GST Input Tax Credit on Canteen Services for Factories
The Karnataka Authority for Advance Ruling decided that GST input tax credit on canteen services is only allowed for costs borne by the employer for regular employees.
- Ruling
- Order No. KAR.ADRG 25/2026 dated 19.05.2026
- Dated
- 19 May 2026
- Authority
- 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
- ITC is allowed only for canteen services mandated by the Factories Act.
- Credit is restricted to the portion of costs actually paid by the employer.
- No ITC is available for canteen services provided to contract workers.
In short
The company asked if they could claim input tax credit (ITC) on GST paid to canteen service providers for both regular staff and contract workers. Under the Factories Act, the company is required to provide a canteen, but the law does not specify who must pay for the food. The authority had to decide if the GST paid on these services counts as a business expense eligible for tax credit.
What has changed
How it worked before
Many businesses assumed that if they were legally required to provide a canteen, they could claim the full GST paid on those services as input tax credit.
What has changed
The authority ruled that you can only claim ITC for the portion of the canteen cost that you pay yourself for regular employees. You cannot claim credit for the portion recovered from employees, nor can you claim it for services provided to contract workers, as the law does not mandate canteen facilities for them.
Who this affects
Manufacturing businesses registered under the Factories Act that provide canteen facilities to their employees and contract workers.
An example
A factory owner, 'SteelWorks Pvt Ltd', provides a canteen for its staff. They pay the caterer 100 rupees plus 5 rupees GST. If they recover 40 rupees from employees, they have only 'borne' 60 rupees of the cost. According to this ruling, SteelWorks can only claim a portion of the 5 rupees GST proportional to the 60 rupees they paid themselves.
What you should do
Review your canteen service contracts and cost-sharing arrangements. Note that this ruling only applies to the specific company that asked; it is not a general law. If your tax officer takes a different view, you cannot use this ruling as a legal defense for your own business.
If you do nothing
If you claim full ITC without separating the costs for contract workers or the amounts recovered from employees, you risk a tax demand. A tax officer may disallow the credit and charge you interest and penalties for incorrect filing. Relying on a ruling that does not apply to your specific situation can lead to costly disputes during an audit.
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.
- Statutory Obligation
- A duty or requirement that is specifically written into a law.
- Canteen Service Provider
- An outside vendor hired by a company to prepare and serve food to employees.
The ruling in detail
Authority for Advance Ruling
M/s. Aditya Auto Products & Engineering India Pvt. Ltd.
Order No. KAR.ADRG 25/2026 dated 19.05.2026 · Karnataka
Questions before the authority
- Whether input tax credit (ITC) is admissible to the applicant on GST charged by the CSP for providing catering services, which the applicant is mandatorily required to provide under Section 46 of the Factories Act, 1948?
Facts
The applicant is a manufacturing entity registered under the Factories Act, 1948, which mandates the provision of canteen facilities for its employees. The applicant engages Canteen Service Providers (CSPs) to supply food to both regular employees and contract workers at its manufacturing locations. A portion of the canteen cost is recovered from regular employees via salary deductions and from contractors via invoices, while the applicant bears the remaining balance.
Ruling
| Question | What the authority ruled |
|---|---|
| Admissibility of ITC on catering services | Admissible only for regular employees to the extent of costs borne by the applicant; inadmissible for contract workers. Restricted to the portion of costs not recovered from employees and excludes services for contract workers. |
The authority ruled that the applicant is eligible to claim ITC on GST charged by the CSP only to the extent of the cost of canteen services actually borne by the applicant for its regular employees. ITC is not admissible for the portion of costs recovered from employees, nor is it admissible for services attributable to contract workers due to the absence of a statutory obligation.
Reasoning
The ruling relies on Section 17(5)(b) of the CGST Act, 2017, which restricts ITC on food and beverages but provides an exception where such services are **obligatory for an employer** to provide under any law. Since Section 46 of the Factories Act, 1948, mandates canteen facilities for regular employees, the exception applies to that extent. However, because there is no statutory obligation to provide canteen services to contract workers, the restriction under Section 17(5)(b) remains absolute for those services. Furthermore, the authority held that ITC is only available to the extent the cost is **actually borne by the applicant**, as the scheme of the Act contemplates ITC only for business costs incurred by the registered person.
Provisions relied on
- Section 16 of the CGST Act, 2017
- Section 17(5)(b) of the CGST Act, 2017
- Section 46 of the Factories Act, 1948
- Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017
- Circular No. 172/04/2022-GST dated 06.07.2022
For the practitioner
This ruling clarifies that employers can claim ITC on canteen services mandated by the Factories Act, but only for regular employees and strictly limited to the portion of the cost **not recovered from the employees**. It serves as a warning that ITC is unavailable for contract workers where no statutory mandate exists. Practitioners should note that the authority strictly enforces the principle that ITC is only available to the extent the cost is borne by the applicant.
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/AAR/2-adithya_auto_products_and_engineering.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
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