2018 (11) TMI 335 - AAAR - GST

SEZ Food Supply Not Zero-Rated

The Appellate Authority upheld the ruling that supplying food to employees in a Special Economic Zone (SEZ) area did not qualify as zero-rated supplies or ... Zero rated supply - Supply to a Special Economic Zone (SEZ) unit - Supply to employees of an SEZ unit - Interpretation of 'zero rated supply' under the IGST Act - Restaurant services versus outdoor/corporate catering - Classification of services under the GST rate scheduleZero rated supply - Supply to a Special Economic Zone (SEZ) unit - Interpretation of 'zero rated supply' under the IGST Act - Whether supply of food by the appellant to employees of an SEZ unit amounts to a zero rated supply under Section 16(1)(b) of the IGST Act, 2017. - HELD THAT: - The Appellate Authority examined the definition of 'zero rated supply' in Section 16(1) of the IGST Act which expressly treats supplies to a SEZ developer or a SEZ unit as zero rated. The Authority observed that employees of a SEZ unit are neither SEZ developers nor SEZ units. Consequently, supply made to employees of the SEZ unit cannot be recharacterised as a supply to the SEZ unit for the purpose of Section 16(1)(b). The Authority therefore concluded that such supplies do not fall within the statutory concept of zero rated supply and are subject to GST classification under the ordinary rate schedule. [Paras 8, 9]Supply of food to employees of a unit located in SEZ is not a zero rated supply under Section 16(1)(b) of the IGST Act, 2017.Restaurant services versus outdoor/corporate catering - Classification of services under the GST rate schedule - Whether the appellant's activity of preparing food in its kitchen and distributing it to corporate clients in the SEZ amounts to 'restaurant services' attracting the concessional rate claimed by the appellant. - HELD THAT: - The Authority noted that 'restaurant' is not defined in the GST Act and relied on the ordinary dictionary meaning - a place where meals are prepared and served to the customer. The appellant's admitted business model is that of an 'Outdoor Caterer': food is prepared at the appellant's own kitchen and distributed to multiple client locations where the employer or client personnel effect consumption or distribution. The Authority held that such activities do not fit the concept of restaurant services as understood and thus cannot be treated as restaurant services for the purpose of attracting the lower rate relied upon by the appellant. The services must therefore be classified in accordance with the applicable entries in the GST rate notifications rather than as restaurant services. [Paras 10, 11]The appellant's supplies are not in the nature of restaurant services and cannot be taxed at the concessional rate claimed as restaurant services.Final Conclusion: The appeal is disposed by holding that supplies of food by the appellant to employees of an SEZ unit are not zero rated under Section 16(1)(b) IGST Act, 2017, and the appellant's activity is not 'restaurant services'; GST applicability and rate are to be determined by ordinary classification under the GST rate notifications. Issues:1. Interpretation of activities as canteen services under GST.2. Applicability of GST rates for supply and distribution of food.3. Classification of services in SEZ area and determination of GST rates.Analysis:Issue 1: Interpretation of activities as canteen services under GSTThe appeal was filed against an Advance Ruling that denied categorizing the appellant's activities as canteen services under GST. The appellant provided catering services to corporate offices under various contracts. The cases presented different scenarios based on contract terms. The Authority for Advance Ruling (AAR) decided against considering the activities as canteen services.Issue 2: Applicability of GST rates for supply and distribution of foodThe appellant raised questions regarding the GST rates applicable to supply and distribution of food in various scenarios. The AAR ruled negatively on the applicability of a lower GST rate for the activities. The appellant contested this ruling, specifically focusing on activities in a Special Economic Zone (SEZ) area.Issue 3: Classification of services in SEZ area and determination of GST ratesThe appellant sought clarification on the applicability of GST rates for services provided in an SEZ area. The AAR did not provide a clear ruling due to insufficient information. The appellant argued that their activities should be considered zero-rated supplies under Section 16(1)(b) of the IGST Act, 2017. However, the Appellate Authority found that the services did not qualify as zero-rated supplies or restaurant services, as claimed by the appellant.In conclusion, the Appellate Authority upheld the ruling that the services of supplying food to employees in an SEZ area were not zero-rated supplies and did not qualify as restaurant services. The appellant's claim of running a restaurant in the SEZ area was deemed incorrect, and the GST rate of 5% was not applicable.