Input tax credit— Section 17(5) of CGST Act—  The present appeal has been filed against the Advance Ruling order.

The appellant has sought Advance Ruling on the following question

“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 Applicant 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)?”

The advance ruling authority held that ITC on GST paid on canteen facility is blocked credit under Section 17 (5) (b)(i) of CGST Act and inadmissible to applicant.

The ground of appeal has submitted that the GAAR erred in holding that due to semicolon after the proviso to Section 17(5)(b)(i), the proviso to Section 17(5)(b)(iii) is not connected to the sub-clause 17(5)(b)(i) and cannot be read into it as if such interpretation of GAAR is accepted then it will make the proviso to Section 17(5)(b)(iii) redundant for aspects which has been incorporated under 17(5)(b)(i).

Held that— This authority modify the advance ruling order and hold that—

(i) Input Tax Credit (ITC) will be available to the appellant on GST charged by the service provider in respect of canteen facility provided to its direct employees working in their factory, in view of the provisions of Section 17 (5)(b) as amended effective from 01.02.2019 and clarification issued by CBIC vide Circular No. 172/04/2022-GST dated 06.07.2022, read with provisions of Section 46 of the Factories Act, 1948, and read with provisions of the Gujarat Factory Rules, 1963 and clause (ii) below;

(ii) ITC on the above is restricted to the extent of the cost borne by appellant for providing canteen services to its direct employees, but disallowing proportionate credit to the extent embedded in the cost of food recovered from such employees.