Input Tax Credit (ITC) on Food and Beverages under GST ​

Introduction

In this article, we will discuss the provisions related to input tax credit (ITC) on food and beverages under GST. ​ We will explore the applicability of exceptions, the definition of food and beverages, and the conditions for availing ITC. ​

Legal Provision

Section 17(5)

Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

the following supply of goods or services or both-

• food and beverages, ……………

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;

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.

Applicability of Exceptions

Before 1st February 2019, input tax credit was not allowed on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except when an inward supply of goods or services of the same category was used for making an outward taxable supply or as an element of a taxable composite or mixed supply. ​

Post-amendment, from 1st February 2019, the exception for availing ITC on food and beverages remains the same. ​ It is allowed when an inward supply of goods or services of a particular category is used for making an outward taxable supply of the same category or as an element of a taxable composite or mixed supply. ​​

Obligation of the Employer​

Previously, the proviso allowing ITC when it is obligatory for an employer to provide goods and/or services to its employees was applicable only to rent-a-cab, life insurance, and health insurance. ​ This provision did not apply to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery. ​​

However, after the amendment, the proviso now applies to all three categories (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, (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. ​

Definition of Food​

The term “food” has not been specifically defined under the GST laws. ​ In common parlance, food generally refers to nutritious substances consumed by humans or animals to maintain life and growth. ​ However, the interpretation of “food” under GST depends on the context and background. ​

While there is no legal definition, the term “food” is commonly understood to include prepared food items like curry, rice, sweetmeats, cooked vegetables, etc. ​ It may also encompass raw materials used to prepare food, such as spices. ​ Circular No. 75/49/2018 issued by the CBIC mentions various food items like ghee, edible oil, sugar, rice, flour, and pulses. ​

Definition of Beverage ​

Similarly, the term “beverage” is not defined under the GST laws. ​ In general, a beverage refers to any drink other than water. ​ It can include both alcoholic and non-alcoholic drinks, aerated or non-aerated, hot or cold. ​

Drinking Water and Input Tax Credit ​​

Water is not considered a beverage in common parlance, and it is not referred to as such in the GST laws. ​ Therefore, the restrictions on input tax credit under section 17(5) do not apply to drinking water. ​

Availing Input Tax Credit on Food and Beverages ​​

ITC on food and beverages is allowed when there is a further output taxable supply of the same category of goods or services or both, or as an element of a taxable composite or mixed supply. ​

Conclusion

Understanding the provisions related to input tax credit on food and beverages is crucial for businesses operating in the hospitality and food industry. ​ The exceptions and conditions outlined in the GST laws determine the eligibility for availing ITC.

*****

Disclaimer

This article is for informational purposes only and does not constitute legal advice. For specific cases and detailed advice, it is recommended to consult with a qualified GST professional or refer to official GST notifications and circulars.