employer (taxable to the employer), and (ii) from the employer to the employees (taxable to the extent of recovery from employees).

The AAR clarified that only perquisites provided free of charge or as part of the employment contract are excluded from GST, as per Schedule III and CBIC Circular No. 172/04/2022-GST. However, any amount recovered from employees, even if nominal, is consideration and thus taxable. The authority distinguished between the perquisite (non-taxable) and the recovered amount (taxable).

On the question of exemption under Notification No. 12/2017, the AAR held that the applicant, not being the contract carriage permit holder, does not satisfy the conditions for exemption under Sr. No. 15(b). The arrangement was characterized as a rent-a-cab service, which is taxable under GST.

Regarding ITC, the AAR relied on Section 17(5)(g) of the CGST Act, which blocks ITC on goods or services used for personal consumption. The authority cited judicial precedents to hold that transportation and canteen services provided to employees are for personal consumption and thus ITC is not available.

Final Ruling:
1. The provision of passenger transport and canteen facilities by the employer to employees, with nominal recoveries, constitutes a taxable supply under GST. GST is chargeable on the amount recovered from employees.
2. The exemption under Sr. No. 15(b) of Notification No. 12/2017-Central Tax (Rate) is not applicable to the applicant.
3. Input Tax Credit on transportation services availed from transport service providers is not available under Section 17(5)(g) of the CGST Act.
4. For canteen services, GST is chargeable on the recovered amount, and ITC is not available.

The AAR thus provided clear guidance that nominal recoveries from employees for such facilities are taxable, the relevant exemption is not available, and ITC is barred on these services.