The Gujarat Bench of the Authority for Advance Rulings (AAR) recently ruled that, “Input Tax Credit (ITC) will be available to the applicant on GST charged by the CSP in respect of canteen facility provided to its direct employees working in their factory and the corporate office.”
“ITC on the above is restricted to the extent of the cost borne by the applicant for providing canteen services to its direct employees, but disallowing proportionate credit to the extent embedded in the cost of goods recovered from such employees”, the authority bench added.
The Applicant is engaged in the manufacture & supply of mining and construction equipment. They have set up their factory & business operations at various places across India. The applicant has employed more than 250 employees including contract workers in their factory and is also registered under the Factories Act, 1948.
The applicant stated that in terms of Section 46 of the Factories Act, 1948, they are statutorily mandated to provide canteen facilities for their employees, including contract workers, at their factory premises.
The applicant further stated that the amount recovered/collected by them from their employees and contractor/supplier of contract workers, is without any commercial objective i.e., without any profit margin; that they do not charge any other amount from their employees and contractor/supplier of contract workers for providing the facility of food at its canteen facilities in factory; that the recovery/collection of the canteen expenses from the employees and the contractor/supplier of the contract workers is directly netted off from the canteen expenses, booked by the Applicant in its P&L account and that the amount recovered/collected by the applicant from the employees & contract workers is not booked as income in the P&L account.
The bench recounted the factual and legal aspects of the application as follows: –
That the appellant employs more than 250 employees including contract workers in their factory, that the applicant is mandated vide section 46 of the Factories Act, 1948 to provide canteen facility to its employees within the factory premises and that circular no. 172/4/2022-GST clearly clarifies that post substitution, effective from 1.2.2019, based on the recommendation of the GST council in its 28th meeting, the proviso after sub clause (iii) of clause (b) of Section 17(5) of the CGST Act, 2017, is applicable to the whole of clause 17(5)(b).
In view of the same, it was ruled 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 full time/direct employees working on permanent basis at the factory is concerned.”
It was further added 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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