OCTOBER 09, 2019

By K Srinivasan

I think number 13 is not a lucky number for the contract caterers since the benefit of concessional tax of 5% GST, given by Notification No.13/2018-CTR dated 26/7/2018, did not last them long enough.

Contract catering figures under SAC code 996337 as 'Other Contract food services' vide Sl. no.87of the Annexure to Notification No.11/2017-CTR dated 28/6/2017.

It was shown underthe residuary item/entry No.7(i)(ix) of the above Notification No.11/2017-CTR dated 28/6/2017 under the Heading 9963, under broad service description of Other Accommodation, food and beverage services, at a GST rate of 18%,needless to say with ITC.

But, subsequently the Government introduced another Notification No. 13/2018-CTR dated 26/7/2018, wherein it brought under Serial No.7(i) the following change to the effect that contract catering services was given a 5% concessional GST rate without ITC -

"(i) Supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, 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.

Explanation 1.- This item includes such supply at a canteen, mess, cafeteria or dining space of an institution such as a school, college, hospital, industrial unit, office, by such institution or by any other person based on a contractual arrangement with such institution for such supply, provided that such supply is not event based or occasional."

It is with the above explanation appended to the description of Accommodation, food and beverage service under Serial No.7(i) that the Government tried to bring in the said relief to contract caterers with 5% GST without ITC.

It is pertinent to bring to your notice thatfor a specific reason the Government in its wisdom, among certain other changes to the principal Notification No.11/2017-CTR dated 28/6/2017, thought it fit to delete the expression, "School and College" in the earlier Notification No.13/2018-CTR dated 26/7/2018.

The above change was brought about by introducing a Notification.No.27/2018- CTR dated 31/12/2018 effective from 1/1/2019, other things such as rate of tax and the structure of the entry remaining the same at tax rate 5% without ITC, in the Notification No.13/2018-CTR dated 26/7/2018, that it sought to amend.

It is also interesting to note that Circular No.85/04/2019 dated 1/1/2019, while clarifying GST rate applicable on supply of food and beverage Services by educational institutions to itself is fully exempt, it has further clarified that, however, supply of food and beverages by any other person, on a contractual basis with such educational institution, is leviable to 5% GST without ITC.

Please note that the above circular was issued exactly coterminous with the amendment by the Notification No. 27/2018-CTR and 28/2018-CTR dated 31/12/2018 effective from 1/1/2019.

Further, heading 9963 has been added in Column (2) against entry at Sl. No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, by the above referred Notification No. 28/2018-Central Tax (Rate) dated 31.12.2018.

This is precisely the amendment made against Sl.No.66 of Notification which already had SAC 9992(Educational services) and in addition SAC 9963(Food and beverage services) was also added.

(d) against serial number 66, for the entry in column (2), the following entry shall be substituted namely: - "Heading 9992 or Heading 9963";

It was unfortunate for the contract caterers that instead of re-writing the Serial No. 7(i) of the amended Notifications 13/2018 dated 26/7/2018 and 27/2018 dated 31/12/2018, they had simply left out the contract caterers category itself, from the purview of the new Notification No.20/2019-CTR dated 30/9/2019 effective from 1/10/2019.

This surely must not have been the intention for obvious reasons that these changes in the past have come about as a result of sector specific studies and representations from the concerned quartetsand with the approval of the GSTC by a gradual evolution.

Simply for no fault of the trade and due to some drafting errors, one sector can't get orphaned as a result of the above omission of the contract-caterers category from a specific entry in the relevant exemption Notificationto the residuary entry under SAC 9963 in the Annexure to that very Notification No.11/2017-CTR dated 28/6/2017.

The Circular No.85/04/2019 dated 1/1/2019, is a spot light on the above issue of rate of tax by contract caterers having to be kept at 5% GST without ITC, laying bare the mind of the Government clearly by its clarification.

Further, not only the above circular draws strength from the amendment of Notification 12/2017-CTR dated 28/6/2017 by the above referred new Notification 28/2018-CTR dated 31/12/2018 effective from 1/1/2019, through the addition SAC 9963(Food and beverage services), but also survives to date, after the wake of the announcements of the 37 th GSTC and the flurry of Notifications that followed it on 30/9/2019.

We have simply come a long way off in our journey of GST that we can't afford at this stage to leave some sector out from the duty structure created by a natural evolutionary process, by badly missing out the essentials of the exemptions batted and got to get going.

Will the Government urgently look into the above howler and set it right soon before it becomes a real problem for thecontract catering sector, is the firm expectation of that service Sector from the Government.

(The Author is a Former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer GST, and currently a SeniorAssociate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates.The views of the Author are purely personal.)