ITC on canteen

[Asked by Guest]

Dear sir,

we are manufacturing co. and having canteen facility also in co. premises.

third party is cooking here and raise invoice with GST to us., we are paying him with GST.

however company is charging nominal fee from employees.

in this scenario, ITC is eligible or not?

[Alkesh Jani]

Sir, In my point of view ITC is not available.

[Alkesh Jani]

Sir, Please refer Section 17(5) of CGST Act, 2017. Moreover, it has no nexus with the business or furtherance of business.

sir, please refer attached copy of AAR, where it is stated that in GST Scenario, providing of canteen service is called as "outward supply"

http://keralataxes.gov.in/wp-content/uploads/2018/04/C3.531.18_Canteen_Services.pdf

kindly inform, can we avail ITC on that in GST scenario?

[Ganeshan Kalyani]

GST is payable on the amount recovered from the employee as it amounts to outward supply.

Cannot we avail ITC against disbursement to to third party ?

company is charging from employee concessional rate only.

[Ganeshan Kalyani]

Outdoor catering service is included in the negative list given u/s 17 (5) of CGST Act. Credit is not allowed.

[KASTURI SETHI]

I endorse the views of both experts.

[CASusheel Gupta]

Dear Shankar

In my view ITC can be availed, since as per section 17(5)(b)(i), if food and beverage is used for making output taxable supply of same category ITC is available.

Also note that, since the employer and employee are related parties, GST in respect of supply made to employees shall be as per valuation rules and not the amount charged from employees.

Regards

CA Susheel Gupta

8510081001, 9811004443

[KASTURI SETHI]

Valuation under Valuation Rules has to be determined, if an assessee is unable to determine valuation under the Act due to various factors. Rules are not preferred to the Act. Rules are meant for "help" Rules cannot override the Act.

[subramanian vijayakumar]

I endorse sethi ji view he can not claim and avail ITC

It is outdoor catering

[KASTURI SETHI]

ITC in respect of 'Catering (Food and Beverage etc) & 'Works Contract Service' on the same taxable output service is virtually denied.

[CASusheel Gupta]

Issue – Valuation as per Act/Rules

Section 15 (1) on valuation states - The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply

This sub section is applicable when price paid or payable is the sole consideration and the two parties are not related parties.

Price means monetary consideration only

Employer and employee are related parties

Sub section (4) provides that “where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed’

Since the Employer and employee are related parties we have to refer to rules and have no other option.

Issue – Whether ITC of food and beverage is allowed or not, if allowed in which case

Section 17(5)(b)(i) denies ITC but at the same time gives one exception when ITC can be availed It states “food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category 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”.

We need to read the exception which allows ITC where inward supply of food and beverages, outdoor catering are used for making outward supply. As such where a banquet hall, sub contracts supply of food and sub-contractor charges GST, the banquet hall can take input.

But the restriction has been put by notification 11/2017, where caterer is charging GST @ 5% he cannot take ITC. Even a caterer can take input if he is charging 18%.

Comments of experts are welcome.

[Himansu Sekhar]

Value addition is not a factor to determine the ITC. No where it has been mentioned. The requirement of the Law has to be observed to get the benefits of ITC. The credit is not allowable when specifically barred under Sec. 11(5).

[JAIPRAKASH RUIA]

Humbly but Surprisingly, when Mr. Sushil Gupta is raising some points clearly producing the provision of the act and rule, most of the expert preferring to give verdict without healthy and point to point discussion.

Mr. Gupta has raised some valid questions to be replied today or tomorrow. Food and Beverage , Outdoor catering, and restaurant service are three separate goods and services and should be dealt separately and should not be clubbed while referring act and rules.

There may be different scenario with different treatment for taxation of gst.

Like full/part amount recovered by employee, amount not recovered by employee, in some of them outsiders also allowed to eat in canteen alongwith employees.

[KASTURI SETHI]

Dear Sir, Experts give their opinions and not verdict. Nobody is perfect. Experts often request intervention of others in complicated issues. Sometimes one expert gives one's opinion on the issue and another expert posts legal force by way of incorporating Sections, Acts, Circulars, case laws, notifications etc. Thus reply becomes complete. Every expert is busy and they devote their valuable time as per their knowledge and experience in respective field of taxation. Due to paucity of time sometimes an expert gives reply in brevity which also serves purpose. When all the experts contribute profusely, the querist gets a very clear picture of the issue. All experts welcome the views of others wherever any expert gives perfect reply. We are thankful to TMI for according such a useful platform where we can express our views based on knowledge, education, and experience and the same are perused by various persons (unlimited number of visitors of this site) not only in India but also abroad.

[JAIPRAKASH RUIA]

Sir, I have high regards for all the experts. I am sorry if I have hurt some one, my intention was not that but to raise the standard of this august platform with it's democratic character.

[uday kumar]

Sir,

I am in consonance with the expert's view that credit is not admissblad, not withstanding that the service is utilised in the course of furtherance of business, for the reason that outdoor catering service stands specifically excluded for purposes of availment of credit since Section 17(5) is abundantly clear on the issue and does not warrant any ambiguity. Section is the law per se and when the law explicitly excludes a particular service, there cannot be any ambiguity in the matter.

However, if it is canteen services rendered to the assessee, then the matter calls for further detailed examination in the light of the recently reported AAR of GST, Kerala.

This is my view. However there could be more learned persons whose perception might be different.

K.N.Udaykumar, IRS(Retd.)

Consultant in GST/Customs/DGFT Matters.

[KASTURI SETHI]

Now a days AAR decision cannot become basis. There are inconsistencies in various decisions of States. One cannot take shelter legally.

[KASTURI SETHI]

Every State AAR is giving its own decision on complicated issues/disputed issues even on classification matters. Too many cooks spoil the broth.

There should be only one AAR.

[Rakesh Chitkara]

Reply No.14 / 30 April by Hon'ble Mr Jaiprakash ji Ruia : Emplying the word HEALTHY : Unable to fathom usage in that sentence. Will he kindly elaborate the intent and meaning behind using this word ?

I tried raising standard of debate but failed. Did the next best thing : raised the level of table. Will that suffice Sir ?

AI Summary

Input tax credit for canteen supplies is constrained by catering exclusion, valuation rules, and GST rate/notification effects.
Whether a manufacturer may claim input tax credit on GST paid to a third party canteen contractor hinges on the statutory exclusion of food and catering from ITC, the exception permitting credit where inward supplies are used to make outward supplies of the same category, and valuation rules for related party supplies; administrative instruments such as AAR decisions and notifications fixing GST rates further affect eligibility and reporting obligations including potential reverse charge or fair market valuation implications.