Welcome to yet another edition, chief! We wish you a happy new year.

In today’s edition — A CAG report tabled in the Parliament in December revealed that companies used the 5% GST rate for employee canteens without meeting the conditions attached to the tax rate. They took input-tax credit on shared services, which violated those conditions, making the lower rate invalid.

5% GST Rate Comes With Riders

Vishwas Ved

Most GST disputes are about complex interpretations of the law such as classification of goods or services and eligibility to claim input tax credit. But there are instances where they arise from some basic lapses by businesses as well as authorities.

Two recent GST issues, strictly unrelated, point to that problem.

The first one involves employee canteens where companies applied a lower tax rate without meeting the conditions associated with it.

The second matter involves a tax appeal that was rejected because the authorities did not examine the documents placed before them. Eventually, the courts had to step in to set it right.

How Canteen GST Works

Canteen services fall under a GST rate structure that gives suppliers two possible choices. 

One option is to charge 5% GST, provided no input tax credit is taken on goods or services used to run the canteen. The other option is to charge 18% and claim full eligible input tax credit.

Many companies focused only on the first part of that structure. They charged 5% GST and made sure not to claim credit on food items or catering bills. Everything by the book.

The difficulty starts with services that are not limited to the canteen but still support it. 

For example, some offices have common contracts for security, housekeeping, facility management, pest control and similar services. 

These branches cover the entire workplace, including the canteen area. They are not billed separately, and they are not used exclusively for one function.

When input tax credit is claimed on these common services, part of that credit relates to the canteen. The condition attached to the 5% rate does not allow this because it is applicable only if input tax charged on goods and services used in supplying the service is not taken.

CAG Audit Upshot

In its report, presented in the Parliament on December 18, 2025, the Comptroller and Auditor General of India (CAG) has brought clarity to this matter. 

A CAG audit examined a Bengaluru taxpayer who was supplying food and beverages to its employees through a canteen for consideration and paying GST at 5%.

While the taxpayer did not avail ITC on goods or services exclusively used for the canteen, the audit revealed that ITC had been claimed on common input services, including facility management and housekeeping.

The CAG noted in the report that availing ITC on such common services amounts to non-fulfilment of the condition prescribed to avail the 5% tax rate. 

Once credit is taken on such services, the condition is violated. There is no option in the law to reverse a portion of the credit and continue charging 5%. The structure does not allow a middle position.

When the condition for the 5% rate is not met, the canteen service must be taxed at 18%. At this point, the supplier becomes eligible to claim full input tax credit on all eligible goods and services, including common services. 

Issues Beyond Canteen

This pattern exists in several GST categories. 

Lower rates are often offered with a no-input-credit condition. Transport services and certain travel-related services follow the same model.

The existence of a lower rate does not mean it must be used. The law allows taxpayers to choose the rate that fits how their operations are set up. 

What it does not allow is using the lower rate while also taking the benefit of input tax credit through shared services.

This makes rate selection a commercial and operational decision, not a default choice.

When Evidence Is Ignored

The second issue highlights a failure on the part of GST authorities, for which courts had to step in.

In a GST appeal, a taxpayer submitted transportation bills and supporting documents to show that taxes had already been paid or that certain supplies were exempt.

The appellate authority rejected the appeal without examining these documents properly. 

The order did not explain why the records were insufficient or incorrect. They were simply not dealt with.

The matter then reached the Calcutta High Court. Reiterating that the documents must be examined when they are placed on record, the court said in its ruling that a decision that ignores evidence cannot be treated as a proper decision. 

The matter was therefore sent back to the authorities for fresh consideration.

Final Words

The CAG audit makes it clear that canteen arrangements need to be reviewed based on how shared services are handled.

If credit is being taken on common services, the 18% route may be the correct one. If a company wants to apply 5%, it must be able to show that no related credit is being claimed at all.

At the same time, authorities handling GST disputes need to ensure that their engagement with the business is fair and thorough so that a solution could be reached. 

$2 Billion

That’s the amount Meta Platforms paid to acquire Manus, a Singapore-based developer of general-purpose AI agents, as the tech giant continues its massive investments into artificial intelligence. Manus, founded in China before relocating to Singapore, launched its first general AI agent earlier this year, which can execute complex tasks such as market research, coding, and data analysis. The company claimed it had achieved an annualized average revenue of more than $100 million just eight months after launch, while its revenue run rate exceeded $125 million.

—Blinkit CFO steps down, to return to Flipkart. Vipin Kapooria, chief financial officer of Eternal-owned quick commerce firm Blinkit, has resigned around a year after joining the company. He is returning to Flipkart in a senior finance role, Economic Times reported. Kapooria joined Blinkit from Flipkart in September 2024, where he was a vice-president of finance. This will be his third stint at Flipkart. He first joined the Bengaluru-based company in 2015, left for the hospitality startup Oyo in 2018, returned in 2020, and then joined Blinkit. Kapooria was Blinkit's first full-time CFO in two years. The position had been vacant since 2022 following the exit of Amit Sachdeva. 

—GST Council may reduce GST on air, water purifiers.  The GST Council in its next meeting may consider a reduction in taxes on air and water purifiers as air quality across the country worsens and access to safe drinking water remains uneven. Sources familiar with the matter say the Council could examine bringing down the GST on air and water purifiers for domestic use from 18% to 5%, reclassifying them as essential items rather than discretionary consumer goods. Industry estimates suggest a lower GST rate could reduce retail prices by 10-15%, making reliable purification technology more affordable for lower-income families.

—China restricts exports of silver. China has tightened controls on silver exports, expanding restrictions on the once-ordinary metal critical to the industry and defence supply chains. The new rules came into effect on Thursday. Tesla CEO Elon Musk criticised the move, saying: “This is not good. Silver is needed in many industrial processes.” But the rules are not new. China first announced the new measures in October, on the same day that US President Donald Trump and Chinese President Xi Jinping met in South Korea. At the time, Beijing agreed to a one-year pause on certain rare earth export controls, while the US rolled back tariffs.

—Warner Bros to reject Paramount's offer next week. Warner Bros. Discovery Inc plans to once again reject a takeover bid from Paramount Skydance Corp after the rival media company amended the terms of its offer, according to people familiar with the company’s thinking. The Warner Bros. board hasn’t made a final determination, but will meet next week. Among the board’s concerns, Paramount has yet to increase its offer, which Warner Bros earlier rejected as inferior to one from Netflix Inc. .

ICYMI | The Year of Adjustment

Missed last week's update? Indian companies spent much of 2025 dealing with a tougher global environment after the US imposed higher trade tariffs. They had to adjust business plans on the go and absorb most of the pressure themselves. The priority was to survive and hold on to overseas markets, even if that meant letting go of profit margins.

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