GST ITC on Food, Beverages & Outdoor Catering: Analysis of Provisions and Exceptions

One of the key building blocks of the Goods and Services Tax (GST) regime is the concept of Input Tax Credit (ITC). The ITC mechanism is essentially designed to eliminate cascading of taxes while ensuring that tax is levied only on value addition that is done in the rendering of a good or service.

When it comes to food, beverages, and outdoor catering services, the availability of ITC is significantly restricted by the statute itself.

Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017, which deals with “blocked credits.”

Despite these services often being incurred in the course of business, the law treats them with caution, leading to extensive litigation. The complexity is further aggravated by exceptions, rate structures, and judicial interpretations, making ITC on such expenses one of the most debated areas under GST.

Section 17(5)(b): A Statutory Block on ITC for Food & Catering

The Act provides as follows:

“Section 17. Apportionment of credit and blocked credits.-

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(b) [the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;”

The Act explicitly disallows ITC on certain goods and services, including food and beverages, outdoor catering, health services, and similar expenses. The provision places itself as a non-obstante clause, thereby overriding the general entitlement to ITC under Section 16.

Why Does the Act Disallow ITC on Food and Beverages?

The legislative intent behind framing such a restriction within the Act traces its steps back to the principle that food and beverage expenses are often in the nature of personal consumption, even if it is incurred in a business context. Resultantly, ITC is denied even if these expenses are incurred during the course or furtherance of business.

The matter has been subject to much judicial deliberation by the various courts and tribunals around the nation.

In Toyota Kirloskar Motor Pvt Ltd v. Commissioner of Central Tax (2021 TAXSCAN (SC) 112), the Supreme Court denied ITC on outdoor catering services provided by the company to its employees, holding that such services are primarily for personal consumption and is excluded from the definition of “Input Service”.

The 5% vs 18% Conundrum

The matter gets more convoluted when the availability of ITC is dependent upon the rate of GST applicable on the food or service. Under the current framework:

Restaurant and certain catering services are taxed at 5% GST with no ITC Available

Similar services, when taxed at 18% GST, permit the entity to avail ITC

However, this structural paradox does not rise solely from Section 17(5), but through rate notifications that prescribe conditions for availing or restricting credit.

The issue was examined in In Re: Mangaldas Mehta & Company Ltd. (2024 TAXSCAN (AAR) 143), where the Gujarat AAR held that a taxpayer providing restaurant services at 5% GST is not entitled to ITC on inputs used exclusively for such services. The authority clarified that the condition for being eligible for the concessional rate is to forgo the benefit of ITC.

Hence, it is seen that the availability of ITC at times is also based on commercial decisions made by business owners rather than a purely legal right.

Exceptions: When ITC on Food & Beverages Becomes Available

While Section 17(5)(b) imposes near-blanket restriction, it does provide certain crucial exceptions through the provisos.

ITC is permitted in two key situations:

First, where the inward supply of food, beverages, or catering services is used for making an outward taxable supply of the same category.

Second, where such supplies form part of a taxable composite or mixed supply.

This practical application of this exception was examined by the West Bengal Authority for Advance Ruling (AAR) in In Re: Citius Holidays Pvt. Ltd. (2026 TAXSCAN (AAR) 107).

The Authority held that ITC on food and beverages is admissible when these are part of a composite event management package that is taxed at 18% GST. The authority observed that services such as banquet hall rental, accommodation, and catering are naturally bundled and constitute a composite supply.

A crucial point noted by the AAR was that, there existed no need to issue separate invoicing for food, and a consolidated invoice covering all elements of the event package is sufficient to satisfy the conditions under Section 16(2). However, the ruling also emphasised that if the concessional 5% GST rate applicable to restaurant services is adopted, ITC would remain blocked.

ITC When Employer is Obligated to Provide Food/Services

When an employer is legally obligated to provide food or catering services to their employees, ITC may become available under the proviso to Section 17(5)(b) of the CGST Act..

Typical examples of such situations include canteen facilities required under the Factories Act, 1948, or similar labour laws. Here, the provision of food is not voluntary but a statutory obligation of the employer.

Even then, the availability of ITC is not automatic. While the proviso creates an exception to the general restriction on food and catering services, its application depends on the specific facts of each case, including the nature of the obligation, the intent and manner of the provision, and whether any recovery is made from employees for providing such food/beverages/services.

Corporate office canteens which are not mandated by law generally do not qualify for ITC as they fall under the ambit of employee welfare expenses.

In In Re: M/s Caltech Polymers Pvt. Ltd. (2018 TAXSCAN (AAR) 130), the Kerala Appellate Authority for Advance Ruling noted that food expenses recovered from employees for canteen services shall be subject to GST. AAAR noted that the applicant would come under the definition of "Supplier" as provided in sub-section (105) of Section 2 of the GST Act, 2017. Since the applicant recovers the cost of food from its employees, there is the consideration as defined in Section 2(31) of the GST Act, 2017.

ITC on Restaurant vs Outdoor Catering

Restaurant services are typically taxed at 5% without ITC, whereas outdoor catering services, particularly when bundled with other services or provided in specified premises may attract 18% GST with ITC.

In cases where services are classified as restaurant services, ITC is automatically denied due to the concessional rate structure. Conversely, when the same services form part of a composite supply, such as event management, ITC may become available.

In similar fashion, food and beverages provided during corporate events, seminars or conferences are often treated as ‘blocked credits’ despite being incurred for business purposes. Authorities have provided tax benefits through the classification of ‘composite supply’ in certain cases, but standalone consumption of the food or beverages remains ineligible for ITC.

Outdoor catering services also present varying outcomes depending on whether they are used for outward supply or internal consumption. While caterers themselves may claim ITC, recipients of such services often face restrictions under Section 17(5).

Ultimately, the availability of ITC on food and beverages is not absolute but contingent upon legal provisions, contractual arrangements, and the underlying nature of the transaction.

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