Statutory canteen obligation can support input tax credit on employee food services despite the blocked credit rule.

Input tax credit on canteen ices is generally blocked under section 17(5)(b) for food and beverages, but the proviso allows credit where the employer is legally obliged to provide the supply under an applicable law. The AAR treated the factories law canteen requirement as a statutory mandate and applied the GST circular clarification to read the proviso as covering the blocked-credit clause more broadly, not only travel-related benefits. On the stated facts, GST charged by the vendor was eligible for credit, subject to the restriction that the tax burden had not been passed on and the claim was limited to the eligible employee category on a proportionate basis.

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Issues: Whether input tax credit is available on GST paid on canteen services provided to employees where the canteen is maintained to satisfy a statutory obligation under the factories law.

Analysis: Input tax credit on food and beverages is generally covered by the blocked credit provision in clause (b) of sub-section (5) of section 17. However, the proviso to that clause allows credit where it is obligatory for an employer to provide such supply to employees under any law in force. The canteen obligation under the factories law and the applicable factory rules was treated as a statutory mandate. The clarification issued under the GST circular was relied upon to treat the proviso as applicable to the whole of clause (b), so that the statutory-compulsion exception is not confined only to travel benefits. On the stated facts, the canteen was required for the workforce and the GST charged by vendors was therefore eligible for credit, but only to the extent of the stated limitation that the tax burden had not been passed on and credit was confined to the eligible employee category.

Conclusion: Input tax credit on the canteen invoices was held to be available, subject to the stated limitations and on a proportionate basis for permanent employees only.

Ratio Decidendi: Where an employer is under a statutory obligation to provide canteen services to employees, the proviso to the blocked credit provision permits input tax credit on such inward supplies despite the general restriction on food and beverage credits.

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