The Gujarat Authority of Advance Ruling (AAR) in its recent ruling in the case of Tata Motors Ltd has ruled that ITC on GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) of
CGST Act and inadmissible. It has further been adjudged that no GST is levied on the amount representing employees’ portion of canteen charges.
Facts of the case:
The applicant M/s Tata Motors Ltd are maintaining canteen facility to its employees at its factory premises to comply with the mandatory requirement of maintaining the canteen as per the Factories Act, 1948.
The applicant submits that as per the proviso to Section 17(5) (b) of Central Goods & Service Tax Act, 2017, ITC of GST paid on goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
The Applicant is recovering nominal amount on monthly basis to ensure use of canteen facility only by authorized persons/employees and expenditure incurred towards canteen facility borne by Applicant is part and parcel of cost to company.
In press release dated 10.07.2017 also, it was clarified that, supply by employer to employee in terms of contractual agreement of employment (part of salary/CTC) is not subject to GST.
Once employee ceases to be in employment with Applicant, he/she is not authorized to use the
canteen facility. In other words, employer-employee relationship is must to avail this facility.
Applicant has submitted that they are not in the business of providing canteen
service and hence recovery of nominal amount will not fall in definition of supply at all.
Similar view is also upheld by Maharashtra AAR in the case of Jotun India (P) Ltd2019-TIOL-312-AAR-GST.
The applicant submitted that they deducted nominal amount from employee’s salary for availing canteen facility. In other words, difference between amount paid to service provider and amount recovered from employees is cost to company as salary cost.
The Applicant, M/s Tata Motors Ltd. is recovering nominal amount on monthly basis to ensure the use of canteen facility only by authorized persons/employees and expenditure incurred towards canteen facility borne by Applicant is part and parcel of cost to the company.
In a press release dated 10.07.2017 also, it was clarified that supply by the employer to an employee in terms of contractual agreement of employment (part of salary/CTC) is not subject to GST.
Once an employee ceases to be in employment with Applicant, he/she is not authorized to use the canteen facility.
In other words, the employer-employee relationship is a must to avail this facility. The applicant has submitted that they are not in the business of providing canteen service and hence recovery of nominal amount will not fall in the definition of supply at all.
A similar view is also upheld by Maharashtra AAR in the case of Jotun India (P) Ltd- 2019-TIOL-312-AAR-GST. The applicant submitted that they deducted a nominal amount from the employee’s salary for availing canteen facility. In other words, the difference between the amount paid to the service provider and the amount recovered from employees is the cost to the company as salary cost.
Issues on which Ruling was sought:
The applicant has sought the advance ruling on the issue of whether input tax credit (ITC) is available to Applicant on GST charged by service provider on canteen facility provided to employees working in a factory and Whether GST is applicable on the nominal amount recovered by Applicants from employees for the usage of canteen facility.
Order of Gujarat AAR: Deliberation and Ruling
We have carefully considered all the submissions made by the applicant. We find that the applicant has arranged a canteen for its employees, which is run by a third party Canteen Service Provider. As per their arrangement, part of the Canteen charges is borne by the applicant whereas the remaining part is borne by its employees. The said employees’ portion canteen charges is collected by the applicant and paid to the Canteen Service Provider. The applicant submitted that it does not retain with itself any profit margin in this activity of collecting employees’ portion of canteen charges. This activity carried out by applicant is without consideration.
We hold that Section 17(5)(b)(i) sub-clause ending with a colon and followed by a provisio which ends with a semi colon is to be read as independent sub-clause, independent of sub clause Section 17(5)(b)(iii) and its proviso [of subclause iii]. Thereby, the proviso to section 17(5)(b)(iii) is not connected to the sub-clause of Section 17(5)(b)(i) and cannot be read into it.
In view of the above deliberations the coram of Members Arun Saxena and Arun Richard ruled that ITC on GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) of CGST Act and inadmissible to the applicant. Further AAR held that GST, at the hands of the applicant, is not leviable on the amount representing the employee’s portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider.
Relevant Statutory Provision:
Section 17(5)(b) of the CGST Act,2017
Section 17(5) lists out the blocked credits. Clause (b) of said Section which has been dealt with in above case is reproduced below for ready reference of our readers.
“(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;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
