canteen ITC

[Madhavan iyengar]

In case of a company which has provided a canteen facility ( ie eating place) with food served by caterer.

First Scenario

Caterer has following billing pattern he charges 5% GST. Company recovers part amount from employee

Issue: Whether Company can discharge GST on recovered amount from employee @5% or company has to discharge gst on full value of canteen bill

will valuation rule come into play since employer and employee are related party

Second scenario: Caterer charges 18% GST and Company discharges gst @18% on the entire canteen bill ( company recovers only part amount from employee)

in above case can company claim the itc of canteen ??? will it fall under the exception to sec 17(5) ie like supplies

[Natarajan Ramakrishnan]

Dear Mr Madhavan,

As pointed out the employer and employee are related person and squarly fall under Schedule I of the CGST Act.

As per valuation rules 28, the value of supply of goods or services or both between related persons will be valued at the the open market value of such supply

Sec 2(73) defines the market value which mean the full amount which a recipient of a supply is required to pay in order to obtain the goods or service or both of like kind and quality at or about the same time and at the same commercial level where the recipient and supplier are not related.

Going by the above, the amount recovered from the employee shall be paid on the full value of the canteen bill.

The second question you posted is whether ITC Can be availed on such service received from the caterer.

If the canteen is mandated as per law ( like factories act), the amended provision allows to avail the Input credit.

Further invite your attention on the Advance ruling passed at State of Kerala in the case of caltech polymers pvt ltd.

R. Natarajan

[Madhavan iyengar]

thanks for your reply following clarifications required

a) what you are saying is GST is required to be paid whether there is part recovery / full recovery from employees for canteen and GST is required to be paid on the entire canteen bill ie the market value.

b) sec 17(5)(b) - credit is not allowed for out door catering except when an inward supply of goods or services

(b) the following supply of goods or services or both-

(i) 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;

if u see above extract if canteen service provider has charged gst 18% and company has discharged 18% gst from employees for canteen services provided then will it not fall in above exception marked in bold thereby credit could be availed

[Spudarjunan S]

Dear Sir,

In case of canteen supply CBIC has issued notification no.13/2018 dated 26th July 2018 provides inserts explanation to serial no.7 of notification no.11/2017 dated 28th June 2017 for clarifying the rate of tax for supply of canteen, mess, cafeteria of an institution such as a school, college, hospital, industrial unit, office by such institution or through any third party based on a contractual arrangement with such institution for such supply, provided that such supply is not event based or occasional as 5% with a condition of credit of input tax charged on goods and services used in supplying the service has not been taken.

So w.e.f 26.07.2018, canteen services will be taxable @ 5% without availing the ITC. So you can't avail the ITC of canteen services even though you provide canteen services since the same is taxable @ 5% with a condition of non-availment of ITC. Further such supplies has to be treated as exempt supply for the purpose of Rule 42, 43 calculation. i.e. apportionment of common credits of taxable, exempted supply.

Summarised -

Sl.No	Particulars	Till 14.11.17	from 15-11-17 to 25-07-18	from 26-07-18
A	For third party caterers	18%	18%	5%
B	Whether above (A) ITC eligible for Company	Yes	Yes - depends on tax rate opted by the company on its outward supply.	No
C	Employer - Canteen services liability	12%	5% without ITC 18% with ITC	5% without ITC
D	Should include in exempt TO	No	Yes/No	Yes
E	Rule 42 applicability	No	Yes, if 5% option opted. All the common credits would be reversed in proportion to 5% without ITC supply	Yes. All the common credits would be reversed in proportion to 5% without ITC supply
F	Cost to Company	-	Depends	10% and reversal of common ITC.

[KASTURI SETHI]

Dear Sh.Spudarjunan S.,. In view of the substance and clarity in your reply, I would not hesitate to say that you are possessing old head on young shoulders. Kudos to you. Keep it up.

[Spudarjunan S]

Dear Shri.Kasturi Ji,

Thank You sir.Your comments meant a lot to me and thanks for recognizing.

[YAGAY andSUN]

Food supplied in Canteens of Office & Colleges on Contractual Basis attracts 5% GST: AAR

The Telangana State Authority for Advance Rulings (AAR) 2018 (12) TMI 1088 - AUTHORITY FOR ADVANCE RULINGS, HYDERABAD TELANGANA has held that the supply of food in canteens of office, factory and colleges on contractual basis taxable at the rate of 5% GST. According to the ruling of the authority, the activity of supply of food in canteens of office, factory, hospital, college, industrial unit etc. on contractual basis excepting that supply is not event-based or on specific occasions, constitutes the supply of service. The applicant is engaged in the business of Cleaning Services, maintenance of canteens in Industries, Educational establishments, providing food to student mess/s, training institutes and so on since the year 2005.

AI Summary

Market value valuation requires GST on the full canteen charge; reduced rate for contractual canteens excludes input tax credit. Supply of canteen food to employees by a third party caterer is to be valued at market value where employer and employee are related, so GST is payable on the full canteen bill even if only part is recovered from employees. Contractual canteen/mess/cafeteria services supplied by institutions are subject to a reduced rate under notification with a condition of non availment of input tax credit, affecting ITC eligibility and requiring appropriate apportionment of common credits when that option applies.