2019 (10) TMI 562 - AAR - GST

Classification of services - levy of GST - canteen or outdoor catering services? - services rendered by the applicant under cash carry model - scope of supply - N/N. 11/2017 - Central Tax (Rate) as amended vide notification No. 46/2017-CT (Rate) dated 14.11.2017 - whether taxable at the rate of 2.5% in terms of entry 7 (i) of the notification No. 11/2017CT (Rate) as amended vide notification No. 46/2017-CT (Rate) dated 14.11.2017 ? HELD THAT - Under the cash and carry model, it is seen that the materials offered to the employees on the menu card are displayed and there is no binding on the part of the employee 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). Since the employee is the person who pays the consideration, he becomes the recipient of the service and the service is rendered by the applicant to the employee. The recipient is not bound to purchase the items and only on his decision to purchase the food items available for sale, the contract of supply is entered and the consideration is as shown in the menu card. Hence it is a contract of supply between the applicant and the employee. The transactions relating to cash and carry model are examined and found that since the supply is neither event based nor occasional nature, the same does not get covered under the entry 7(v). Whether the applicant is a restaurant or eating joint for the purposes of this entry is the moot question. Here it is seen that the applicant is preparing the 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 that the premises should be own. It only mentions that the premises must be place where the services are supplied - The supply of services is happening in the premises of CISCO and the goods are prepared in the same premises and the services are provided there itself. Hence it would qualify as an eating joint (including mess, canteen) wherein the service is supplied. Explanation 1 is only clarificatory in nature and the applicant s activity of cash and carry does not fit in the transactions narrated in Explanation 1, but still gets covered under the main entry 7 (i) of the Notification. There is no condition as to the ownership of the premises in the said main entry and hence there is no need of going into the ownership of the premises or the contract. 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.

Summary

Issues Involved:
1. Classification of services under the "cash & carry model" as either "services provided by canteen" or "outdoor catering services."
2. Applicable tax rate for services classified as "services provided by canteen."

Detailed Analysis:

Issue 1: Classification of Services
The primary issue revolves around whether the services rendered by the applicant under the "cash & carry model" should be classified as "services provided by canteen" under Sl. No. 7(i) or "outdoor catering services" under Sl. No. 7(v) of Notification No. 11/2017 - Central Tax (Rate).

Applicant's Argument:
- The applicant argues that services under the "cash & carry model" are akin to "services provided by canteen."
- According to Section 9 of the KGST and CGST Act, CGST and KGST are levied on the supply of goods or services at notified rates.
- The applicant contends that the supply of food, whether prepared at a central kitchen or on-site, qualifies as a "supply of service."
- The applicant refers to the definition of "canteen" in common parlance and asserts that their services fit this definition.
- The applicant also draws on Circular 28/02/2018, which clarifies the tax rate for food supplied at educational institution canteens, arguing that this should apply to their case as well.
- The applicant emphasizes that the "cash & carry model" does not involve personalized services akin to "outdoor catering."

Authority's Findings:
- The authority examines the contractual arrangements and the nature of services provided.
- It is noted that under the "cash & carry model," food is prepared at the client's premises and sold over the counter to employees, who pay directly.
- The authority concludes that the contract of supply is between the applicant and the employee, making the employee the recipient of the service.
- The authority further examines whether the service falls under entry 7(i) or 7(v) of the Notification.

Conclusion:
- The authority determines that the "cash & carry model" does not fit the definition of "outdoor catering services" under entry 7(v) as it is not event-based or occasional.
- Instead, it fits under entry 7(i) as it involves the supply of food at a canteen or cafeteria based on a contractual arrangement with the institution, provided the supply is regular and not event-based.

Issue 2: Applicable Tax Rate
Having classified the services under entry 7(i), the next issue is the applicable tax rate.

Applicant's Argument:
- The applicant argues that the services should be taxed at 5% (2.5% CGST + 2.5% SGST) as per entry 7(i), provided no input tax credit is claimed.

Authority's Findings:
- The authority confirms that the supply of food under the "cash & carry model" is covered under amended entry No. 7(i) of Notification No. 11/2017 - Central Tax (Rate) as amended by Notification No. 13/2018 - Central Tax (Rate).
- The applicable tax rate is 2.5% CGST and 2.5% SGST, subject to the condition that no input tax credit is claimed.

Ruling:
1. The supply of food under the "cash & carry model" is classified under entry No. 7(i) of Notification No. 11/2017 - Central Tax (Rate) as amended.
2. The applicable tax rate is 2.5% CGST and 2.5% SGST, provided no input tax credit is taken.