GST Input Tax Credit on Mandatory Canteen Services for Employees
Companies can claim GST input tax credit on mandatory canteen services, but only for the portion of costs they pay themselves.
- Ruling
- GUJ/GAAAR/APPEAL/2022/23 dated 22.12.2022
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Tata Motors asked if they could claim GST credit on canteen services.
- The authority ruled credit is allowed because the canteen is legally mandatory.
- Credit is restricted to the cost the employer pays, not the employee's share.
In short
The company asked if they could claim input tax credit (ITC) on the GST paid to canteen service providers for their employees. Because the law requires factories to provide these facilities, the authority had to decide if this service counts as a business expense eligible for tax relief.
What has changed
How it worked before
Businesses were often unsure if canteen services were blocked under GST rules, leading to inconsistent claims for input tax credit.
What has changed
The authority confirmed that when a canteen is mandatory under the Factories Act, the employer can claim GST credit. However, you must calculate this credit only on the portion of the bill the company pays, excluding any amount recovered from employees.
Who this affects
Manufacturing businesses that are legally required to provide canteen facilities to their employees.
An example
A textile factory is required by law to run a canteen. They pay the caterer 100 rupees plus 5 rupees GST, and recover 20 rupees from employees. Under this ruling, the factory can claim GST credit only on the 80 rupees they effectively paid, not the full 100 rupees.
What you should do
Review your canteen service contracts and the portion of costs you recover from employees. Remember that this ruling only binds the company that asked; your local tax officer may still have a different view, so consult your tax advisor before changing your filing strategy.
If you do nothing
If you claim full credit without excluding the employee-recovered portion, you risk a tax audit and potential penalties. Tax officers may view this as an incorrect claim of input tax credit, leading to interest charges and recovery proceedings.
The terms explained
- Input Tax Credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Advance Ruling
- A formal decision from tax authorities on how GST laws apply to a specific business situation.
- Statutorily Mandatory
- Services or actions that a business is legally required to provide under government regulations.
The ruling in detail
Appellate Authority for Advance Ruling
M/s Tata Motors Limited
GUJ/GAAAR/APPEAL/2022/23 dated 22.12.2022 · Gujarat
Questions before the authority
- Whether input tax credit (ITC) available to applicant on GST charged by service provider on canteen facility provided to employees working in factory?
- Whether GST is applicable on nominal amount recovered by Applicant from employees for usage of canteen facility?
- 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)?
Facts
The appellant is a manufacturing unit that maintains canteen facilities for its employees to comply with the mandatory requirements of Section 46 of the Factories Act, 1948. The appellant recovers a nominal amount from its employees for the usage of these canteen facilities, while the remaining expenditure is borne by the company. The appellant sought a ruling on the admissibility of Input Tax Credit on the GST charged by the canteen service provider.
Ruling
| Question | What the authority ruled |
|---|---|
| ITC on canteen facility | Available Restricted to direct employees and subject to the cost borne by the employer |
| GST on nominal recovery | Not addressed in the final ruling The final ruling focused on the ITC eligibility and restriction |
| Restriction of ITC to cost borne | Yes Proportionate credit to the extent of cost recovered from employees is disallowed |
The Appellate Authority held that the appellant is eligible to claim Input Tax Credit on the GST charged by the canteen service provider for facilities provided to its direct employees, as such provision is mandatory under the Factories Act. However, this credit is restricted to the extent of the cost borne by the appellant and is not available for the portion of the cost recovered from employees. The ruling modifies the original Advance Ruling to allow this credit.
Reasoning
The authority relied on the amendment to Section 17(5)(b) of the CGST Act, 2017, effective from 01.02.2019, which allows ITC for goods or services that are obligatory for an employer to provide under any law. Citing CBIC Circular No. 172/04/2022-GST, the authority clarified that the proviso to Section 17(5)(b) applies to the entire clause, thereby enabling ITC for mandatory canteen services. Furthermore, applying the principle from the Bombay High Court in Ultratech Cement Ltd., the authority determined that ITC must be restricted to the cost borne by the employer, as the portion recovered from employees represents a cost borne by the consumer.
Provisions relied on
- Section 17(5)(b) of the CGST Act, 2017
- Section 46 of the Factories Act, 1948
- CBIC Circular No. 172/04/2022-GST dated 06.07.2022
- Gujarat Factory Rules, 1963
For the practitioner
This ruling provides **significant relief** to manufacturing entities by confirming that ITC is available on canteen services that are statutorily mandatory under the Factories Act. Practitioners should note that the credit is **strictly limited** to the portion of the cost borne by the employer and excludes services provided to contract workers or visitors. It settles the interpretation that the proviso to Section 17(5)(b) is not restricted to travel benefits but applies to the entire clause.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/23_tata_motors_limited.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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