Employee Recovery Towards Subsidised Canteen Is Not ‘Supply’ Under Section 7, ITC Available Under Proviso to Section 17(5)(b) for Factory, R&D Facility and Corporate Office: Gujarat AAR Rules Comprehensively for Torrent Pharmaceuticals

The Gujarat Authority for Advance Ruling has held that the portion of canteen charges deducted from employees’ salaries by Torrent Pharmaceuticals Ltd. towards subsidised canteen facility at its Indrad plant, R&D facility at Bhat and corporate office at Ashram Road, Ahmedabad does not constitute a ‘supply’ under Section 7 of the CGST Act, and that the company is eligible to avail ITC on GST charged by the canteen service provider at all three locations — restricted to the extent of cost borne by the employer — by virtue of the proviso to Section 17(5)(b), since provision of canteen facility is obligatory under Section 46 of the Factories Act (for the plant and R&D facility where 250+ workers are employed) and Section 23 of the Gujarat Shops and Establishment Act (for the corporate office where 100+ workers are employed). The ruling by Members Sushma Vora and Vishal Malani in GUJ/GAAR/R/2026/36 (decided 25.09.2026) is the first Gujarat AAR ruling to expressly extend the ITC entitlement under the Shops & Establishment Act canteen mandate to a corporate office, beyond the factory premises.

The AAR relied on CBIC Circular No. 172/04/2022-GST which clarified that (a) the proviso to Section 17(5)(b) applies to the whole of clause (b), not just sub-clause (iii), and (b) perquisites provided by the employer to the employee in terms of the contractual agreement are not subjected to GST. The company’s canteen policy dated 01.04.2025 provided 50% subsidy at the plant and R&D centre, and a cross-subsidy model at the corporate office ranging from 4% (Vice President and above) to 49% (Assistant Manager, Management Trainee and below). The AAR held that the nominal amounts recovered by way of salary deduction do not constitute ‘consideration’ for a supply as there is no legal intention to enter into a contract for exclusive supply of canteen facility with employees. The ITC on canteen services is however restricted to the extent of cost borne by the applicant, disallowing proportionate credit embedded in the cost recovered from employees.

- 2026-juristway.com-2671-AAR(Gujarat)-GST  |  AAR Gujarat  |  GUJ/GAAR/R/2026/36  |  25.09.2026