Whether ITC is available on canteen services provided to employees

In re: Tata Motors Ltd. [2022 (12) TMI 1363 - Gujarat AAAR]

Question

Whether ITC is available on canteen services provided to employees?

FACTS OF THE CASE

1. The Appellant is maintaining canteen facilities for their employees at their factory premises as per the mandate under the Factories Act, 1948.

2. The Appellant is recovering nominal amount from employees and expenditure incurred towards canteen facility borne by them.

3. The ruling sought is on

(a) whether ITC is available to the Appellant on GST charged by the service provider on the canteen facility provided to employees working in the factory and

(b) if yes, whether it will be restricted to the extent of cost borne by the Appellant.

RULING

1. It was held that ITC will be available to the Appellant in respect of food and beverages as canteen facility is obligatorily to be provided under the Factories Act, 1948. Circular No. 172/04/2022-GST dated 06.07.2022 to clarify the proviso, after Section 17(5)(b)(iii) of CGST Act, is applicable to whole clause (b) of Section 17(5).

Section 17(5)( b) of CGST Act, 2017 reads as under:

(b) the following supply of goods or services or both-

(i) Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein,life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

“Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force”.

2. According to the provision, therefore, ITC will be available on obligations of an employer towards its employee.

3. However, the Hon'ble AAAR also clarified that ITC on the above is restricted to the extent of cost borne by the Appellant for providing canteen services to its employees.

4. The credit will not available to the extent the same is embedded in the cost of food recovered from such employees. The AAAR relied on the judgment of the Hon'ble Bombay High Court in the case of CCE Vs Ultratech Cement [2010 (260) ELT 369 (Bom)].

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