The Applicant had sought an advance ruling before the Haryana AAR to ascertain whether the ITC can be availed on third party canteen services and gift distribution. The Applicant further sought clarification in regarding GST liability on coupons distributed to employees.
The AAR held that the Applicant was neither eligible to avail ITC in respect of canteen services availed by it for its employees nor on business promotion activities. The AAR further held that the distribution of coupons among employees will attract GST. Aggrieved, the Applicant had preferred an appeal before the Haryana AAAR.
The Applicant argued that the restriction of ITC in respect of canteen services is not applicable when the said services are mandatory by law and not optional on the Applicant to its employees. It was argued that since the provision of canteen facility is mandatory to be provided under the Factories Act, such provision is covered under the exception of Section 17(5) of the CGST Act. The Applicant further argued that ITC in respect of promotional schemes shall be allowed to avoid the cascading effect.
The AAAR observed that 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. Accordingly, it was ruled that ITC on GST paid on canteen facility is blocked credit u/s. 17(5) of the CGST Act and therefore would not be admissible.
As regards the second issue in relation to distribution of coupons among employees attracts GST liability, the AAAR ruled that distribution of coupons among employees does not attract GST.
As regards the issues relation to ITC on promotional schemes, the AAAR observed that sub section 17(5), clause (g) clearly forbids ITC admissibility on the items of personal consumption. Thus the items mentioned by the Applicant viz. sweets; dry fruits; electronic items and Gold and Silver Coins etc. are essentially being given to the relevant persons as items of personal use/ consumption. Thus, it was ruled that the Applicant was not eligible to take ITC on such business promotion expenses.
Muasashi Auto Parts India Private Limited [HAAAR/2020-21/06 dated 25 September 2020]
GLS Comments:
As the saying goes “The law is what is read, not what is written.” It seems that the Haryana AAR in the instant matter has followed the footsteps of Gujarat AAR in RE: Tata Motors [TS-437-AAR(GUJ)-2021-GST], who had interpreted Section 17(5) of the CGST Act in a similar fashion. In this regard, it shall be noted that Delhi HC in RE: Rodhee vs. Govt. of Delhi and Ors. [(2003) IILLJ 5 Del] had held that the intention of a semi-colon is to segregate two substantially similar topics from each other. If the said punctuation mark is not employed, a part of the foregoing words would have to be repeated once again or in the same context would have to be reiterated. It was further observed that if the proviso was not to operate on the first sub-section it should have ended with a full stop and not a semi-colon. Basis the same it was concluded that a statutory provision should not be interpreted only on the basis of the punctuation marks found therein.
Disclaimer:
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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