PROVISIONS
According to Section 17(5)(b)(i) of CGST Act, 2017, ITC is not available in respect of supply of food and beverages. However, one of the provisos to Section 17(5)(b) ibid permits ITC to be availed if it is obligatory (under law) for the employer to provide the goods / services to employees. It is noteworthy that the said proviso appears under Section 17(5)(b)(iii) ibid, viz., after the last clause under Section 17(5)(b) ibid.
ISSUES
If an employer provides canteen facility to its employees (which is mandatory under the Factories Act), can the employer avail ITC? The moot question is whether the proviso appearing under Section 17(5)(b)(iii) ibid is applicable to all the clauses under Section 17(5)(b) or only to Section 17(5)(b)(iii) ibid?
RULING OF THE AUTHORITY FOR ADVANCE RULING, GUJARAT
The aforesaid authority observed[1] that Section 17(5)(b)(i) ibid ends with a colon (:) and is followed by a proviso which ends with a semi-colon (;). Similarly, Section 17(5)(b)(iii) ibid ends with a colon (:) and is followed by a proviso. From the use of these punctuation marks, the proviso under Section 17(5)(b)(iii) ibid cannot be read into Section 17(5)(b)(i) ibid.
Essentially, this means even if it is obligatory (under law) for the employer to provide canteen facility to its employees, ITC cannot be availed citing the proviso under Section 17(5)(b)(iii) ibid.
[1] Advance Ruling No. GUJ/GAAR/R/39/2021 dated July 30, 2021
COMMENTS
This ruling gives an interesting interpretation, considering that many taxpayers have interpreted to the contrary.
In the instant case, it also ruled that GST is not leviable on the amount (partly) recovered by the employer from employees for use of the canteen facility. In this context, the following points warrant attention:
- Definition of the term “business” is quite wide under Section 2(17) ibid to include any activity or transaction in connection with, or incidental or ancillary to, trade, commerce, manufacture, profession, etc. Provision of canteen facility to employees, especially that which is mandatory under law, would be ancillary or incidental to the main business.
- Employer and employee are related persons within the deeming fiction under Explanation to Section 15 ibid.
- Supplies between related persons, even without consideration, is included within the definition of the term “supply” under Section 7 ibid read with Schedule I thereunder.
A conjoint reading of the aforesaid provisions indicates that provision of canteen facility by the employer to the employee is a “supply” within the meaning of CGST Act. However, neither these provisions nor Rule 28 of CGST Rules, 2017 (which prescribes the method of valuation of supplies between related persons) were deliberated in the said ruling.
