The Gujarat Authority for Advance Ruling (AAR) in the case of M/s Tata Motors Limited(Applicant) recently held that Input Tax Credit (ITC) on Goods & Services Tax (GST) charged by canteen service provider will not be available even when the same is obligatory in terms of Factories Act, 1948. A brief summary of the ruling is as below:
Background
The applicant is maintaining canteen facility for its employees at factory premises through a third party canteen service provider in order to comply with the mandatory requirement of providing canteen under the Factories Act, 1948.
Further, the applicant is recovering a nominal amount from its employees on a monthly basis towards canteen facility and balance amount is borne by the applicant which forms part of cost to company. In order to avail such canteen facility, the existence of employer-employee relationship is must.
The applicant is of the view that ITC of the same is allowed since it is obligatory for them to provide such facility to employees.
In light of the above, the questions before AAR are as follows:
Whether ITC is available on GST charged by canteen service provider?
Whether GST is applicable on nominal amount collected by the applicant from its employees?
If ITC is available, whether the same will be restricted to the extent of cost borne by the applicant?
Applicant’s contention
At the outset, the applicant contended that they are not in the business of providing canteen service and accordingly, recovery of nominal amount from employees will not fall in the definition of supply. For the said purpose, reliance was placed on Maharashtra AAR ruling in the case of Jotun India Pvt. Ltd.
Further, it was contended that such nominal amount was deducted from employee’s salary and the difference between amount paid to service provider and amount recovered from employees is cost to company as salary.
Observations and ruling
On duly perusing submissions of applicant and the provisions of S.17(5)(b) of Central Goods and Services Tax Act, 2017 (CGST Act), AAR observed that sub clause of S.17(5)(b)(i) ends with colon (‘:’) and followed by a proviso which ends with a semicolon (‘;’). The same is reproduced hereunder:
17(5)(b) 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: (ending with colon)
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; (ending with semicolon)
(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.
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.
Based on the above observation, it was held that sub-clause (i) of S.17(5)(b) ending with a colon and followed by a proviso which ends with a semicolon is to be read as independent sub-clause, i.e., independent of sub-clause (iii) of S.17(5)(b) and its proviso (i.e., proviso of sub-clause iii). Thereby, the proviso to S.17(5)(b)(iii) is not connected to the sub-clause of S. 17(5)(b)(i) and cannot be read into it. AAR placed reliance on the following judgments in this regard:
Shri Jayant Verma v. Union of India
Mr. Vincent Mathew v. LIC of India
Shapoorji Paloonji & Company Ltd. Vs CCE
Accordingly, it was held that ITC shall not be allowed on GST charged by canteen service provider and further, no GST shall be leviable on the amount collected by applicant from employees and paid to canteen service provider.
Overall comments
A similar ruling was pronounced by AAR Haryana in the case of M/s. Musashi Auto Parts Pvt. Ltd, wherein the AAR held that even though applicant is required to provide food facilities to employees as per S. 46 of Factories Act, 1948, still ITC on the same would not be available as a careful reading of S. 17(5) of CGST Act suggests that said proviso is with regard to the provision contained in S.17(5)(b)(iii) and not S.17(5)(b)(i).
However, it is pertinent to note that prior to notifying CGST Amendment Act 2018 (w.e.f 01 February 2019), a draft proposal for amendments in GST law (Proposals_AMEND_GST Laws.pdf (goagst.gov.in)) was released by the GST Council which stated that this amendment (insertion of said proviso) in section 17(5)(b) would be taxpayer-friendly as it will allow ITC for all services as mentioned in section 17(5)(b) wherever they are obligatory for an employer to provide to its employees. Accordingly, both the above rulings are not in line with intention of lawmakers.
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