GST not leviable on amount collected from employees for canteen charges – Dramatic Interpretation of with colon (:) and semi colon (;)

The Authority for Advance Ruling ("AAR"), Gujarat vide Ruling no. GUJ/GAAR/R/39/2021 dated July 30, 2021 held that, no GST is leviable on amount representing the employees portion of canteen charges, which is collected by the employer and paid to the canteen service provider.

Facts

M/S Tata Motors Ltd. ("the Applicant") is maintaining canteen facility for its employees at their factory premises to comply with the mandatory requirement of maintaining the canteen as per the Factories Act, 1948.

The Applicant is recovering nominal amount on monthly basis to ensure use of canteen facility only by authorized persons/employees and expenditure incurred towards canteen facility borne by the Applicant is part and parcel of cost to company. In press release dated 10.07.2017 also, it was clarified that, supply by employer to employee in terms of contractual agreement of employment (part of salary/CTC) is not subject to GST.

Question on which Advance Ruling sought

The Applicant is before AAR Gujarat to seek answer of the following questions:

1. Whether input tax credit (ITC) available to Applicant on GST charged by service provider on canteen facility provided to employees working in factory?
2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of canteen facility?
3. If ITC is available as per question no. (1) above, whether it will be restricted to the extent of cost borne by the Applicant (employer)?

Held

The AAR Gujarat vide Ruling no. GUJ/GAAR/R/39/2021 dated July 30, 2021 held as under:

• Section 17(5)(b)(i) ends with colon (:) and is followed by a proviso and this proviso ends with a semi colon (;)
• Colons and semicolons are two types of punctuation. Colons are used in sentences to show that something is following, like a quotation, example, or list. Semicolons are used to join two independent clauses/ sub-clauses, or two complete thoughts that could stand alone as complete sentences. That means they're to be used when you're dealing with two complete thoughts that could stand alone as a sentence.
• Section 17(5)(b)(i) sub-clause ending with a colon and followed by a proviso which ends with a semi colon is to be read as independent sub-clause, independent of sub-clause Section 17(5)(b)(iii) and its proviso [of sub-clause iii]. Thereby, the proviso to section 17(5)(b)(iii) is not connected to the sub-clause of Section 17(5)(b)(i) and cannot be read into it.
• On the basis of above observations, it is ruled that:
  1. ITC on GST paid on canteen facility is blocked credit under section 17 (5)(b)(i) of CGST Act and inadmissible to applicant.
  2. GST, at the hands on the applicant, is not leviable on the amount representing the employees’ portion of canteen charges, which is collected by the Applicant from employees and paid to the canteen service provider.

Section 17(5)(b) is reproduced herein below

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

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both 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;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force."