Employee canteen cash-carry services qualify as restaurant services taxable at 5% GST under notification 11/2017-CT

The AAR Karnataka held that services under a cash-carry model in employee canteens qualify as restaurant/eating joint services under entry 7(i) of notification 11/2017-CT (Rate), taxable at 2.5% CGST and 2.5% SGST. The authority determined that since food is prepared and sold on the premises where services are supplied, it constitutes an eating joint regardless of premises ownership. The contract exists between the service provider and individual employees who pay consideration, not the employer. The supply doesn't qualify for event-based exemptions under entry 7(v) as it's neither occasional nor event-based in nature.

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Issues Involved:
1. Classification of services under the "cash & carry model" as either "services provided by canteen" or "outdoor catering services."
2. Applicable tax rate for services classified as "services provided by canteen."

Detailed Analysis:

Issue 1: Classification of Services
The primary issue revolves around whether the services rendered by the applicant under the "cash & carry model" should be classified as "services provided by canteen" under Sl. No. 7(i) or "outdoor catering services" under Sl. No. 7(v) of Notification No. 11/2017 - Central Tax (Rate).

Applicant's Argument:
- The applicant argues that services under the "cash & carry model" are akin to "services provided by canteen."
- According to Section 9 of the KGST and CGST Act, CGST and KGST are levied on the supply of goods or services at notified rates.
- The applicant contends that the supply of food, whether prepared at a central kitchen or on-site, qualifies as a "supply of service."
- The applicant refers to the definition of "canteen" in common parlance and asserts that their services fit this definition.
- The applicant also draws on Circular 28/02/2018, which clarifies the tax rate for food supplied at educational institution canteens, arguing that this should apply to their case as well.
- The applicant emphasizes that the "cash & carry model" does not involve personalized services akin to "outdoor catering."

Authority's Findings:
- The authority examines the contractual arrangements and the nature of services provided.
- It is noted that under the "cash & carry model," food is prepared at the client's premises and sold over the counter to employees, who pay directly.
- The authority concludes that the contract of supply is between the applicant and the employee, making the employee the recipient of the service.
- The authority further examines whether the service falls under entry 7(i) or 7(v) of the Notification.

Conclusion:
- The authority determines that the "cash & carry model" does not fit the definition of "outdoor catering services" under entry 7(v) as it is not event-based or occasional.
- Instead, it fits under entry 7(i) as it involves the supply of food at a canteen or cafeteria based on a contractual arrangement with the institution, provided the supply is regular and not event-based.

Issue 2: Applicable Tax Rate
Having classified the services under entry 7(i), the next issue is the applicable tax rate.

Applicant's Argument:
- The applicant argues that the services should be taxed at 5% (2.5% CGST + 2.5% SGST) as per entry 7(i), provided no input tax credit is claimed.

Authority's Findings:
- The authority confirms that the supply of food under the "cash & carry model" is covered under amended entry No. 7(i) of Notification No. 11/2017 - Central Tax (Rate) as amended by Notification No. 13/2018 - Central Tax (Rate).
- The applicable tax rate is 2.5% CGST and 2.5% SGST, subject to the condition that no input tax credit is claimed.

Ruling:
1. The supply of food under the "cash & carry model" is classified under entry No. 7(i) of Notification No. 11/2017 - Central Tax (Rate) as amended.
2. The applicable tax rate is 2.5% CGST and 2.5% SGST, provided no input tax credit is taken.

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