In re., Tube Investment of India Limited (GST AAR Uttarakhand) order dated 24.11.2022
Whether nominal recoveries made from the employees who are provided food in the factory canteen would be considered as a “Supply”?
Facts of the Case:
This is an application under Sub-Section (1) of Section 97 of the Central Goods & Service Tax Act,
2017 and Uttarakhand State Goods & Service Tax Act, 2017 (hereinafter referred to as CGST/SGST Act) and the rules made there under filed by M/s Tube Investment of India Limited (herein after referred to as the “applicant”).
In the application dated 26.08.2022, the applicant submitted that: a) That they are a leading engineering company engaged in manufacture of precision steel tubes and strips, automotive, industrial chains, car door frame and bicycles. And they have a factory in the state of Uttarakhand where in more than 500 workmen (both direct and indirect) are employed.
b) They have entered into agreement with the contractors to operate canteen within the factory premises to provide food to their employees.
c) They recover nominal amount from the employees on monthly basis and such recoveries are shown as a deduction in the monthly slip of the employees.
d) They do not avail input tax credit (ITC) on the expenses incurred on the services provided by the canteen service provider and are absorbing the GST charged by the canteen service provider as a cost in the books of accounts.
e) They discharge GST @5% on the cost of the canteen service provider total taxable value plus 10% notional mark up.
QUESTIONS
Question 1: Whether the nominal amount of recoveries made by the Applicant from the employees who
are provided food in the factory canteen would be considered as a “Supply” by the applicant under
the precisions of Section 7 of Central Goods and Service Tax Act,
2017?
Answer 1: Yes- it is a supply.
Question 2: Whether GST is applicable on the amount recovered from the employees for the food provided in the factory canteen or on the amount paid by the Applicant to the Canteen Service Provider?
Answer 2: Yes.
Question 3: Whether input tax credit (ITC) is available to the company on GST charged by the Canteen
Service Providers for providing the catering services of the factory where it is not obligatory for the
Applicant to provide the same to its employees as mandated under the Factories Act, 1948?
Answer 3: Benefit of ITC is not admissible on the GST on the amount paid to the canteen service providers and also on the amount recovered from the employees.
Question 4: Whether input tax credit (ITC) can be availed on GST charged by the Canteen service
providers, if the answer to the question in 3 is “Yes, it is mandatory for factory to provide canteen to workers under the Factories Act, 1948?
Answer 4: No. ITC not available even if it is mandatory.
Our Opinion:
The AAR relied on Section 17(5)(b)(i) which made ITC ineligible on 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, ignoring the proviso given after clause (iii) of Section 17(5)(b).
In our view proviso applicable on all the clauses given under section 17(5)(b) The use of colon and semi-colon in the impugned provision is in line with the standard format applied by the legislature while incorporating the provisos under the statutes. Therefore, the argument that the usage of semi-colon after the proviso to sub-clause (i) restricts the applicability of proviso given after sub-clause (iii) to sub-clause (i) does not seem correct. Proviso is reiterated below:
“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”.
The expression used is Goods or Services and which suggest that proviso aims to extend the benefits to not only for services but goods also. Sub-Clause (iii) of Section 17(5)(b) only provides for blocking of ITC on Leave Travel benefits extended to employees and which is a service and not goods.
It is important to give weightage to each and every word given in the law for interpretation In the given case, though the indent of the proviso seems to be applicable for sub-clause (iii), however, the usage of the words ‘goods or both’ in the impugned proviso suggests that it would be applicable to all the clauses given under Section 17(5)(b).
The provision of blocked credit [i.e. Section 17(5)] was amended by the CGST Amendment Act, 2018 (effective from 01 February, 2019). The agenda document of 28th GST Council meeting discusses the amendment and acknowledged that earlier ITC was not available in respect of food and beverages, health benefits, travel benefits to employees, etc. and thus clause is to be amended to allow ITC on such goods and services where the provision of such goods or services or both is obligatory for an employer to provide to its employees under any law for the time being in force.
Further, the National Academy of Customs, Indirect Taxes and Narcotics (NACIN) has also clarified[6] that ITC would be allowed in respect of food and beverages, health services, travel benefits to employees, etc., after insertion of the impugned proviso.
Considering the above points we have this view that given proviso after clause (iii) should be read in conjunction with all the three sub-clauses. Therefore, ITC will be available not just for Leave Travel benefits extended to employees but also for food & beverages, outdoor catering etc. where it is obligatory for employer to provide such facility under any law in force.
