Taxability of food supplied to employees of a SEZ Unit and classification of service provided

PJ/Case Law/2018-2019/3501

Case: M/s MERIT HOSPITALITY SERVICES PVT LTD

Citation: ORDER NO.MAH/AAAR/SS-RJ/12/2018-19 dated 01.11.2018

Issue:Taxability of food supplied to employees of a SEZ Unit and classification of service provided

Brief Facts:The appellant company M/s MERIT HOSPITALITY SERVICES PVT LTD is in the business of providing catering services to the business and corporate and is registered under the category of “outdoor caterers” and provides food to the employees of its client at client’s premise, although the food is prepared in appellant’s premises and transported to client place.
Appellant has entered into a contract with say B Ltd and it is having its unit in SEZ area. Supply of food is done by Appellant to the employees of "B Ltd." and the payment for the same is made by the employees of "B Ltd." to the appellant directly.
Appellant had sought a ruling as to whether such supply can be considered as supply to SEZ area and hence no GST should be charge on supply. The Authority for Advance Ruling had rejected the case on the ground that there is lack of clarity on the issue in absence of adequate information or details.Now the appellant preferred appeal to the order of AAR.

Appellant’s contention: The Applicant sought clarification primarily as to:

Whether the activity undertaken by the applicant can be called as canteen activity and the applicabe rate of 5% be charged on their bill?
Can applicant claim that food being supplied to employees of SEZ unit, for which employees of SEZ unit directly make payment, is a supply made to SEZ unit and hence no GST payable?

Observations of Honorable Bench and Decisions: Hon’ble AAAR observed that as per provisions of Section 16 of IGST Act, 2017; Zero Rated supply of goods or services means supply of goods or services or both to a SEZ Unit. Supply of food has been made by the appellant to the employees of the units located in SEZ Area and it cannot be construed as zero rated supply as employees cannot be treated as SEZ Unit.
To the second question Honorable bench reiterated that the appellant is registered under the law as “outdoor caterer” and not as a “restaurant” hence the question of charging tax at the rates applicable to such restaurants is irrelevant for the appellantand hence the caterer should continue to charge tax at the rate prescribed for his relevant category.

Comment: Circular No. 48/22/2018-GST Dated 14th June 2018 provides that; if hotel, accommodation services, consumables etc. are received by a SEZ unit for authorised operations, as endorsed by the specified officer of the Zone, the benefit of zero rated supply shall be available in such cases to the supplier. Supply by a domestic unit to the employee of SEZ unit can only be claimed to be zero-rated if it is authorised unit and the supply made by applicant to employees of SEZ unit is authorized operation. But the factor considered whie giving this ruling that payment of food was being made by the employees to the appellant therefore supply of food has been held to be supply to employees and not to SEZ Unit even though the contract for supply has been entered with SEZ Unit.
In the second question, the authority has not taken a broader view and held that since the place of cooking and serving to the employees is different, therefore this event is not covered under the definition of restaurant. Hence, the applicable rate would be 5%.

Prepared by: Shubhanshu P. Jain

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PJ/Case Law/2018-2019/3501

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