Synopsis: In the matter of M/s Elinor India Catering LLP, the Hon’ble AAR, Karnataka has held that the services provided by the Applicant under ‘cash and carry model’ wherein food items were prepared and supplied in the same premises of the Company, qualifies as an eating joint (including mess, canteen) and are taxable at 5% GST.
M/s Elinor India Catering LLP (“the Applicant”) is engaged in the business of providing catering services to Corporates, Educational Institutions, and range of customers located in the States of Karnataka, Maharashtra and Tamil Nadu.
The Applicant entered into an agreement with M/s CBRE South Asia Pvt. Ltd. (“CBRE”), for providing catering support services at premises of M/s Cisco Systems India Private Limited (“Cisco”). As per the agreement, the Applicant provides following catering support services among others to Cisco, from the kitchen located at Cisco premises:
- Cash & Carry model: Applicant serves food to the employees of Cisco over the counter, and consideration towards the same is received from the respective employees/ individuals who place the order, at the rates provided in the menu.
- Whether the services rendered by the Applicant under cash & carry model are in the nature of ‘services provided by canteen’ as per Serial No. 7(i) or ‘outdoor catering services’ as per serial No. 7(v) of Notification No. 11/2017- Central Tax (Rate) (“Services Rate Notification”)?
- If the services supplied by the Applicant under cash & carry model are classifiable as ‘services provided by canteen’, whether, CGST & KGST (Karnataka GST) be chargeable at the rate of 2.5% in terms of Entry 7(i) of the Notification?
The Hon’ble AAR, Karnataka in Advance Ruling No. KAR ADRG 34/ 2019 decided on September 9, 2019 held as under:
- The Court observed that the materials offered to the employees on the menu card are displayed and there is no binding on the part of the employees to purchase the same. Though the menu is decided in consultation with the employer, it has no bearing on the contract between the supplier (Applicant) and the person receiving the service (employee). The contract of supply is entered when the employee purchases the food item on the menu card and consideration is paid as shown in the menu card, hence it is a contract of supply between the Applicant and the employee.
- Further, the Applicant is preparing food items at the place and is selling the goods to the purchasers. Hence this amounts to sale of food items for consumption either in the premises or away from the premises. There is no condition in the Entry No 7 (i) of the Services Rate Notification that the premises shown be owned. It only mentions that premises must be place where services are supplied. Since the supply of services is happening in the premises of Cisco and goods are prepared in the same premises, it would qualify as an eating joint (including mess, canteen) wherein the services are supplied.
- Explanation 1 to the Entry 7(i) of the Services Rate Notification is only clarificatory in nature and Applicant’s activity does not fit in the transaction narrated in Explanation 1, but still it gets covered under the main Entry 7(i) of the Services Rate Notification.
- The rate of tax applicable on the above transaction is 2.5% CGST and 2.5% SGST subject to the proviso that credit of input tax charged on goods and services used in supplying the service has not been taken.
Entry 7 of the Services Rate Notification has been substituted vide Notification 20/2019 – Central Tax (Rate) dated September 30, 2019 [w.e.f. October 1, 2019]. As per the new entries, above mentioned restaurant services will fall under Entry 7(ii) of the Services Rate Notification taxable at 2.5% CGST and 2.5% SGST.
Entry 7(ii) of the Services Rate Notification-
(ii) Supply of ‘restaurant service’ other than at ‘specified premises’
Provided that credit of input tax charged on goods and services used in supplying the service has not been taken
[Please refer to Explanation no. (iv)]
Here, “Restaurant service” means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied.
It may be noted that w.e.f. October 1, 2019, rate of GST on outdoor catering services, other than in premises having daily tariff of unit of accommodation of Rs. 7501, has been reduced from 18% with ITC to 5% without ITC. However, GST rate on catering in premises with daily tariff of unit of accommodation of Rs 7501 and above remain at 18% with ITC. Here, “outdoor catering” means 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.