GST Caselaw

#GSTCase-85-Tax Rate on Supply of Food in Canteen by Caterer to the Employees of the Company-Unsolved Riddle requiring attention of GST Council even after issue of One Circular and Five AAR/AAAR Decisions (For the period upto 26th July 2018)-Concluding Part

#GSTCase-85-Tax Rate on Supply of Food in Canteen by Caterer to the Employees of the Company-Unsolved Riddle requiring attention of GST Council even after issue of One Circular and Five AAR/AAAR Decisions (For the period upto 26th July 2018)-Concluding Part 

 

                                                                                                                                                CA Arpit Haldia

 

This update tries to cover various decisions on the issue of supply of food by caterer to the employees of the Company. The issue is far from clear and there have been contradictory judgements on the issue alongwith issue of circular by CBIC. Let’s go through the various judgements and relevant circular on the issue:

 

Circulars Covered

  1. Circular No. 28/02/2018-GST-Dated 8th January 2018
  2. Circular No. 50/24/2018-GST-Dated 31st July 2018

 

Cases Covered

  1. Rashmi Hospitality Services (P.) Ltd-[2018] 93 taxmann.com 309 (AAR – GUJARAT)-Dated 21st March 2018-(Upheld by AAAR-Gujarat)
  2. Merit Hospitality Services (P.) Ltd.- [2018] 99 taxmann.com 75 (AAAR-MAHARASHTRA)-Dated 1st November 2018
  3. Ismail Ahamad Soofi-[2018] 99 taxmann.com 259 (AAR – MAHARASHTRA)-Dated 9th July 2018
  4. Prism Hospitality Services (P.) Ltd.- [2018] 100 taxmann.com 401 (AAR- TELANGANA)-26th September 2018
  5. Goodwill Industrial canteen-[2018] 97 taxmann.com 451 (AAR – TAMILNADU)-30th August 2018

 

                                                                Circulars Issued on the Subject

 

Date Circular No. Content Comment
8th January 2018 as amended by corrigendum dates 18th January 2018 Circular No. 28/02/2018-GST If the catering services, i.e., supply of food or drink in a mess or canteen, is provided by anyone other than the educational institution, then it is a supply of service at entry 7(i) of notification No. 11/2017-CT (Rate) [as amended vide notification No. 46/2017-CT (Rate) dated 14.11.2017] to the concerned educational institution and attracts GST of 5% provided that credit of input tax charged on goods and services used in supplying the service has not been taken, effective from 15.11.2017.” Holds that the supply of food by the caterer to the educational institution attracts tax at the rate of 5% and falls under Entry No. 7(i) of Notification No. 11/2017-CT(Rate).
31st July 2018 Circular No. 50/24/2018-GST Consequent to the decisions of 28th GST Council Meeting held on 21.07.2018, the contents of the Circular No. 28/02/2018-GST dated 08.01.2018 as amended vide Corrigendum dated 18.01.2018 have been incorporated in Sl. No. 7 (i) of the Notification No. 13/2018-Central Tax(Rate), dated 26.07.2018 amending the Notification No. 11/2017- Central Tax (Rate) dated 28th June 2017.

 

3. Also, the contents of the Order No 02/2018-Central Tax dated 31.03.2018 have been incorporated in Sl. No. 7(ia) of the Notification No. 13/2018-Central Tax(Rate), dated 26.07.2018 amending the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017.

 

4. Hence, Circular No. 28/02/2018-GST, dated 08.01.2018 as amended vide Corrigendum dated 18.01.2018 and Order No 02/2018-Central Tax dated 31.03.2018 is withdrawn w.e.f 27.07.2018.

Since Entry No. 7(i) of Notification No. -CT(Rate) 11/2017 was amended with effect from 27th July 2018, therefore circular no. 28/2018 issued on dated 8th January 2018 was withdrawn.

 

 

Decisions by AAR/AAAR on the subject

 

Case-1- Rashmi Hospitality Services (P.) Ltd-[2018] 93 taxmann.com 309 (AAR – GUJARAT)-Held that Supply of Service is Taxable at the Rate of 18% (for the period prior to 27th July 2018)

 

Question before AAR Facts Held
Applicant received contract for catering services to be provided to the staff and premise for services to be provided for canteen has also been made available to the applicant, which is non Air-conditioned.

 

Applicant has requested for advance ruling as to whether rate of tax on their supplies made to the recipient would be 12% or 18%.

As per the agreement entered into between the applicant and the client, the applicant is required to perform the activity of running of canteen and its total affairs, including supply of Snacks, Tea, Lunch and Dinner to the employees of the company and the company would pay the applicant as per System/Manual Record availing Canteen meal.

 

It is also agreed that the company would pay agreed rate per card punch for using the ‘Normal Meal’, per card punch for ‘Special Meal’, and would pay in cash per piece for snacks and per cup of Tea.

The rates for the meal, snacks, tea have been fixed and payable by the recipient the menu is required to be decided by the canteen committee of the recipient it is therefore evident that the applicant, who is caterer, is providing service from other than his own premises to the recipient, therefore, the nature of service provided by the applicant is that of outdoor catering service.

Even though meals, snacks, teas are provided to and consumed by the workers/employees of the recipient, it is clear from the foregoing discussion that the applicant is providing service to the recipient and no to the workers/employees of the recipient from the nature of service provided by the applicant, as is evident from the copy of agreement, it is clear that it is not in the nature of service provided by a restaurant, eating joint including mess, canteen. Therefore, the clarification issued vide Circular No. 28/02/2018-GST, dated 08.1.2018 is not applicable.

 

The supply of services by applicant is covered under Sr. 7(v) of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017, attracting Goods and Services Tax @ 18% (CGST 9% + SGST 9%).

 

Case-2- Merit Hospitality Services (P.) Ltd.- [2018] 99 taxmann.com 75 (AAAR-MAHARASHTRA) –Held that Supply of Service is Taxable at the Rate of 18% (for the period prior to 27th July 2018)

 

 

Question before AAAR Facts Held
 Can Applicant claim that it is running a canteen in SEZ area, hence no GST is applicable?

Or

Can Applicant claim that it is running a restaurant in SEZ area and hence applicable rate is 5% only?

 

Applicant has entered into a contract with a company called say “B” Ltd. and B Ltd. is having its unit in SEZ area (Special Export Zone). The supply of food is done by Merit Hospitality to the employees of “B” Ltd. and the payment for the same is made by the employees of “B” Ltd., directly to Merit Hospitality.

 

“Restaurant” is not defined under the GST Act. Therefore, we will understand the meaning of Restaurant as provided in the Cambridge Dictionary. As per the Cambridge Dictionary, Restaurant is a place where meals are prepared and served to the customer. Now, on perusal of the submissions made by the appellant on 01.10.2018, wherein they have categorically submitted that they are registered as “Outdoor Caterers” and are basically engaged in providing the corporate catering services to their offices/units as per the terms and conditions of the contracts entered with them. They further submitted that they prepare the food in their own kitchen and then distribute it to various companies at different locations.

From the foregoing, it is apparent that the food is being cooked at one place and being distributed to the various different locations of the companies with whom they have entered into contract. Thus, this event is not covered under the definition of the “Restaurant services” as discussed above. Thus, the appellant claim that it is running Restaurant Services in SEZ area is not tenable and hence GST rate of 5% as envisaged by the appellant is not correct.

The services of the appellant are also not in the nature of restaurant services as claimed by the appellant.

 

Case-3: Ismail Ahamad Soofi-[2018] 99 taxmann.com 259 (AAR – MAHARASHTRA) –Held that Supply of Service is Taxable at the Rate of 5% (for the period from 15th November 2017 to 26th July 2018)

Question before AAR Facts Held
Whether the catering services provided by the Applicant under B2B Model and B2C Model are to be classified as canteen/restaurant services under Entry. No. 7(i) of the Notification No. 11/2017 dated 28th June 2017 as amended by the Notification No. 46/2017-Central Tax (Rate) dated 14th November 2017 or as outdoor catering services under Entry No. 7(v) of the said Notification? The applicant has submitted that they enter into contract with industries and corporates to provide catering services which are of two types, namely Business to Business (B2B) Model or Business to Consumer (B2C) Model and have further submitted that under B2B Model, they serve food and beverages directly to the employees of the companies in the cafeteria designated within the companies’ premises for which consideration is paid by the companies directly to the Applicant as per the agreed schedule and under B2C Model, they provide catering services to the employees of the companies and in this case, the amount of consideration is paid by the employees directly to the applicant as per the agreed schedule, generally on a monthly basis.

Under both the Models: (a) the food is prepared either in the kitchen located in the company’s premises or in a centralized kitchen located outside the company’s premises, (b) companies may provide utensils, electricity, equipment, furniture, pest control services etc. depending on the contract, (c) they have to maintain cleanliness in the canteen and in most of cases, a Canteen Committee set up by the Company will inspect the quality standards of materials, food items to be supplied in the canteen and (d) the food rates are as per the contract between the company and the applicant.

 

 

It is clear from the amendment made vide notification no. 13/2018-CT (RATE) Dated 26th July 2018 that the services supplied by the applicant in normal course does not appear to be covered under clause (v) of the above said Notification. From a reading of clause (v) before and after the amendment it is seen that the word ‘outdoor catering’ does not find a mention post the amendment. Hence it can be inferred that the said clause post the amendment made considers outdoor catering as a Supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, at Exhibition Halls, Events, Conferences, Marriage Halls and other outdoor or indoor functions that are event based and occasional in nature.

 

The clients of the applicant are providing space, etc. to the applicant for supply of catering services and the services are supplied by the applicant at the clients’ premises.

 

From the above details and discussions it is clearly visible that the service being provided by the applicant would be covered under Serial No. 7 Heading 9963 (i) or (iv) of Notification No. 11/2017 dated 28.06.2017 as the applicant can be said to be providing the services of a canteen.

 

Case-4: Prism Hospitality Services (P.) Ltd.- [2018] 100 taxmann.com 401 (AAR- TELANGANA)- Held that Supply of Service is Taxable at the Rate of 5% (for the period from 15th November 2017 to 26th July 2018)

 

Question before AAR Facts Held
Tax Rate applicable on following activities:

 

i.       The applicant provides canteen services in organizations like Infosys etc., wherein the food is cooked in the premises of Infosys and “Sold” to the employees of the said organization at a price mutually agreed upon, it is done on a regular daily basis.

 

ii.     The applicant provides its services of serving food – Breakfast + lunch & Dinner and any other food requirements from a Mess/Dining Hall to the trainees of the Training institution of banking such as SBIRD, Andhra Bank Staff College etc., Even here the food is prepared and sold/served to the trainees in the premises, where the trainees attend a residential programme and they are rooms for stay in the premises for the trainees.

 

iii.   The applicant operates student mess for students in Engineering colleges(Higher Education) such as CVR college, and so on. The food is prepared and served in the hostel premises.

 

iv.    (a) In the Educational Institutions the applicant in some institutions also operate the canteen for the day scholar students and staff wherein food is prepared in the canteen and sold for consumption by the students/staff.

 

(b) In the so called student/staff canteen, certain bought out items like lce Creams/Soft Drinks/Biscuit packets etc wherein the Maximum Retail price is printed on the item is also sold for consumption by the students/staff.

 

v.     The applicant also has a kitchen in Miyapur, where food is prepared and transported to some software companies where it is again sold” to the company employees in the dining Hall. The software companies do not have kitchens because of safety reasons, but however, they have dining hall facilities. The Dining Hall/cafeteria runs on a daily basis. A separate food license is obtained by us for selling the food in this organisation issued by GHMC.

As stated above, the applicant entity was categorized/classified as outdoor caterers in the old regime of Service Tax/VAT, as the old regime of Service Tax did not have any other classifications/categories for the services rendered by us which is vast which includes operation of canteen/Mess/Eating House/mess operation/ food sales in Hospitals for patients and visitors/Campsite etc., and also stated that outdoor catering in normal practice is catering for a particular event for a particular time or times for an event/function or occasion, wherein a firm order is given by an individual or organization for service of food for a certain amount of persons at a certain place for certain time or times. It’s a specific order and not a repetitive and continuous order/s. Last but not the least the applicant entity serves or undertakes the sale/service of food on a regular daily basis and not on exclusive, special events. The food promoted by the applicant is of a working nature such as working lunch etc by saving time of the employee and increase productivity whereas the menu served for the outdoor Catering in almost all the cases is of a superior nature befitting the event such as a wedding/party/conference. It can be seen from the above Notification that the activity of supply of food in canteens of office, factory, hospital, college, industrial unit etc. on contractual basis excepting that supply is not event based or on specific occasions, constitute supply of service in terms of amended Notification No.13/2018-Central Tax(Rate) dt.26.7.18 and is taxable at rate of 2.5% CGST + 2.5% SGST and the supplier is not eligible for the input tax credit as per the condition stipulated therein.

Earlier, CBEC has clarified the queries seeking clarification regarding the taxability and rate of GST on services by a college hostel mess. As per the Circular No. 28/02/2018-GST dated 08-01-2018 issued in this regard, normally the educational institutions have mess facility for providing food to their students and staff. Such facility is either run by the institution/ students themselves or is outsourced to a third person. Further it has been clarified that the supply of food or drink provided by a mess or canteen is taxable at 5% without Input Tax Credit [Serial No. 7(i) of notification No. 11/2017-CT (Rate) as amended vide notification No. 46/2017-CT (Rate) dated 14.11.2017 refers]. It is immaterial whether the service is provided by the educational institution itself or the institution outsources the activity to an outside contractor.

 

 

Case-5: Goodwill Industrial canteen-[2018] 97 taxmann.com 451 (AAR – TAMILNADU)- Held that Supply of Service is Taxable at the Rate of 18% (for the period prior to 27th July 2018)

 

Question before AAR Facts Held
What is the rate of tax on catering services provided to various companies wherein applicant prepares food at their place and supply to the employees of their clients/companies. Applicant furnished their agreement with the client for running Industrial Canteen at the Factory. As per the contract entered by the Applicant with the client, the premises for services to be provided for canteen has been made available to the Applicant by the client along with required furniture, fittings, cooking and catering utensils, and crockery and cutlery items apart from providing water, electricity and fuel. The Applicant has to purchase the required provisions, vegetables, etc. prepare food stuff as per the menu given by the Management using the Applicant’s manpower. This will be served to the employees, by collecting coupons on behalf of the client. Based on the coupons collected, the Applicant will give a bill and payment will be made by the company to the Applicant on monthly basis.

 

Applicant is vested with management of the canteen facilities. The Applicant himself does not get paid for by the consumers of the food and beverages. The Recipient of the services are the companies who enter into contract with the applicant.

The supply of food to institutions which were earlier covered under entry at SI.No. 7(v) has been included under SI.No. 7(i) of the Notification No. 11/2017 CT (Rate) with effect from 27th July 2018 and thereupon is liable to tax at the rate of 5% subject to the condition that credit of input tax charged on goods and services used in supplying the services are has not been taken read with Explanation (iv) of said Notifications.

 

Services of applicant of supplying food and beverages on the premises of industrial unit/office, which are on the terms of the contract with M/s Kone Elevators and such other contracts, are liable to tax at the rate of 9% CGST under SI.No. 7(v) of Notification No. 11/2017 -CT. (Rate) dated 28.06.2017 and 9% SGST under SI.No. 7(v) of G.O.(Ms) No. 72 dated 29.06.2017 No. III(2)/CTR/532(d-14)/2017 for the period upto 26.07.2018 and from 27.07.2018 onwards at the rate of 2.5% CGST under SI.No. 7(i) of the Notification No. 11/2017-C.T. (Rate) as amended and at the rate of 2.5% SGST under SI.No. 7(i) of G.O.(Ms) No. 72 dated 29.06.2017 No.II(2)/CTR/532(d-14)/2017 as amended subject to the condition that credit of input tax charged on goods and services used in supplying the services are has not been taken read with Explanation (iv) of said Notifications.

 

 

Comment: The house is divided equally as follows:

 

Circular Dated 8th January 2018 and Two AAR Decisions held that activity of supply of food by caterer to the employees of the company falls under Entry 7(i) of the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017.

 

Two AAAR Decisions and one AAR decision holds that the said activity falls under Entry 7(v) of the of the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017.

 

Looking at the above divergent views, how can a taxpayer be expected to charge correct tax rate and how can he be sure that what he is charging as per his own understanding is correct. If this scenario is not an appropriate scenario for issuing a clarification settling the above differential views, then in my view there would be rarely more compelling circumstances to issue clarification for the GST Council.

 

 

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