2023 (9) TMI 163 - AAR - GST

Input tax credit (ITC) - canteen services provided to employees - vendor invoices received towards food served in the canteen - HELD THAT - The canteen facility is to be compulsorily made available to the workers of the applicant and the number of the workers is well above 250. As per the licence of the Factories Act order given to the applicant, the man power is amended to 500 to 1000 workers which mandates them as per Factories Act and AP Factories Rules to provide for a canteen. The only question to be answered is that whether they are eligible for taking ITC on the GST charged by the vendors on them. Due to the mandatory nature of maintenance of canteen and the proviso under the sub-section of blocked credit, ITC will be available to the applicant in respect of GST charged by the vendors of canteens.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on canteen services provided to employees.

Summary:

Issue 1: Eligibility of Input Tax Credit (ITC) on Canteen Services Provided to Employees

The applicant, engaged in the manufacture of auto parts and registered under the AP Goods & Services Tax Act, 2017, sought an advance ruling on whether ITC is available on canteen services provided to employees. The applicant contended that per Section 16 of the CGST Act, ITC should be available as the canteen services are used in the course of business. However, Section 17(5)(b) of the CGST Act specifies that ITC is not available for food and beverages except when it is obligatory under any law.

The applicant argued that providing canteen facilities is mandatory under Section 46 of the Factories Act, 1948, and the Andhra Pradesh Factory Rules, 1950, which require factories with more than 250 workers to provide canteen facilities. The applicant cited the Mumbai High Court's decision in The Commissioner Central Excise Vs M/s. Ultra tech Cement Ltd, which held that ITC is available for services mandatorily provided under statutory obligations.

The applicant also referred to Circular No. 172/04/2022-GST, which clarified that the proviso allowing ITC for obligatory services applies to the entirety of Section 17(5)(b). During the personal hearing, the applicant reiterated these points.

The Authority for Advance Ruling examined the facts and found that the applicant is mandated by law to provide canteen facilities. Given the statutory requirement and the Board Circular, the Authority ruled that ITC is available for the GST charged by the canteen service vendors.

Ruling:

The applicant is eligible to take ITC on the vendor invoices received towards food served in the canteen, provided the GST burden has not been passed on to the employees. ITC is available proportionately for permanent employees only, not for contractual workers.