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2025 (4) TMI 221 - AAR - GSTEligibility to take ITC for the GST charged by the canteen service provider for the canteen services (on the portion which is borne by the company) for its employees where the canteen facility is mandatory in terms of section 46 of the Factories Act 1948 read with rule 72 of Gujarat Factories rules 1963 - HELD THAT - Input Tax Credit will be available to the applicant 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 working at the factory is concerned. It is further held that the ITC on GST charged by the canteen service provider will be restricted to the extent of cost borne by the applicant only.
ISSUES PRESENTED and CONSIDERED
The core legal issue addressed in this judgment is whether the applicant, a pharmaceutical company, is eligible to claim Input Tax Credit (ITC) on the Goods and Services Tax (GST) charged by the canteen service provider for the canteen services provided to its employees, where the provision of such a facility is mandatory under Section 46 of the Factories Act, 1948, read with Rule 72 of the Gujarat Factories Rules, 1963. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The relevant legal provisions include Section 46 of the Factories Act, 1948, which mandates the provision of canteen facilities for factories employing more than 250 workers, and Section 17(5)(b) of the Central Goods and Services Tax (CGST) Act, 2017, which deals with the availability of ITC on certain goods and services. The amendment to Section 17(5)(b) effective from February 1, 2019, and Circular No. 172/04/2022-GST issued by the Central Board of Indirect Taxes and Customs (CBIC) are also pertinent, as they clarify the applicability of ITC provisions. Court's interpretation and reasoning: The Tribunal analyzed the applicability of Section 17(5)(b) of the CGST Act, which generally blocks ITC on food and beverages except when used for making an outward taxable supply of the same category or when obligatory under any law. The Tribunal referred to the CBIC Circular No. 172/04/2022-GST, which clarified that the proviso allowing ITC when the provision of goods or services is obligatory under any law applies to the entire clause (b) of Section 17(5). Key evidence and findings: The Tribunal considered the applicant's compliance with the Factories Act, 1948, which mandates the provision of a canteen, and the fact that the applicant bore a portion of the canteen costs. The Tribunal also reviewed the CBIC Circular and relevant case law, including the ruling in the case of M/s. Tata Motors Ltd, which supported the applicant's position. Application of law to facts: The Tribunal applied the legal framework to the facts, determining that since the provision of a canteen is mandatory under the Factories Act, the applicant is entitled to claim ITC on the GST charged by the canteen service provider. However, the ITC is limited to the portion of the cost borne by the applicant and does not extend to the amounts recovered from employees. Treatment of competing arguments: The Tribunal considered the applicant's reliance on the CBIC Circular and case law, and found that the clarification provided by the circular supported the applicant's eligibility for ITC. The Tribunal did not identify any competing arguments that would negate the applicant's claim. Conclusions: The Tribunal concluded that the applicant is eligible for ITC on the GST charged by the canteen service provider, limited to the extent of the costs borne by the applicant, in accordance with the amended Section 17(5)(b) of the CGST Act and the CBIC Circular. SIGNIFICANT HOLDINGS The Tribunal held that the applicant is entitled to claim ITC on the GST charged by the canteen service provider, as the provision of the canteen is obligatory under the Factories Act. The ITC is restricted to the portion of the cost borne by the applicant, and does not include amounts recovered from employees. Preserve verbatim quotes of crucial legal reasoning: "Input Tax Credit will be available to the applicant 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 working at the factory is concerned." Core principles established: The judgment establishes that ITC is available for goods or services that are obligatory for an employer to provide under any law, and that the proviso to Section 17(5)(b) applies to the entire clause, allowing for ITC in such circumstances. Final determinations on each issue: The Tribunal determined that the applicant is eligible to claim ITC on the GST charged by the canteen service provider, limited to the extent of the costs borne by the applicant, in compliance with the amended provisions of the CGST Act and the clarifications provided by the CBIC Circular.
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