GST ITC Available for Canteen Services Provided Only to Permanent Employees, Not Contractual Workers: Andhra Pradesh AAR [Read Order]

The Andhra Pradesh Authority for Advance Ruling ( AAR ) has ruled that the Goods and Services Tax ( GST ) Input Tax Credit ( ITC ) is available for canteen services provided only to the permanent employees and on the contractual workers. The bench also mentioned the condition that the burden of GST has not been passed on to the employees.

The applicant, M/s KSH Automotive Pvt Ltd is engaged in the business or manufacture of auto parts and components and supplier to KIA motors. The applicant provides canteen facilities to employees through a registered person, who issued tax invoices and levies applicable GST.

The applicant sought advance ruling on the following issue:

1. Whether input tax credit is available on the canteen services

The applicant, under Section 16 of the GST Act, asserts their eligibility for input tax credit ( ITC ) based on specific conditions: registration as a taxpayer, input tax charged on supplies used in the course of business, and crediting of the ITC to the electronic ledger. They argue that GST paid on canteen services qualifies for ITC, meeting these criteria.

However, Section 17(5) of the CGDT Act outlined certain categories of ITC that are not available, including food and beverages, unless used for specified purposes. The applicant contended that since providing a canteen is mandatory under the Factories Act, 1948, and AP Factories Rules, they are entitled to claim ITC on vendor invoices for food supplied to workers, as per the second proviso to Section 17(5)(b).

Based on the above submissions, applicant is of the view that ITC on the vendor invoices received towards food served in the canteen are duly eligible.

In light of these submissions and facts, the AAR bench of K. Ravi Sankar and R V Pradhamesh Bhanu concluded that the applicant is eligible for ITC on GST charged by canteen vendors, given the mandatory nature of maintaining a canteen and the proviso under the blocked credit subsection. However, the eligibility is based on twin conditions:

1. Subject to the condition that the burden of GST have not been passed on to thc employees .
2. The applicant is eligible for proportionate ITC on permanent employees, on food supplied by canteen service to employees only and not contractual workers.

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