Recently Gujarat Authority for Advance Ruling (‘AAR’) has issued an advance ruling in the matter of Tata Motors Limited. Tata Motors had approached the Gujarat bench of AAR seeking a ruling on whether Goods and Services Tax (GST) is applicable on the nominal amount recovered by it from employees for the usage of canteen facility and whether input tax credit (ITC) is available on GST charged by the service provider on the canteen facility provided to employees working in the factory.
A. FACTS OF THE CASE
- The Applicant is providing canteen facility to its employees in accordance with the Factories Act, 1948. For this, the Applicant avails the services of a canteen contractor for a consideration.
- The Applicant recovers a nominal subsidised amount from each employee on monthly basis and pay the same to the canteen contractor.
- Thus, in simple words, part of amount paid to the canteen contractor is cost to the Applicant and part is collected from employees.
- Applicant relied on Press Release dated July 10, 2017, to state that canteen facility provided to employees is not a supply under GST Laws.
- In this regard, the Applicant sought an advance ruling on the following questions:
- Whether ITC is available on GST charged by service provider on canteen facility?
- Whether GST is applicable on nominal amount recovered from employees for use of canteen facility?
B. OBSERVATIONS AND JUDGEMENT OF THE AAR
- Hon’ble Gujarat AAR referred relevant clause (b) of section 17(5) of CGST Act, 2017 which is being reproduced here:
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 centre; 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.
- The Gujarat AAR ruled as under:
> Sub clause of Section 17(5)(b)(i) ends with colon: and is followed by a proviso and this proviso ends with a semicolon.
> Colons are used in sentences to show that something is following, like a quotation, example, or list.
> Semicolons are used to join two independent clauses/ subclauses, or two complete thoughts that could stand alone as complete sentences.
> Section 17(5)(b)(i) sub-clause ending with a colon and followed by a proviso which ends with a semi colon is to be read as independent sub-clause, independent of sub clause Section 17(5)(b)(iii) and its proviso [of subclause iii]. Thereby, the proviso to section 17(5)(b)(iii) is not connected to the sub-clause of Section 17(5)(b)(i) and cannot be read into it.
> Thus, the AAR held that ITC is not admissible.
D. OUR COMMENTS
Authority has ruled that where canteen charges are borne by the employer and only a nominal part is charged from employees, no GST would be payable on such recoveries. This ruling is in contradiction with earlier rulings pronounced by Kerala AAR in Caltech Polymers Private Limited (upheld by AAAR), Gujarat AAR in Amneal Pharmaceuticals Private Limited and Haryana AAR in Masuhi Auto Parts Private Limited which have treated the canteen recoveries as supply.
Further authority has ruled that ITC would not be available since the proviso given below sub-clause (iii) is only in respect of subclause (iii) and not applicable to entire clause (b) of Section 17(5) of CGST Act, 2017. This proviso has provided an exception to allow ITC on goods & services provided by an employer to an employee as an obligation under any law. This aspect has been specifically discussed in 28th GST Council Meeting and the amendment sought to allow the ITC on Food & Beverages, Health Benefits, Travel Benefits to employees provided under any law in force. It is pertinent to note that similar exception in respect of Renting a Cab, Health & Life Insurance was already available under pre-amended provision.
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