GST Update on Supreme Court denying credit on Outdoor Catering Services

The issue regarding admissibility of credit on outdoor catering services has been a matter of dispute since erstwhile indirect taxation regime when the Cenvat Credit Rules, 2004 (CCR, 2004) were in force. The definition of ‘input service’ under the erstwhile CCR, 2004 was amended several times which created lot of disputes as regards admissibility of credit on various services, one of them being the service of outdoor catering. The issue regarding availability of credit travelled upto the Supreme Court in the case of TOYOTA KIRLOSKAR MOTOR PRIVATE LIMITED VERSUS THE COMMISSIONER OF CENTRAL TAX wherein it was confirmed that the credit of outdoor catering services cannot be availed by the assessee post amendment in the definition of ‘input service’ in April, 2011. The in-depth analysis of this decision with its impact in GST era is the subject matter of consideration of the present update. The petitioner contended that as per the Factories Act, 1948, they are under an obligation to establish a canteen in the premises of the factory and as per the Rules framed by the State of Karnataka, i.e., Mysore Factory Rules, the petitioner is required to maintain and supply food stuffs in the canteen. Moreover, the cost of providing canteen facility is being included in the manufacturing cost of finished product on which central excise duty is being discharged. Hence, they are eligible for availing credit of outdoor catering services provided by M/s Sodexho Food Solutions Private Limited. The hon’ble Supreme Court pursued the amended definition of “input service” under Rule 2(l) of the Cenvat Credit Rules, 2004, and concluded that the services of outdoor catering have been explicitly mentioned in the exclusion clause of the definition thereby meaning that post amendment w.e.f. April, 2011, the assessee cannot avail credit on outdoor catering services. The reliance placed by the petitioner on the decision given by hon’ble Madras High Court in the case of GANESHAN BUILDERS LTD. was also rejected on the grounds that canteen facility has been established primarily for personal use or consumption of the employees and so it is not permissible for the assessee to claim credit on account of specific prohibition contained in the definition of input service. The Apex Court concluded that there is no ambiguity in the statue and therefore, the court cannot add or substitute words in the statutory provisions while interpreting the statutory provision. The Supreme Court rejected reliance placed on various decisions by the petitioner on the grounds that they are pertaining to preamendment era and so not relevant in the facts and circumstances of the present case. Hence, the issue was decided against the petitioner by upholding denial of credit on outdoor catering services. The above decision is definitely setback to the assessees for the pre-GST era as the credit has been denied irrespective of the fact that maintaining canteen facility is statutory obligation under the Factories Act, 1948. If we compare the analogy of this decision in light of the provisions contained in the GST law, we find that the ratio of this decision may not be applicable in the GST era. This is primarily for the reason that under GST Law, section 17(5) providing restrictions in availment of input tax credit carves out exception by way of proviso that input tax credit in respect of restricted goods or services are admissible if they are obligatory for employer to provide the same to its employees or are used for making an outward supply of same category of goods or services. Consequently, the input tax credit may be allowed in restricted goods or services if it is obligatory to provide the same for employers. It is pertinent to mention here that there is controversy in the admissibility of input tax credit in view of the GST rate notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 which prescribes condition of non-availment of ITC. This has been discussed in detail on earlier occasion in our separate GST update on section 17(5) versus rate notification. Hence, in our opinion, the ratio of the Supreme Court decision may not be applicable in the GST regime.

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GST Update on Supreme Court denying credit on Outdoor Catering Services

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