The Gujarat Authority for Advance Ruling has said that supply of food services to canteens at industries and offices is in the nature of ‘outdoor catering’ and the buyer is liable to pay goods and services tax (GST) of 18%.
Under the GST regime, outdoor catering attracts 18% tax, while for canteen services it is 5%. However, there was confusion as to how food supplied to canteens through third-party catering should be treated and taxed.
According to experts, the issue was whether such supplies be treated as canteen services and taxed at 5%, or treated as outdoor catering and taxed at 18% under GST.
Grey area
While it had been clarified that catering services to railways and educational institutions would be taxed at 5%, catering services to office and industry canteens had remained a grey area. Service providers were charging different rates leading to disputes with customers. Industry players had also sought clarification from the Finance Ministry and the GST Council on the issue, according to reports.
Rashmi Hospitality Services, an industrial canteen contractor, had been charging clients with in-house canteens at their factories, a GST of 18%. However, one of its customers had asked to be charged GST at 12%. Rashmi had moved the authority seeking clarification on the issue.
The authority ruled that Rashmi was providing service from premises other than its own to the client and that it should be treated as ‘outdoor catering service’ and taxed at 18%.
It also noted the expression of outdoor catering was not defined under the Central Goods and Services Tax Act as also that of the Gujarat Goods and Services Tax Act. However, the authority pointed out that in a judgement, the Allahabad High Court had observed that taxable catering service cannot be confused with who has actually consumed the food, edibles and beverages supplied by the caterer.
The High Court has also held that the taxability or the charge of tax does not depend on whether and to what extent the person engaging the service consumes the edibles and edibles supplied, wholly or in part, it added.
“The said Ruling would open up a Pandora’s box for industries as well as employees, with increased cost of meals for employees or for businesses; where the cost of meals is borne by businesses. The input tax credit is also not available,” Abhishek Jain, partner, EY, said.
He also pointed out that while the ruling by the authority was not binding on other States to follow, it definitely set a precedent on the vexing issue.
