1. Consider a scenario where a registered person having a factory has engaged a canteen contractor at the factory and provides a space within its premises to the said canteen contractor to supply the food to its employees or workers. Canteen has thus been set-up at such place. Said space may be provided free of cost by the factory. Canteen contractor prepares the food in the said premises and also serves the food to various recipients in the canteen. Canteen contractor may charge for the supply either directly to the factory or to its employees. In such cases, what should be the rate of tax ?? It must be noted that as per Sec. 17(5)(b)(i) of the Central Goods & Services Tax (“CGST”) Act, 2017, input tax credit is not available in respect of food and beverages as well as outdoor catering unless the same is used by the registered recipient for making an outward taxable supply of same category of goods or services or as an element of a taxable composite or a mixed supply.
2. As per Sec. 9 of the CGST Act, 2017 there shall be levied a tax on supply of goods or services at the rates notified by the Government. Scope of supply as defined u/s 7 of the said Act includes any form of sale or services for a consideration made in the course or furtherance of business. Canteen contractor admittedly makes supply in the course of business and hence we need to consider whether the supply made by the Canteen contractor is of “goods” or “services” before identifying the applicable rate. This is because rate Notifications for goods and services are separate.
3. Reference is invited to Entry No. 6(b) of Schedule II to the CGST Act, 2017. Relevant portion is reproduced below:
[See Section 7]
ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES
6. Composite supply
The following composite supplies shall be treated as a supply of services, namely :—
(b) supply, by way of 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.”
4. Above entry clearly postulates that supply of food by way of or as part of any service or even in any other manner whatsoever shall be treated as supply of services. As Canteen contractor is making supply of food as a part of service, same shall be regarded as “supply of services”.
5. Once we have concluded that the supply made by the Canteen contractor shall be regarded as supply of services we must now consider relevant entries of Notification No. 11/2017-Central Tax (Rate) to identify the correct rate. Said entries are reproduced below:
|Description of Service||Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, 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, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent.||Supply, by way of or as part of any service or in any other manner whatsoever in outdoor catering wherein goods, being food or any other article for human consumption or any drink (whether or not alcoholic liquor for human consumption), as a part of such outdoor catering and such supply or service is for cash, deferred payment or other valuable consideration||Accommodation, food and beverage services other than (ii), (iii), (v), (vi), (vii) and (viii) above.
Explanation.- For the removal of doubt, it is hereby clarified that, supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, 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, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent shall attract central tax @ 2.5% without any input tax credit under item (i) above and shall not be levied at the rate as specified under this entry.
|Condition||Provided that credit of input tax charged on goods and services used in supplying the service has not been taken||–||–|
6. In the scenario before us Canteen contractor prepares the food at such canteen and supplies the same therefrom. Can it then be said that such supply is “by a canteen” ?
7. If one closely examines the referred rate Notification (supra), one will find that rates have been fixed
a) either based on describing services irrespective of the person supplying the service or the place from where such services are provided (e.g. accounting services)
b) or rates are based on describing the services as well as the person providing the services (e.g. services of GTA in relation to transportation of goods)
c) or rates are based on describing the services and the place from where such services are provided (e.g. supply of food by a hotel or canteen).
8. Hence when the entry refers to the service and the place from where it is supplied it shall be classified under the said entry only irrespective of the person supplying the service. Service may be supplied by the person owning the place or may be supplied also by someone allowed by the owner to make a supply from such place.
9. In the scenario before us, Canteen contractor might have taken the premises without any rent and supplies the food (regarded as “supply of services”) from such location. However said premises partake the character of a “canteen”. Moreover canteen contractor prepares the food and also serves the food at such premises. Hence the said activity amounts to supply “by” a canteen even if the same is not rented to the canteen contractor. Thus in our opinion, such supply shall be covered by Entry No. 7(i).
10. Attention is also invited to circular No. 28/02/2018-GST dated 08thJanuary, 2018 read with corrigendum dated 18th January, 2018. Said circular has been issued in regard to college hostel mess. Relevant portion is reproduced below:
“2.1 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. 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].
2.2 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.”
11. Above circular clearly stipulates that if catering service is provided to an educational institution it shall attract the rate of 5%. Logic of the circular seems to be identical to the logic stated earlier in the present article that when the rates for services have been defined with respect to a place, provision of service from such place shall be covered irrespective of whether such place is owned or leased by the supplier. Hence we are of the opinion that the ratio of said circular shall apply to the facts of the Canteen contractor and hence the canteen service shall be covered under Entry 7(i).
12. It is well settled principle that Circulars are binding on the department. One may refer to the judgment of Apex Court in the case of Paper Products Ltd v. Commissioner of Central Excise 1999 (112) ELT 765 (SC). Relevant portion is reproduced below:
“5. It is clear from the above said pronouncements of this Court that, apart from the fact that the Circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said Circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgment of this Court further precludes the right of the Department to file an appeal against the correctness of the binding nature of the Circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the Circular which is in force at the relevant point of time.”
13. Hence we conclude that supply of food by the Canteen contractor by setting up canteen at the factory shall be covered under Entry No. 7(i) of Notification No. 11/2017-Central Tax (Rate) and shall be taxed at 5%. It must also be noted that input tax credit on goods and services used in supplying the service shall not be available.
14. It must also be noted that in view of explanation to Entry No. 7(ix), Canteen contractor shall be debarred from exercising an option to charge 18% and avail input tax credit. Said explanation provides that services falling under Entry No. 7(i) cannot be taxed under Entry No. 7(ix). Canteen contractor is thus mandatorily required to charge 5% without any input tax credit.
15. We must also address whether the Canteen contractor can be considered as an “outdoor caterer” and hence taxed under Entry No. 7(v). The term “outdoor caterer” has not been defined in the GST law. Hence we have to resort to the definition under earlier law. Outdoor caterer has been defined u/s 65(76a) of the Finance Act, 1994as under:
“Outdoor caterer” means a caterer engaged in providing services in connection with catering at a place other than his own but including a place provided by way of tenancy or otherwise by the person receiving such services”
16. Canteen contractor can be considered as an “outdoor caterer” since he shall be supplying the food from the premises other than his own.
17. Hence assuming that Canteen contractor is treated as an outdoor caterer we need to see whether Entry No. 7(v) can take precedence over Entry No. 7(i).
18. We draw attention to the maxim “generalia specialibus non derogant”which literally means that general provision will not abrogate special provisions. Leading case propounding this maxim is of Veracruz of 1884 wherein the judgment said as under:
“…Where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects spcially dealt with by earlier legislation, you are not to hold that earliuer and special legislation indirectly repealed, altered or derogated from merely by force of such general words without any indication of a particular indication to do so.”
19. Said maxim has been followed by Indian Courts in number of cases even if it was not statutorily stated in the respective laws to apply the said maxim (see State of Gujarat v. Patel Ramjibhai Danabhai AIR 1979 SC 1098; Importex International Ltd v State of Kerala 1991 (81) STC 351 (Ker.); Sri Ram Piston and Rings v. C.S..T. 1991 (82) STC 381 (Raj). In case of Mauri Yeast India Pvt. Ltd. v. State of U.P. (2008) 225 ELT 321 (SC), Apex Court observed that if there is conflict between two entries one leading to the opinion that it gets classified within a specific entry, same should be preferred over general entry. In fact Apex Court in the case of CCE v. Champdany Industries Ltd (2009) 241 ELT 481 (SC) commented that the principle that specific entry shall override general entry has been hardened into a rule of law by reason of the consistent view taken by Courts. Relevant paragraph is reproduced below:
“34. It is, thus, clear that the aforesaid principle has virtually been hardened into a rule of law by reason of the consistent view taken by this Court. The Revenue’s stand in this case in purporting to justify the classification of the goods manufactured by the respondent company under a residuary heading, therefore, cannot be appreciated.”
20. Hence even if the Canteen contractor is regarded as an outdoor caterer, the general entry with respect to “outdoor catering” can encompass services of supply of food by any location (e.g. party plots) other than canteen. As specific entry has been created under 7(i) to cover supply by a canteen, the same shall override entry no. 7(v) and hence rate of tax shall be 5% without input tax credit.
21. Before we part it is useful to refer to the definition of “location of supplier of services” defined u/s 2(71) read with the definition of “fixed establishment u/s 2(50) of the CGST Act, 2017. Said definitions are reproduced below:
“Sec. 2(71) “location of the supplier of services” means,—
(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;
(b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provisions of the supply; and
(d) in absence of such places, the location of the usual place of residence of the supplier”
“Sec. 2(50) “fixed establishment” means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs”
22. Since we have concluded that supply of food by a canteen contractor as a part of service shall be regarded as a supply “by” a canteen in view of the fact that food is cooked and served therefrom, such location will be covered as a fixed establishment and hence shall warrant a declaration as an additional place if the canteen contractor is already registered in the State where such canteen is located.