In re Kohler India Corporation Pvt Ltd. (GST AAR Gujarat)
AAR concluded that the deduction made by the applicant from employees for canteen services would not be considered a ‘supply’ under Section 7 of the CGST Act, 2017. Regarding ITC, the AAR ruled that the applicant can avail ITC on GST charged by the canteen service provider for obligatory canteen services under the Factories Act, 1948. However, ITC is restricted to the extent of the cost borne by the applicant, following the amended Section 17(5)(b) and circular No. 172/04/2022-GST dated 6.7.2022
Introduction: In a recent ruling by the Authority for Advance Ruling (AAR) in the case of Kohler India Corporation Pvt Ltd., the applicability of Input Tax Credit (ITC) on Goods and Services Tax (GST) charged by a canteen service provider for obligatory canteen services under the Factories Act, 1948 was examined. The AAR clarified that while the applicant can avail ITC on the GST charged, it is restricted to the extent of the cost borne by the applicant.
Background: Kohler India Corporation Pvt Ltd., engaged in the manufacturing of plumbing products, is governed by the Factories Act, 1948, which mandates the provision of canteen facilities for a specified number of workers. To comply with this requirement, the company entered into an agreement with a canteen service provider (CSP) to provide canteen services to its employees.
Key Points from the Ruling:
i. Supply Consideration: The applicant argued that the deduction made from employees for canteen services should not be considered a ‘supply’ under Section 7 of the CGST Act, 2017. The AAR concurred, stating that as per Circular 172/04/2022-GST, services provided by an employee to the employer, as per contractual agreements, are outside the scope of GST.
ii. Input Tax Credit Eligibility: The AAR ruled that ITC on GST charged by the CSP is eligible for the applicant, given the obligatory nature of canteen services under the Factories Act, 1948. However, the ITC is limited to the extent of the cost borne by the applicant, as per the amended Section 17(5)(b) and Circular 172/04/2022-GST.
iii. Restrictions on ITC: The ruling emphasized that ITC on GST charged by the CSP will be restricted to the amount incurred by the applicant for providing canteen services. The proportionate credit embedded in the cost recovered from employees will not be allowed.
Conclusion: The AAR’s decision in the case of Kohler India Corporation Pvt Ltd. provides clarity on the eligibility of ITC for GST on obligatory canteen services. While confirming the availability of ITC, the ruling underscores the limitation to the cost borne by the applicant. This decision aligns with the amended legal provisions and recent clarifications provided by the GST council, offering guidance to businesses navigating GST implications on mandatory employee welfare services.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, DELHI GUJARAT
M/s Kohler India Corporation Private Limited (for short ’applicant’), Plot No-828, GIDC, Mega Estate, Valla Road, Jhagadla, Nr. Talodara, Bharuch, Gujarat, 393110 is registered with the department and their registration number is 24AABCK214SE1Z3.
2. The applicant is engaged in the manufacturing of plumbing products for kitchen & bathrooms. Their manufacturing facility is in Gujarat and is governed by the provisions of the Factories Act, 1948.
3. In terms of section 46 of the Factories Act, 1948, as more than a specified number of workers are employed, it is mandatory for the applicant to provide canteen facilities. To comply with this requirement, the applicant entered into a contract with a canteen service provider (for short – `CSP’) to provide canteen facilities to their workers at their factory premises.
4. As per the agreed arrangement with the CSP, the applicant allows the CSP to use utensils like tea urns, glass tumblers, eating plates steel bowls and other utensils necessary for the preparation of food and serving foods items at the canteen. The CSP raises the invoice along with applicable GST for its canteen services. The invoice is raised by the CSP on the basis of the consumption by the employees of the applicant, which is tracked based on employees of the applicant who avail the canteen facility. A part of the canteen charges i s borne by the applicant whereas the remaining part is borne by their employees.
5. The employees’ portion of canteen charges is collected from employee’s salaries and paid to the CSP by the applicant on behalf of employees. The amount so collected is without any commercial objective, or profit margin and to maintain discipline. The applicant accounts the canteen expense basis the invoice raised by the CSP in its statement of profit and loss account. Further, the amount collected by the applicant from its employees, is credited to the expense account in which the canteen expenses are booked.
6. The applicant further states that GST should not be applicable on the amount representing the employee’s portion of canteen on the following grounds viz
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