Gujarat GST AAR: ITC on Employer-Provided Canteen Services (Excluding Employee Contribution)

The Gujarat bench of the Authority for Advance Ruling (AAR) held that the Goods and Service Tax Input Tax Credit (ITC) was restricted to the cost of employer for canteen facility, apart from the employees contributions.

The petitioner, M/s Kohler India Corporation Pvt. Ltd. is manufacturing plumbing products for kitchens & bathrooms. Their manufacturing facility is in Gujarat and is controlled by the provisions of the Factories Act, of 1948.

As per section 46 of the Factories Act, 1948, since exceeding a cited number of workers are employed, the applicant must provide canteen facilities. The petitioner to comply with this requirement, entered into a contract with a canteen service provider (for short – ‘CSP”) to provide canteen facilities to their workers at their factory premises.

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The petitioner is permitted with the CSP to use utensils such as tea ums, glass tumblers, eating plates, steel bowls, and other utensils necessary for the preparation of food and serving food interns at the canteen, under the agreed arrangements with the CSP.

Including the applicable GST for its canteen services, the CSP raised the invoice. On the grounds of the consumption by the employees of the petitioner, the invoice has been raised by the CSP that has been tracked based on the employees of the petitioner who claim for the canteen facility. The applicant is liable to file the charges for the portion of the canteen charges while the left part is borne by their employees.

From employees’ salaries, employees’ portion of canteen charges was collected and paid before the CSP by the petitioner on the employees’ behalf. The said amount collected is without any commercial purpose or profit margin and to maintain discipline.

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For the canteen expense, the petitioner accounts based on the invoice raised by the CSP in its statement of profit and loss account. The collected amount via the petitioner from its employees was credited to the expense account in which the canteen expenses are booked.

As per the bench, ITC shall be available before the appellant for the food and beverages as the canteen facility is mandatory to be given under the Factories Act, 1948, read with Gujarat Factories Rules, 1963 concerning the provision of canteen service for employees.

ITC on GSl- charged via the CSP will be limited to the extent of cost borne by the appellant merely. By the Ruling of the Gujarat Appellate Authority for Advance Ruling on 22.12.2022 in the case of M/s. Tata Motors Ltd, Ahmedabad, our presumption is confirmed.

The two-member bench of the tribunal Riddesh Raval (member SGST) and Amit Kumar Mishra (member CGST) concluded that the ITC (Input Tax Credit) will be available to the petitioner on GST levied via the service provider for the canteen facility furnished before its employees other than contract employees working in their factory, given the provisions of Section 17(5Xb) as amended effective from 1.2,2019 and clarification issued by CBIC on 6.7.2022 read with provisions of Section 46 of the Factories Act, 1948 and read with provisions of Gujarat Factory Rules, 1963.

It was said that the ITC on the aforesaid was limited to the extent on the cost carried via the petitioner for furnishing the canteen services before its employees however disallowing the proportionate credit to the extent is in the cost of goods recovered through these employees.