When businesses provide canteen and transport facilities to employees, can they claim Input Tax Credit (ITC)? A crucial ruling from the Appellate Authority for Advance Ruling (AAAR), Telangana has drawn a firm line on this.
Let’s decode what the Kirby Building Systems case says — and what it means for your GST strategy.
I. BACKGROUND: THE CASE OF KIRBY BUILDING SYSTEMS
Kirby Building Systems & Structures India Pvt. Ltd., a manufacturer based in Telangana, offered canteen and transport services to employees at subsidized rates under contractual agreements.
– Canteen: Mandated under the Factories Act, 1948.
– Transport: Not mandated by law, but provided for employee convenience.
The company sought a ruling on whether it could claim ITC on the GST paid for both facilities.
II. KEY OBSERVATIONS BY THE AAAR
1. Canteen Services
✅ ITC Allowed – Since providing canteen facilities is a statutory obligation under the Factories Act, Section 17(5) allows ITC on inward supplies used for it.
2. Transport Services
❌ ITC Not Allowed – The AAAR held that transportation to employees is a perquisite, not a legal requirement. Hence, credit is blocked under Section 17(5)(g) as it constitutes personal consumption.
3. Recoveries from Employees
✅ Not Taxable – As per CBIC Circular No. 172/04/2022-GST, the amount recovered from employees for transport was not considered a supply, being a perquisite under the employment contract.
III. LEGAL TAKEAWAYS FROM THE RULING
– Section 17(5) of the CGST Act is clear: ITC is disallowed if services are for personal consumption or are not mandated under law.
– A contractual obligation ≠ statutory obligation. So, employee benefits promised in appointment letters or HR policies don’t qualify unless mandated by legislation.
– Citing “business expediency” or “remote location” does not override statutory restrictions under Section 17(5)(g).
IV. OTHER SUPPORTING PRECEDENTS
- SBI Cards & Payment Services Ltd. (Karnataka AAR) – Denied ITC on transportation provided via cab aggregators.
- Emphasis on legislative clarity – Courts and AARs alike have underscored that unless specifically permitted by law, perks remain blocked credit.
V. CONCLUSION: CLARITY FOR EMPLOYERS, COMPLIANCE FOR TAXPAYERS
This ruling reminds us that intent or convenience cannot override explicit statutory limitations in GST law. Businesses offering non-mandated perks must factor in the cost of blocked ITC when budgeting for employee welfare.
🔎 Taxmark Tip:
To avoid surprises during audits or assessments, always cross-check employee-linked services against statutory requirements and CBIC circulars. 💬 Have a GST query? Facing a departmental notice on ITC denial?
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