ITC of Canteen Exp.(Food & beverages) _in Factory

[Prem Choudhary]

Dear Expert

As per amendment in Section 17(5)(b)CGST Act, 2017 as amended by the CGST (Amendment) Act, 2018 w.e.f 1^st February, 2019, allows input tax credit in respect of such goods or services or both, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

The canteen is obligatory in Factories Act 1948 therefore We can take Credit of Canteen bills of food and beverages exp.

1. if Canteen is given on contract then Credit of contractor bills can take credit

2. if maintained by Company self ,then ITC on material consumed in canteen can be take credit

please advice if any contrary views.

[CASeetharaman KC]

Input tax credit should be allowed wef 01-02-2019 after the amendment.

[KASTURI SETHI]

ITC is allowed on the following conditions w.e.f. 1.2.19 :

. 1. Employees must be more than 250 in the factory. (Section 46 of the Factory Act refers.

2. Under Factory Act, it is not legally required to provide food free or at subsidised rates.

[Spudarjunan S]

Dear Sir,

W.e.f the CGST Amendment Act, 2018 - as you rightly said ITC on food and beverages is been allowed provided the same is obligatory for an employer to provide the same to its employees under any law for the time being in force.

However, the issue arises when you recover any charges from the employees. In terms of notification no.13/2018 C.T(R) dated 26th July, 2018 - the rate of tax is 5% with a condition that input tax charged on goods and services used in supplying the service has not been taken. Further such supply would be treated as exempted supply for the purpose of proportionate reversal of ITC under Rule 42 of CGST Rules, 2017.

Summary -

If you are not recovering anything from employees (i.e. you don't have any outward canteen supplies) you are eligible for input tax credit under recent CSGT Amendment Act w.e.f. 01.02.2019.

If you are recovering from employees then the ITC will be blocked through virtue of notification no.13/2018-C.T(R) dated 26th July 2018.

[Prem Choudhary]

Sirs

my query is

1. if Canteen is given on contractors and he has maintained canteen and charges amount to company dept. wise then company can take Credit of contractor bills ?

2. if maintained by Company self ,then ITC on material consumed in canteen can be take credit by company ? and if any charges recovered from employee then GST will be payable on amount recovered @5% on as normal dealer( canteen cover under Composite supply of Schedule-II of 6(b)

3. if in case the point-1 Contractor is registered Composition Scheme (u/s10(1)(b) of CGST act) , then the Contractor will be paid GST @5% on total turnover and he can not charge GST in bills and also ITC is not avilable to them for material consumed . it is correct ?

4. If Contractor is reg. as normal dealer, whether ITC is avilable to them(on material consumed ) ? normal rate of canteen will be levyable @5 %.

5. in case of catering business, the rate of tax is same @5% in both cases -Normal Registration or Composition scheme ?

[KASTURI SETHI]

Dear Querist,

Supply of food to employees at subsidized rate means recovery from the pocket of the employees and further, no company runs canteen free of cost. Both the situations have been nicely explained above by the expert.

Further, Both the facilities ( supply of food free of charge and at concessional rate) are not obligatory as per Factory Act.

[Manali Daiya]

@Spurdajunan S - I'm not able to understand that, if such supplies are liable to GST @ 5% without any input credit, wouldn't it amount to loss for company considering it as exempt supplies?

AI Summary

Input tax credit for employer provided canteens allowed when legally obligatory; employee charges trigger restricted credit and reduced rate tax. ITC for food and beverages supplied in factory canteens is allowed where the employer is legally obliged to provide them; if no recovery from employees occurs, ITC is claimable on contractor bills or self procured materials. Recovery from employees renders the outward supply taxable at a concessional rate without ITC entitlement and triggers proportionate reversal of ITC. Contractor registration status affects availability of ITC and chargeability of tax.