Input tax credit on GST paid on canteen facility is blocked credit under section 17(5)(b)(i) of CGST Act and inadmissible to applicant.

Facts: The applicant submitted that they are maintaining canteen facility to its employees at its factory premises to comply with the mandatory requirement of maintaining the canteen as per the Factories Act, 1948. The applicant submits that as per the proviso to Section 17(5)(b) of Central Goods & Services Tax Act, 2017, ITC of GST paid on 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 Applicant is recovering nominal amount on monthly basis to ensure use of canteen facility only by authorized persons/employees and expenditure incurred towards canteen facility borne by Applicant is part and parcel of cost to company.

Applicant's Submission: The Applicant submitted that, In press release dated 10-7-2017 also, it was clarified that, supply by employer to employee in terms of contractual agreement of employment (part of salary/CTC) is not subject to GST. Once employee ceases to be in employment with Applicant, he/she is not authorized to use the canteen facility. In other words, employer-employee relationship is must to avail this facility.

Further, the Applicant has submitted that they are not in the business of providing canteen service and hence recovery of nominal amount will not fall in definition of supply at all. Similar view is also upheld by Maharashtra AAR in the case of Jotun India (P) Ltd. – 2019-TIOL-312-AAR-GST = 2019 (29) G.S.T.L. 778 (A.A.R. – GST).

Further, The applicant submitted that they deducted nominal amount from employee’s salary for availing canteen facility. In other words, difference between amount paid to service provider and amount recovered from employees is cost to company as salary cost.

AAR Observations: The applicant has arranged a canteen for its employees, which is run by a third party Canteen Service Provider. As per their arrangement, part of the Canteen charges is borne by the applicant whereas the remaining part is borne by its employees. The said employees’ portion canteen charges is collected by the applicant and paid to the Canteen Service Provider. The applicant submitted that it does not retain with itself any profit margin in this activity of collecting employees’ portion of canteen charges. This activity carried out by applicant is without consideration.

“8.1 We note that sub clause of Section 17(5)(b)(i) ends with colon : and is followed by a proviso and this proviso ends with a semicolon.

8.2 Colons and semicolons are two types of punctuation. 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/sub-clauses, or two complete thoughts that could stand alone as complete sentences. That means they’re to be used when you’re dealing with two complete thoughts that could stand alone as a sentence.

8.3 We find that semicolon creates a wall for conveying mutual exclusivity between the sub-clauses, in present matter. It is obvious that the legislature intended the said sub-clauses to be distinct and separate alternatives, with distinctively different qualifying factors and conditionalities.

8.3 Thus, we hold that Section 17(5)(b)(i) sub-clause ending with a colon and followed by a provisio which ends with a semicolon is to be read as independent sub-clause, independent of sub-clause Section 17(5)(b)(iii) and its proviso [of sub-clause (iii)]. Thereby, the provisio 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.

Held: The AAR held that the ITC on GST paid on canteen facility is blocked credit under Section 17(5)(b)(i) of CGST Act and inadmissible to applicant. Further, GST, at the hands on the applicant, is not leviable on the amount representing the employees portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider.

To read the complete judgment 2021 Taxo.online 1416