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November 18, 2023

GST and ITC on employee recoveries against transportation and canteen facilities

GST and ITC on employee recoveries against transportation and canteen facilities

Fact and issue of the case

M/s. Kirby Building Systems & Structures India Private Limited, Plot No. 8 To 15, IDA, Phase-III, Pashamylaram, Sangareddy, Telangana- 502 307 (36AACCK5926G2ZH) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules.

At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further, for the purposes of this Advance Ruling, the expression ‘GST Act’ would be a common reference to both CGST Act and TGST Act.

It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- for SGST and Rs. 5,000/- for CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided by nor are pending before any authority under any provisions of the GST Act. The application is therefore, admitted.

Brief facts of the case and averments of the applicant:

The applicant M/s. Kirby Building Systems & Structures India Private Limited, Sangareddy are into the manufacture & supply of pre-engineered buildings and storage racking systems. The applicant averred that they are providing canteen and transportation facilities to its employees at subsidized rates as per the terms of the employment agreement entered between the applicant and the employee. The applicant provided copies of employment agreement in Annexure-3 to the application. At Para 8.2 of the agreement it is enshrined that the “Company will provide transportation and canteen facility at subsidized rates as per the policy from time to time”. In light of the above agreement, the applicant further submits that by virtue of Section 46 of the Factories Act, 1948, they are obliged to run and maintain a canteen for their employees. That for this purpose the applicant is procuring canteen services from a third party who inturn is issuing invoice to the applicant by charging GST at a rate of 5%. In this scenario:

i. According to the applicant the canteen facilities provided to its employees do not qualify as supply u/s 7 of the CGST Act and therefore no GST is leviable on the same.

ii. The applicant further relies on clarification provided by CBIC in Circular No. 172/04/2022 dt. 06.07.2022 and the press release no. 73/2017 dt: 10.07.2017 wherein it was clarified by the CBIC that prerequisites provided by the employer to its employees in terms of contractual agreement will not be subjected to GST.

iii. Further the applicant claims eligibility to ITC on the GST paid on canteen services in terms of provision to Section 17(5)(b) of the CGST Act, 2017 wherein it is 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.

Observation of the court

It is pertinent to note that the Hon’ble high court held its view on the nature of services, under contention between taxpayer and department, not withstanding that they are not explicitly categorized as service for personal use or consumption of its employees under the provisions of the existing laws. Thus we find that the ratio of court judgment is applicable in the current taxation regime and particularly to the present issue contended by the taxpayer.

Section 17(5)(g) of CGST/TGST Act’2017 states that input tax credit shall not be available in respect of goods or services or both used for personal consumption.

As per Section 2(60) of CGST/TGST Act’2017 “‘input service’ means any service used or intended to be used by a supplier in the course or furtherance of business;”

Provision of service of transportation of employees from residence to office premises doesn’t come under definition of ‘input service’ as it is for personal consumption or comfort of employees but not used in the course of business as the business of the applicant is to manufacture & supply of pre-engineered buildings and storage racking systems but not supply of transportation of employees or passengers.

The service of transportation of employees by employer is not an ‘input service’ as per Section 2(60) of CGST/TGST Act’2017. The applicant is not under any statutory obligation to provide these services to his employees and the services provided comes under category of personal consumption which makes the applicant ineligible to avail input tax credit on the invoices issued to him by the transporter for transportation of employees as per Section 2(60) of CGST/TGST Act’2017 read with Section 17(5)(g) of CGST/TGST Act’2017.

Read the full order from here


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