AAR confirms ITC Eligibility for GST on Canteen Services for Factory Employees [Read Order]

The two member bench of the Gujarat Authority for Advance Ruling ( AAR ) has confirmed that Input Tax Credit ( ITC ) is eligible for Goods and Services Tax ( GST ) on canteen services provided to factory employees.

The applicant further states that they have engaged a canteen service provider [CSP] for preparing and supplying food to their employees. The applicant recovers Rs. 338/- on monthly basis from each employee in respect of the food being prepared and supplied by the CSP.

Further, the applicant states that in terms of section 46 of the Factories Act, 1948, since they have employed more than 500 employees, they are mandated to provide canteen for their employees; that they have ultimate control of affairs of the factory & would be considered as an 'occupier'; that they have set up  canteen facility has a separately demarcated area in the factory premises pursuant to & in compliance with the Factories Act; that the canteen facility has seating area with tables and chairs, cooking facility with utensils, refrigeration, storage rooms for keeping the cooked food, washrooms and wash basin, etc.

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The applicant held that credit of ITC charged on supply of services would only be allowed when such goods or services or both are used or intended to be used in the course or furtherance of business; that the CSP provides the services to the applicant in the preparation of food and maintenance of canteen premises, for  the applicant's employees that such services are provided in pursuance of applicant’s obligation to provide such facilities to its employees in the capacity of an occupier of the factory under the Factories Act.

The applicant has stated that they recover only a partial basic cost of the canteen charges & the GST on the entire canteen bill is borne by the applicant; that the amount recovered from the employee contains the component of basic cost excluding GST & no additional cost is recovered for the employees; that they should be allowed to avail the entire ITC on the GST charged by the CSP.

The tribunal hold that Input Tax Credit 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, read with Gujarat Factories Rules, 1963 as far as provision of canteen service employees working at the factory is concerned. It is further held that the ITC on GST charged by the canteen service provider will be restricted to the extent of cost borne by the appellant only.

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The authority bench, consisting of Milind Kavakar (Member of SGST) and Amit Kumar Mishra (Member of CGST), ruled that Input Tax Credit ( ITC ) will be available to the applicant on GST charged by the service provider for the canteen facility provided to employees working in their factory. This decision is based on the provisions of Section 17(5)(b) as amended effective from February 1, 2019, and the clarification issued by CBIC in Circular No. 17/21/04/2022-GST dated July 6, 2022, in conjunction with Section 46 of the Factories Act, 1948, and the Gujarat Factory Rules, 1963. However, ITC on this is restricted to the extent of the cost borne by the applicant for providing canteen services to its permanent employees, with proportionate credit disallowed to the extent embedded in the cost of goods recovered from such employees.

To Read the full text of the Order CLICK HERE

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