The Gujarat bench of Authority for Advance Ruling ( AAR ) ruled that the Goods and Service Tax Input Tax Credit ( ITC ) was limited to the employer’s cost for canteen facility, excluding contributions made by employees.
The applicant, M/s Kohler India Corporation Pvt Ltd is engaged in the manufacturing of plumbing products for kitchen & bathrooms. Their manufacturing facility is in Gujarat and is governed by the provisions of the Factories Act, 1948.
In terms of section 46 of the Factories Act, 1948, as more than a specified number of workers are employed, it is mandatory for the applicant to provide canteen facilities. To comply with this requirement, the applicant entered into a contract with a canteen service provider (for short – ‘CSP”) to provide canteen facilities to their workers at their factory premises.
As per the agreed arrangement with the CSP, the applicant allowed the CSP to use utensils like tea ums, glass tumblers, eating plates, steel bowls and other utensils necessary for the preparation of food and serving food interns at the canteen. The CSP raised the invoice along with applicable GST for its canteen services. The invoice is raised by the CSP on the basis of the consumption by the employees of the applicant, which is tracked based on employees of the applicant who avail the canteen facility. A part of the canteen charges is borne by the applicant whereas the remaining part is borne by their employees.
The employees’ portion of canteen charges was collected from employees’ salaries and paid to the CSP by the applicant on behalf of employees. The amount so collected is without any commercial objective, or profit margin and to maintain discipline. The applicant accounts the canteen expense basis the invoice raised by the CSP in its statement of profit and loss account. Further, the amount collected by the applicant from its employees was credited to the expense account in which the canteen expenses are booked.
The bench 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, read with Gujarat Factories Rules, 1963 as far as provision of canteen service for employees is concerned. It is further held that the ITC on GSl- charged by the CSP will be restricted to the extent of cost borne by the appellant only. Our view is substantiated by the Ruling of the Gujarat Appellate Authority for Advance Ruling dated 22.12.2022 in the case of M/s. Tata Motors Ltd, Ahmedabad.
Further the two member bench of the tribunal comprising Riddesh Raval ( member SGST) and Amit Kumar Mishra ( member CGST) concluded that the ITC will be available to the applicant on GST charged by the service provider in respect of canteen facility provided to its employees other than contract employees working in their factory, in view of the provisions of Section 17(5Xb) as amended effective from 1.2,2019 and clarification issued by CBIC dated 6.7.2022 read with provisions of Section 46 of the Factories Act, 1948 and read with provisions of Gujarat Factory Rules, 1963.
However, it was also added that ITC on the above was restricted to the extent of the cost borne by the applicant for providing canteen services to its employees, but disallowing proportionate credit to the extent embedded in the cost of goods recovered from such employees.
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