In re Ismail Ahamad Soofi (GST AAR Maharashtra)
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 supply of catering services provided by the applicant cannot be considered to be in the nature of “outdoor catering” service – 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 – the activity undertaken by the applicant in the subject case would be classified as canteen services under Entry. No 7(i) or (iv) of Notification No. 11/2017 dated 28th June 2017 depending on whether their canteen has the facility of air air-conditioning or central air-heating in any part of the establishment, at any time during the year. However as per amended Notification No. 46/2017-Central Tax (Rate) dated 14th November 2017, their service would fall under Sr. No. 7(i) of this amended Notification
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
1.1 The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by ISMAIL AHAMAD SOOFI (CHEFS CORNER), the applicant, seeking an advance ruling in respect of the following question.
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 NNotification 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?
1.2 At the outset, we would like to make it clear that the provisions of both the CGST Act and the GST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submission (Brief facts of the case), as reproduced verbatim, could be seen thus –
Brief details of the services provided by the Applicant
2.1 The Applicant is in the business of providing catering/canteen services to the industries and corporates.
2.2 The Applicant enters into contract with companies for providing catering services to its employees by following either Business to Business (B2B) Model or Business to Consumer (B2C) Model.
2.3 Under B2C Model, the Applicant enters into contract with the companies to provide catering services to the employees of the companies. In such type of the contracts, the amount of consideration is paid by the employees directly to the Applicant as per the agreed schedule, which is generally on monthly basis. All the risk with respect to the excess food is borne by the Applicant.
2.4 Under B2B Model, the Applicant enters into contract with the companies to serve food and beverages to the employees of the companies in the cafeteria designated within the companies’ premises. In this model, the food is directly served by the Applicant to the employees of the companies. In such type of the contracts, the amount of consideration is paid by the companies directly to the Applicant as per the agreed schedule.
2.5 Under both the Models, the food is prepared either in the kitchen located in the company’s premises or in the centralized kitchen located outside the company’s premises.
2.6 Under both the Models, the company may provide the facilities such as utensils, electricity, equipment, furniture, pest control services etc. to the Applicant for running the canteen facility in its premises, depending upon the contractual arrangement.
2.7 The Applicant has to maintain the cleanliness in the canteen as per the requirements of the companies. In most of the cases, the Canteen Committee set up by the Company will inspect the quality standards of materials and it can also reject the materials of bad quality. Under both the Models, the food items to be supplied in the canteen and its rates are as per the agreement between the company and the Applicant.
2.8 It is important to note that as per Section 46 of the Factories Act, 1948, the certain companies/institutions are under statutory obligation to provide canteen services to its employees. Under such circumstances, the companies/institutions outsource the activity of running the canteen to the third-party service providers, like the Applicant.
2.9 Presently, the Applicant treats the catering services provided by it under B2C Model as canteen/restaurant services under Entry. No. 7 (i) of Notification No. 11/2017 dated 28th June 2017 as amended by the Notification No. 46/2017-Central Tax (Rate) dated 14th November 2017 and discharges GST at 5% cumulatively (CGST & SGST). For the catering services provided by it under B2B Model, the Applicant treats it as outdoor catering services under Entry 7 (v) of the abovementioned Notification and discharges GST at 18% cumulatively (CGST & SGST). However, given the absence of clarity in the area of catering services, the Applicant would like to seek an advance ruling whether the catering services provided by it under both the Models would amount to supply of canteen/restaurant services or supply of outdoor catering services?
Additional submissions on 10.07.2018
Mr. Ismail Ahamad Soofi (Prop. of Chef’s Corner) ……….. Applicant
SYNOPSIS
1. Mr. Ismail Ahamad Soofi proprietor of ‘M/s. Chef’s Corner’ (hereinafter referred to as ‘Applicant’) has filed an application before this Hon’ble Authority on 11.04.2018. The Applicant in this regard was granted an opportunity of personal hearing on 27.06.2018 wherein the Applicant through its authorized representative made detailed submissions covering certain additional grounds apart from the submissions made in the application. Therefore, in this regard, the Applicant wishes to make the following additional submissions which are without prejudice to the submissions made in the advance ruling application.
SUBMISSIONS
A. Under the Service Tax regime, the Revenue has accepted the Applicant’s contention that it’s business is covered under the definition of ‘canteen service’ and is not a ‘outdoor catering’ service.
A.1 The Applicant submits that the revenue authorities have already accepted the contention of the Applicant that the services provided by the Applicant squarely fall under the definition of “canteen service”. In this regard, the Applicant refers to the dispute raised by the department under the Service tax regime.
A.2 Under the Service Tax regime, the Applicant was, inter-alia, engaged in providing services in relation to serving of food or beverages to the employees of Lear Automotive India Pvt. Ltd., in the canteens maintained within the factory premises of Lear Automotive at Bhosari and Chakan. Both the factories of Lear Automotive (Bhosari and Chakan) are covered and are operating in accordance with the statutory requirements contained under the Factories Act, 1948. The Applicant was charging Service Tax on these transactions to Lear Automotive for the canteen services provided to them.
Existing law during the relevant period
A.3 In this regard, during the relevant period, the mega-exemption Notification No. 25/2012-ST dated 20.06.2012 was issued by the Government to provide exemption from payment of service tax to certain services listed thereunder, Entry No. 19 of the aforesaid Notification provides exemption to services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year. The relevant entry reads as under:
“19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a license to serve alcoholic beverages.”
A.4 It is further submitted that the legislature never intended to grant benefit of exemption to air-conditioned restaurants, but because of this entry, the exemption was being availed by such restaurants.
A.5 To give effect to the legislative intent, an amendment was made to Entry No. 19 vide Notification No. 3/2013-ST dated 01.03.2013. The amended Entry No. 19 reads as follow:
“19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year.”
A.6 After the said amendment was carried out in Entry No. 19 of the said Notification, the wrongful availment of service tax exemption was stopped, but due to this, the canteens in the factories established as per the Factory Act, 1948 and having air-conditioning/central air-heating facility was unable to avail benefit of service tax exemption. In order to address this concern, the legislature inserted a new Entry No. 19A vide Notification No. 14/2013-ST dated 22.10.2013 wherein, the legislature specifically granted exemption to the canteens having air-conditioning facility.
A.7 During the year 2015, the Applicant was informed by Lear Automotive that service tax is not payable on the canteen services provided by the Applicant as the same were exempted vide the above-referred notifications. Therefore, on a careful perusal of Entry 19 of the Notification and the requirements therein, the Applicant was of the view that the Applicant is fulfilling all essentials of the said Notification and thus, the services of providing food and beverages to canteens maintained under the Factory Act, provided to Lear Automotive is exempt and it is not liable to pay tax on the same.
A.8 Since, the Applicant was not liable to pay service tax on its services, it filed a Refund Application dated 27.11.2015 for Rs. 6,63,926/- for claiming the refund of service tax paid by it on the services in relation to serving of foods and beverages provided at the canteen maintained in the factory of Lear Automotive in Form-R under Section 11B of the Central Excise Act, 1944.
A.9 However, the refund claim of the Applicant was rejected by the Ld. Assistant Commissioner (Refund), Service Tax, Pune Commissionerate vide his Order-in-Original No. R/693/2015-2016 dated 21.03.2015 on the ground that the Applicant is not eligible for exemption under the aforesaid notifications since they are not available for ‘outdoor catering services’.
A.10 The Applicant then filed an appeal against the above-referred OIO dated 21.03.2015 on various grounds. The appeal was decided by the Ld. Commissioner, Service Tax, (Appeals), Pune vide his Order-in-Appeal No. PUN-SVTAX-000-A PP-195-16-17 dated 23.08.2016 (Attached herewith as Annexure-1). The issue involved in the appeal was whether canteen services provided by the Applicant are exempt under Entry 19 of the Mega Exemption Notification. No. 25/2012 dated 20.06.2012. It was held that the words contained in the Entry 19 are “restaurant, eating joint or mess.” and the same does not include the word ‘canteen’. Therefore, taking the inclusivity of the terms into consideration the term ‘canteen’ could not be read within the ambit of Entry 19. Thus, the Applicant is liable to pay Service Tax for the services being provided at the Bhosari unit. It is pertinent to note here that the exemption was denied to the Applicant on the ground that ‘canteen’ services are not included in the Entry 19 of the Mega Exemption Notification No. 25/2012 dated 20.06.2012. However, the Ld. Commissioner (Appeals) had accepted the contention of the Applicant that the services provided by the Applicant are indeed canteen services and it was precisely the reason the Applicant was denied exemption at the Bhosari unit.
A.11 With regards to the second issue of whether, the exemption could be provided to the Applicant under Entry No. 19A of Notification No. 25/2012-ST (as amended by Notification No. 14/2013-ST), it was held that the Applicant fulfilled both the conditions as stated under:
a) Of serving food at a canteen which is maintained in a factory covered under Factory Act, 1948
b) The canteen has an air-conditioned facility.
A.12 in light of the above, the Ld. Commissioner (Appeals) held that the Applicant’s canteen facility at the Chakan unit was eligible for exemption under the Entry No. 19A of Notification. No. 25/2012-ST (as amended by Notification No. 14/2013-ST).
A.13 The Applicant respectfully submits before the advance ruling authority that in light of the above discussion it is clearly understood that the issue of whether the Applicant is providing canteen services has been settled in favour of the Applicant and stands settled under the previous regime. The OIA dated 23.08.2016 has categorically held that the services provided by the Applicant are in nature of ‘canteen’ services.
A.14 It is submitted that the Ld. Commissioner (Appeals) has in-fact proceeded to pass the order on the premise that the Applicant is involved in providing ‘canteen’ services. As explained in the OIA dated 23.08.2016, the distinction between the entries no. 19 and 19A of the Exemption Notification was the mere fact that entry 19 didn’t include canteen services while Entry no. 19A provides exemption to the canteens which have an air-conditioner at any time during the year.
A.15 Even though, no explicit definition has been given by to the term ‘canteen’ in the discussions/findings of the aforesaid order, however, the Applicant has been duly recognized as running a canteen under the earlier service tax regime and the same has been accepted as per the OIA dated 23.08.2016.
A.16 However, under the present law even canteen has been included in the same entry as an eating joint, restaurant and canteen under serial no. 7(i) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (hereinafter referred to as the “rate notification”) (reproduced at para B.9) and therefore it should be given the same treatment.
A.17 The OIA dated 23.08.2016 has been accepted by the Department in so far as no appeal has been filed against the same by the Department. Therefore, it is clearly understood that the Department has accepted the contention of the Applicant that the services provided by the Applicant are in the nature of ‘canteen’ services only and the same cannot be classified as ‘outdoor catering services’.
B. The nature of the services provided by the Applicant has remained the same under the GST regime and therefore the services provided by the Applicant will be considered as ‘canteen’ service even under the GST regime and the Department cannot contend to the contrary.
B.1 The Applicant submits that the nature of services provided by the Applicant has remained the same under the existing law as it was under the previous regime of Service Tax law. Therefore, the Department cannot contend now that the Applicant provides ‘outdoor catering’ services having accepted the fact that Applicant is providing ‘canteen’ services.
Position under the GST regime
B.2 The earlier regime under Service Tax law has now been replaced with the newly introduced Goods & Service Tax. Under the newly introduced GST regime, any supply of goods or services or both such as sale, barter, exchange, license, rental, lease, or disposal which is made for a consideration in the course of furtherance of business is taxable under the Central Goods & Services Act, 2017 (hereinafter referred to as the “CGST Act”) and the respective State GST Acts.
B.3 Further, Clause 6(b) of Schedule II of the CGST Act deems the supply of food and beverages for a consideration as a supply of service. The said clause reads as under:
“supply by way or as part of any service or in any other manner, whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash deferred payment or other valuable consideration.”
B.4 Further, the rates for the supply of services were notified vide the rate notification. Serial No. 7 of the above-referred notification notified the rate for services provided by a canteen and outdoor caterer. The relevant paras of the said notification read as follows:
