GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) of CGST Act; GST, at the hands on the applicant, is not leviable on the amount collected from employees’ 

Issue

1. Whether input tax credit (ITC) available to Applicant on GST charged by service provider on canteen facility provided to employees working in a factory?

2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of canteen facility?

3. If ITC is available as per question no. (1) above, whether it will be restricted to the extent of cost borne by the Applicant (employer)?

Facts

• The applicants 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 stated 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.
• The applicant also stated 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.

Findings

Section 17(5)(b) “(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 center; 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.”

Judgement

Shri Rajesh Shukla, Head Indirect Taxation, Shri Mukesh Dokania, DGM appeared for the hearing (through virtual mode) and reiterated the contents of the application.

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 the applicant is without consideration.

ITC on GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) of CGST Act and inadmissible to applicant.

GST, at the hands on the applicant, is not leviable on the amount representing the employees’ portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider.

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