JULY 30, 2018

By S Sivakumar, LL.B, FCA, FCS, MBA, ACSI, Advocate

THE Government has been kind enough to issue Notification No. 13/2018-CTR dated July 26, 2018, amending Notification No. 11/2017-CTR dated June 28, 2017, to clarify, interalia , that, the GST rate for supply of food to canteens, companies, etc. would stand reduced to 5% without ITC. With the amendments brought about by this notification, the concept involving ‘outdoor catering' would seem to have been given a quiet burial. As per this Notification, supplies that are covered under SAC No. 9963(v) would now be taxed at the rate of 18%, in terms of the following entry, replacing the earlier entry, which is also reproduced below:

"(v) 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."

Earlier entry: (v) 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.

The concept of ‘outdoor catering' has now got merged into the broader concept of ‘supply of food', with effect from July 27, 2018. ‘Outdoor catering' is a subject that has attracted a lot of litigation in the service tax era. The term ‘outdoor catering' is not defined under the GST law. Under Section 65(76a) of the erstwhile Finance Act, 1994, ‘outdoor caterer' meant 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 these services. Thus, one of the requirements of ‘outdoor catering' was that, the place where the service is provided should be different from the place of the service provider.

Be that as it may…this new development could give rise to a lot of complications, some of which would seem unintended.Consider functions held in Banquet Halls of small and mid-sized Hotels, etc. It is very common for restaurants and small hotels to have attached Banquet Halls, Marriage Halls, etc. in which, food is served in connection with functions held there. These hotels and restaurants took the view that, since the food was being supplied at their own premises, it is not a case of ‘outdoor catering' and consequently, the applicable GST rate was 5%. Post July 27, 2018, the GST rate that would be applicable for this supply would also be 18%.

Taking this discussion forward…assuming that a group of Advocates decide to meet at the Banquet Hall of a small or mid budget hotel for celebrating the anniversary of their association, which is an event, the entire supply by the concerned hotel would now attract 18% GST. Pre 27.07.2018, it would have been a case of sale of food by the Restaurant, attracting GST @ 5%.

There can be another complication that can arise here. Assuming that a restaurant/caterer supplies food to the employees of a software company, on a regular basis. In terms of this Notification, the applicable GST rate would be 5%. However, if the very same restaurant/caterer supplies food, let's say, for an event being held in the software company (e.g. Founder'sday), the GST rate would be 18%, though the very same employees of the software company would be consuming the food.This huge difference in the GST rate, arising out of this Notification, seems very unjust.

If a group of people book a few tables and decide to celebrate the birthday of one of them, inside the restaurant as an indoor event, will GST be applicable @ 18%?

Undoubtedly, this new development is going to create a lot of issues for small hotels and restaurants, who have been charging GST @ 5% for functions held in their Banquet Halls, Marriage Halls, Event Centres, etc.

Before concluding:

It would be better for families that celebrate events such as birthdays, indoor events, at home etc. to collect food from the supplying Restaurants and Hotels rather than have this food delivered to them, as in the latter case, GST could get charged @18%, under the new SAC No. 9963(v).

Though ITC is allowed when GST is charged @ 18%, the impact of ITC is unlikely to be more than 3 to 4% and consequently, the difference in the GST rates, i.e. 18% with ITC and 5% without ITC, could work out to a substantial 9 to 10%.

Now that the concept of ‘outdoor catering' has been done away with, the Government should look at having a uniform GST rate for all transactions involving supply of food by hotels and restaurants, other than by the high end Hotels.

(The views expressed are strictly personal.)