Company denied Input Tax Credit on GST for canteen services & business promotion expenses. Coupons distributed to employees attract tax liability.

The company was deemed ineligible to claim Input Tax Credit (ITC) on GST for canteen services provided to employees. Distribution of coupons among employees was ruled to attract tax liability. The fair market value of coupons was determined to be part of the taxable value of the caterer's services. Additionally, the company was not allowed to claim ITC on business promotion expenses. The ruling was made accordingly.

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Issues Involved:
1. Eligibility to claim Input Tax Credit (ITC) on GST charged by the vendor for canteen services.
2. GST liability on the distribution of coupons among employees.
3. Determination of the fair market value of coupons.
4. Eligibility to claim ITC on business promotion expenses.

Issue-wise Detailed Analysis:

1. Eligibility to Claim Input Tax Credit on GST Charged by Vendor for Canteen Services:
The applicant, a manufacturing company, provides canteen services to its employees as mandated by Section 46 of the Factories Act, 1948. The applicant argued that it should be eligible for ITC on GST paid to the canteen contractor under Section 16 of the CGST Act, 2017, as these services are essential for business operations. However, Section 17(5)(b)(i) of the CGST Act specifically excludes ITC on food and beverages unless these services are used to make an outward taxable supply of the same category. The applicant's business is manufacturing, not providing food services, thus disqualifying it from claiming ITC on canteen services. The proviso allowing ITC when services are obligatory under any law applies to Section 17(5)(b)(iii) and not to 17(5)(b)(i). Therefore, the applicant is not eligible to claim ITC on canteen services.

2. GST Liability on the Distribution of Coupons Among Employees:
The applicant recovers a nominal amount from employees for canteen services via coupons to maintain discipline and prevent food wastage. The applicant contended that this recovery is under an employer-employee relationship, which is exempt from GST under Schedule III of the CGST Act. However, the relationship exempts services provided by employees to employers, not vice versa. The applicant also provides various facilities to the caterer, which subsidizes the food cost. Under Section 15(2)(b) and 15(2)(e) of the CGST Act, the value of these coupons is part of the taxable supply provided by the caterer. Thus, the distribution of coupons attracts GST liability.

3. Determination of Fair Market Value of Coupons:
The applicant argued that if tax is charged on the subsidized price, the open market value should be considered. Section 15 of the CGST Act defines the value of taxable supply as the transaction value, which includes any amount the supplier is liable to pay but is incurred by the recipient. Since the applicant incurs costs for facilities provided to the caterer, the coupon value forms part of the total taxable value of the caterer’s services.

4. Eligibility to Claim ITC on Business Promotion Expenses:
The applicant purchases sweets, dry fruits, and gifts for business promotion and argued that denying ITC on these expenses would lead to a cascading tax effect. However, Section 17(5)(h) of the CGST Act expressly bars ITC on goods disposed of by way of gifts. The applicant admitted that these items are distributed as presents, which qualifies as gifts. Therefore, the applicant is not eligible for ITC on business promotion expenses.

Ruling:
1. The company is not eligible to take ITC on GST charged by the vendor for canteen services availed for its employees.
2. The distribution of coupons among employees will attract tax liability.
3. The coupon value shall form part of the total taxable value of the caterer.
4. The company is not eligible to take ITC on business promotion expenses.

Ordered accordingly.

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