It has been 5 years since the inception of GST law. GST appears to have addressed many distortions & imperfections of previous tax regime. However, from the beginning, number of GST circulars have been issued to address plethora of clarifications sought by taxpayers/professional bodies to remove confusion in interpretation of GST provisions.
One such confusion is on a proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act, gets to an end with GST Circular no. 172/04/2022 dated 06.07.2022.
As per the clarifications given in the circular in point no.3 it has been now clarified that the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of sub-section (5) of section 17 of the CGST Act.
The proviso after Sec 17(5)(b)(iii) is as follows: “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.”
In the said circular, it has been also mentioned that the intent of above proviso inserted by substituting Sec 17(5)(b) w.e.f.01.02.2019 was made known to the trade and industry through the Press Note on Recommendations made during the 28th meeting of the GST Council, dated 21.07.2018.
It took almost 4 years to issue a clarification in this regard even after few advance rulings had issued absurd ruling, one of such ruling was based on colon & semi-colon as seen in case of M/s. Tata Motors Ltd. (AAR Gujarat) [GUJ/GAAR/R/39/2021dated 30.07.2021].
However, a favourable ruling was seen on the similar issue of ITC on canteen service in case of M/s. Bharat Oman Refineries Ltd (AAAR Madhya Pradesh) [MP/AAAR/07/2021 dated 08.11.2021].
Few important judgements related to CENVAT Credit:
1. Madras HC decision over-ruled the CESTAT-Chennai order in case of Ganesan Builders Ltd [2019 (20) G.S.T.L. 39 (Mad.) dated 19.09.2018]. HC held it in favour of the assessee that such availment of CENVAT credit on statutory requirement infers that assessee is entitled to avail such credit provided the amount is paid by the assessee and not collected from the individual employees to meet the expenses.
2. CESTAT Mumbai sets-aside denial of CENVAT credit to assessee (Hawkins Cookers Ltd.) on outdoor catering service, courier service, air and rail travel as well as tour operator service and club & association services. [TS-113-CESTAT-2021(Mum)-EXC – Hawkins_Cookers_Ltd]
3. CENVAT Credit is allowed on Mediclaim insurance taken for all the employees at large. [TS-185-CESTAT-2021(DEL)-EXC – M/s Rajratan Global Wire Ltd]
4. In an unfavourable case to the assessee, it was held by apex court that the statutory provision – Rule 2(1) of the CENVAT Credit Rules,2004 defining “Input Service” post 01.04.2011 is very clear and the out-door catering services when such services are used primarily for personal use or consumption of any employee is held to be excluded from the definition of “Input Service”. [2021 55 GSTL 129 SC Toyota Kirloskar Motor Pvt Ltd]
Based on the above, such employers for whom it is obligatory can avail ITC on such goods or services covered under Section 17(5)(b)(i) to 17(5)(b)(iii) for the employees such as:
a) To provide canteen facility under Factories Act,1948.
b) To provide health insurance as per Guidelines of Ministry of Home Affairs w.e.f. 01.04.2020( as made applicable during covid period).
c) To provide EDLI facility under Employee Deposit Linked Insurance Scheme Act 1976.
d) To provide transportation facility to women employees as per various state government laws.
Further, to whom it is obligatory and had already availed & reversed such ITC under protest can re-avail the same for the past by submitting an intimation letter to GST department along with a copy of the said circular-172/04/2022.
Those who missed to avail ITC on such expenditure incurred under an obligation due to applicable laws or reversed it on their own or due to demands from jurisdictional officers/ audit parties may have to go for sou-moto availment with intimation to the dept. or apply for refund. This may involve dispute.
(Thanking CA Madhukar N Hiregange & CA Venkat Prasad for their value-added inputs and CA Subba Reddy for vetting the above article)
Any inputs/suggestions, please write to krishna@hiregange.com.
Author Bio
