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2022 (12) TMI 1363 - AAAR - GSTInput Tax Credit - GST charged by service provider on canteen facility provided to employees working in factory - Whether ITC will be restricted to the extent of cost borne by the Applicant (employer)? - HELD THAT - As second proviso to Section 17(5)(b) inserted vide CGST Amendment Act, 2018 effective from 1.2.2019, is applicable to the whole of clause (b) of sub-section (5) of Section 17 of the CGST Act, Input Tax Credit will be available to the appellant in respect of food beverages as canteen facility, is obligatorily to be provided under the Factories Act, 1948, to its employees working in the factory. Input Tax Credit will be available in respect of such services provided by canteen facility to its direct employees but not in respect of other type of employees including contract employees/workers, visitors etc. The appellant also raised the question if ITC is available on GST charged by the service provider on canteen facility provided to its employees working in their factory, whether it will be restricted to the extent of cost borne by the appellant. In this regard we find that the authorized representative of the appellant during the course of personal hearing had submitted that they will not take input tax credit to the extent applicable on the amount of canteen charges recovered from their employees and will reverse the credit to that extent. Further vide their dated 12.09.2022 they submitted that they have been discharging GST on the canteen charges recovered from contract employees and they have requested to allow the ITC on GST charged by the service provider on canteen facility provided to employees working their factory to the extent of cost suffered by the appellant. Reliance placed upon the judgment of Hon'ble High Court of Bombay in the case of Commissioner of Central Excise, Nagpur Versus Ultratech Cement Ltd., 2010 (10) TMI 13 - BOMBAY HIGH COURT wherein it was held that Once the service tax is borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. The judgement was in context as to whether manufacturer can avail credit of Service Tax in cases where the cost of the food is borne by the worker - the ITC on GST charged by the canteen service provider will be available only to the extent of cost borne by the appellant, for providing the canteen services only to its direct employees.
Issues Involved:
1. Availability of Input Tax Credit (ITC) on GST charged by the service provider for canteen facilities provided to employees. 2. Applicability of GST on nominal amounts recovered from employees for the usage of canteen facilities. 3. Restriction of ITC to the extent of cost borne by the employer. Issue-wise Detailed Analysis: 1. Availability of Input Tax Credit (ITC) on GST charged by the service provider for canteen facilities provided to employees: The appellant sought clarification on whether ITC is available on GST charged by the service provider for canteen facilities provided to employees. The appellant argued that under Section 17(5)(b) of the CGST Act, 2017, ITC should be available where it is obligatory for an employer to provide such facilities under any law. The appellant maintained canteen facilities as mandated by the Factories Act, 1948, and contended that the expenditure incurred towards the canteen facility is part of the company's cost. The Gujarat Authority for Advance Ruling (GAAR) initially ruled that ITC on GST paid for canteen facilities is blocked under Section 17(5)(b)(i) of the CGST Act and is inadmissible. However, the appellant argued that the GAAR misinterpreted the placement of punctuation in the statute, leading to an erroneous conclusion that the proviso to Section 17(5)(b)(iii) does not apply to Section 17(5)(b)(i). The appellant cited various legal judgments and a press release from the GST Council's 28th meeting, which indicated that the scope of ITC was intended to be widened to include goods or services obligatory for an employer to provide under any law. The CBIC Circular No. 172/04/2022-GST dated 06.07.2022 clarified that the proviso after sub-clause (iii) of Section 17(5)(b) applies to the entire clause (b) of Section 17(5). This clarification supported the appellant's claim that ITC should be available for canteen services as they are obligatory under the Factories Act, 1948. 2. Applicability of GST on nominal amounts recovered from employees for the usage of canteen facilities: The GAAR ruled that GST is not leviable on the nominal amounts recovered from employees for the usage of canteen facilities, as these amounts represent the employees' portion of canteen charges collected by the appellant and paid to the canteen service provider. The appellant did not contest this ruling, and it was accepted that the nominal recovery from employees does not constitute a supply under GST law. 3. Restriction of ITC to the extent of cost borne by the employer: The appellant questioned whether ITC, if available, would be restricted to the extent of the cost borne by the employer. During the hearing, the appellant agreed to reverse the credit to the extent of the canteen charges recovered from employees. The CBIC Circular and the judgment of the Bombay High Court in the case of Commissioner of Central Excise, Nagpur Versus Ultratech Cement Ltd. supported the view that ITC should be restricted to the cost borne by the employer. The appellate authority concluded that ITC on GST charged by the service provider for canteen facilities provided to employees is available, but only to the extent of the cost borne by the appellant. The ITC is not admissible for the portion of the cost recovered from employees. Conclusion: The appellate authority modified the GAAR's ruling, holding that: 1. ITC is available on GST charged by the service provider for canteen facilities provided to direct employees, as per the amended Section 17(5)(b) and CBIC Circular No. 172/04/2022-GST. 2. ITC is restricted to the cost borne by the appellant for providing canteen services to direct employees, excluding the proportionate credit for the cost recovered from employees. This detailed analysis ensures that the legal terminology and significant phrases from the original text are preserved while providing a comprehensive understanding of the judgment.
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