Tax Classification: Food supply at railway platforms as services taxed at 5% without ITC

The appellate authority upheld the decision that the supply of food items at General Minor Units (GMUs) at railway platforms is classified as "Supply of Services" and should be taxed at 5% without Input Tax Credit (ITC) under Serial No. 7(ia) of Notification No. 11/2017-Central Tax (Rate). The appellant's appeal was disposed of accordingly, affirming the tax treatment and ITC eligibility for such supplies.

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Issues Involved
1. Classification of supply of food items at General Minor Units (GMUs) at railway platforms as "Sale of Goods" or "Sale of Services".
2. Applicable tax rate and eligibility for Input Tax Credit (ITC) for the supply of food items at GMUs.
3. Consequences of wrong availing of ITC.

Detailed Analysis

Issue 1: Classification of Supply of Food Items at GMUs

The primary issue was whether the supply of food items at GMUs at railway platforms should be treated as "Sale of Goods" or "Sale of Services". The appellant argued that their activity should be considered as "Supply of Goods" because they only engage in counter sales of packed food items, drinks, and cooked items without providing additional services like waiters, table service, or sitting arrangements.

However, the License Agreement between the appellant and the Divisional Railway Manager (Commercial), NCR, Agra, explicitly describes the activity as "operate, manage and supply catering service on the GMU". The agreement mandates that the appellant can only sell items approved by the Railways and allows Railway inspections. Additionally, vendors are allowed to take goods to customers away from their stalls, indicating a service component.

The appellate authority concluded that the activity falls under "Supply of Catering Service" as per the agreement and Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017, as amended by Notification No. 13/2018-Central Tax (Rate), dated 26th July 2018. This notification classifies the supply of food items by Indian Railways or their licensees as "Supply of Service".

Issue 2: Applicable Tax Rate and ITC Eligibility

The appellant contended that if the supply is classified as a service, it should be taxed at 5% without ITC under Serial No. 7(ia) of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. They also argued that they should be eligible to claim ITC on GST paid on license fees to Indian Railways or IRCTC.

The appellate authority upheld the Advance Ruling Authority's decision that the entire revenue should be taxed at 5% without ITC under Serial No. 7(ia) of Notification No. 11/2017-Central Tax (Rate). Consequently, the appellant cannot claim ITC on GST paid on license fees.

Issue 3: Consequences of Wrong Availing of ITC

The Advance Ruling Authority had ruled that the question of consequences for wrong availing of ITC is out of the purview of their mandate under Section 95(a) of the CGST Act. This ruling was not contested further in the appellate decision.

Case Law References

The appellant cited several case laws to support their claim, including:
- Kundan Misthan Bhandar (2019) 105 taxmann.com 364 (AAAR-Uttarakhand)
- Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi {AIR 1980 SC 674}
- State of Himachal Pradesh v. Associated Hotels of India {1972 2 SCR 937}
- Govind Ram and Ors. v. State of Rajasthan {AIR 1982 Raj 265}
- Sangu Chakra Hotels Private Limited v. State of Tamil Nadu {1985 60 STC 125}

The appellate authority found that these cases were either not applicable due to different facts and circumstances or were decided under the pre-GST regime, making them irrelevant to the current GST framework.

Conclusion

The appellate authority upheld the Advance Ruling Order No. 32, dated 30-6-2019, confirming that the supply of food items at GMUs is classified as "Supply of Services" and should be taxed at 5% without ITC under Serial No. 7(ia) of Notification No. 11/2017-Central Tax (Rate). The appeal was disposed of accordingly.

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