AAR Rules GST Credit on Mandatory Canteen Services is Legal, But It's Only for Direct Employees [Read Order]
Elentec India argued that maintaining a canteen was a statutory obligation for it under the Factories Act, 1948, as it employs thousands of workers across its three factory premises. The company specifically asked if the credit was admissible and, if so, whether it covered both its direct employees and its off-roll contractual staff
GST Credit
GST Credit
In a significant ruling that clarifies the availability of input tax credit (ITC) on employee welfare services, the Authority for Advance Ruling (AAR) in Uttar Pradesh has held that companies can claim GST credit on canteen services provided they are mandated by law. However, this benefit is strictly limited to direct, on-roll employees and cannot be extended to contractual workers. This decision provides much-needed clarity on the application of a key provision in the GST law concerning employer obligations.
The ruling was delivered in the case of Elentec India Private Limited, a Noida-based manufacturer of parts and accessories for mobile phones. The company had approached the authority seeking clarity on whether it could claim ITC on the GST charged by its canteen service provider. Elentec India argued that maintaining a canteen was a statutory obligation for it under the Factories Act, 1948, as it employs thousands of workers across its three factory premises. The company specifically asked if the credit was admissible and, if so, whether it covered both its direct employees and its off-roll contractual staff.
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The AAR, after examining the provisions of the GST law, delivered a split verdict on the two questions. It affirmed that ITC is indeed available for the GST paid on canteen services. The authority based its decision on the provision to Section 17(5)(b) of the CGST Act, which allows ITC for goods or services that an employer is legally obliged to provide to its employees. This interpretation was reinforced by a 2022 circular from the Central Board of Indirect Taxes and Customs (CBIC), which clarified that this provision applies to the entire clause, not just a sub-section. Since the Factories Act requires canteens in factories with over 250 workers, the service qualifies.
However, the AAR delivered a significant restriction on the scope of this benefit. It ruled that the ITC is only admissible for canteen services provided to direct, on-roll employees of the company. Contractual workers, visitors, or any other individuals are excluded from this purview. Furthermore, the authority placed a crucial condition on the credit: it is available only to the extent of the cost borne by the company itself.
The ruling was delivered by a two-member bench consisting of Shri Amit Kumar and Shri Harilal Prajapati. This decision provides a clear, albeit narrow, pathway for manufacturing units to avail GST credits on mandatory canteen services, while simultaneously drawing a firm line on employee eligibility and cost-bearing, ensuring compliance is strictly interpreted.
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