The Gujarat Authority for Advance Ruling (AAR) ruled that Input Tax Credit (ITC) is available on Goods and Service Tax (GST) charged for providing canteen facilities to employees but excludes contract workers from this benefit.
The two-member bench of the AAR, consisting of Milind Kavakar (Member of SGST) and Amit Kumar Mishra (Member of CGST), observed that Input Tax Credit (ITC) will be available to the applicant for the GST charged by the service provider on the canteen facility provided to its regular employees, but not to contract employees working in their factory.
Get a Copy of Law Laughs Trilogy: Wit, Wisdom, and Tales here.
The applicant Zentiva Private Limited was a pharmaceutical and active pharma ingredient manufacturing company. The applicant has engaged canteen service providers (CSP) transport service providers (TSP) who provide food and transportation facilities to the applicant’s employees, as per the terms of company policy.
The applicant has more than two hundred and fifty workers working in its factory. As per section 46 of the Factories Act, 1948, in factories wherein more than two hundred and fifty workers are employed, a canteen shall be provided and maintained by the occupier for those of the workers. Thus by virtue of section 46 of the Factories Act, the applicant provides meals which include breakfast, lunch, snacks and dinner to its employees.
Get a Copy of Law Laughs Trilogy: Wit, Wisdom, and Tales here.
The applicant provided canteen facilities to its employees in terms of the canteen policy dated 16.08.2023.In terms of the canteen policy, the applicant is deducting Rs. 260 /- per month from the salary of the employees towards the meals provided in the canteen and the remaining cost was borne by the applicant.
The applicant is also provided a canteen facility to Supervised Contract Employees and Third-Party Employees. In the case of Supervised Contract Employees and Third-Party Employees, the applicant recovers its. 260/- per month per employee from contractors/manpower supply company respectively along with GST at the rate of 57 % under SAC 9963. The remaining cost of the meal is borne by the applicant.
The applicant has attached the Purchase Order issued to the CSP as Annexure I, Canteen Policy as Annexure 2, a sample copy of the tax invoice issued by CSP as Annexure 3 and a sample copy of the tax invoice raised by the applicant for discharging tax on the total amount paid to the CSP as Annexure 4 with their application.
Get a Copy of Law Laughs Trilogy: Wit, Wisdom, and Tales here.
The bench observed that the company employs more than 250 employees at their factory. It was noted that Section 17(5)(b) of the CGST Act, 2017, was amended on February 1, 2019, as already reproduced by Sapra. The applicant is required, under Section 46 of the Factories Act, 1948, to provide canteen facilities to its employees within the factory premises. Circular No. 1721412022-GST clarifies that, post-substitution effective from February 1, 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, applies to the entirety of clause 17(5)(b).
It was held that Input Tax Credit 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 employees other than contract employees was concerned. It was further held that the ITC on GST charged by the CSP will be restricted to the extent of cost borne by the applicant only.
Get a Copy of Law Laughs Trilogy: Wit, Wisdom, and Tales here.
Further hold that Input Tax Credit will be available to the applicant in respect of the canteen facility which is obligatory under the Factories Act, 1948, read with Gujarat Factories Rules, 1963.
The AAR ruled that “Input tax Credit ITC will be available to the applicant on GST charged by the service provider in respect of canteen facility provided to its employees other than contract employees working in their factory, in view of the provisions of Section 17(5)(b) as amended reflective from 1.2.2019 and clarification issued by CBIC vide circular No. 17210412022-GST’ dated 6.7.2022 read with provisions of section 46 of the Factories Act, 1948 and read with provisions of Gujarat Factory Rules, 1963”.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
