Vat on food items delivered in trains

[Arpit Jain]

I am going to start Online food delivery / Mobile catering services in trains in Gujarat State. My turnover of this service may go to around 26 lakhs per annum, so i have to pay vat / sale tax and service tax on these supplies. I have a doubt whether vat will be applicable only on food item amount which is currently in gujarat is 15% (12.5%+2.5%) and service tax will be applicable only on food items @ 9 %. (Considering 40 % abatment on outdoor catering). Please suggest if my thinking is not as per legal provisions. Thanks in advance.

[Ganeshan Kalyani]

You are just selling the product and not providing any service. In case of hotel it serves the food. So both vat and service tax is applicable. But in my view in your case only VAT will be applicable. Thanks.

[KASTURI SETHI]

Dear Querist,

Supply of foods and drinks by an outdoor caterer (Service Portion) is covered in the list of Declared Services under Section 66 E(i) of the Finance Act, 1994 (at serial No.9). Also refer to Para No.6.9.1 of Education Guide dated 20.6.12 of CBEC. Service Tax is to be paid on service portion i.e. 60% of the total amount (excluding taxes) in terms of Notification No.24/12-ST dated 20.6.12 which is as follows:-

"4. In the said rules, after rule 2B, the following rule shall be inserted, namely :-

“2C. Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering. - Subject to the provisions of section 67, the value of service portion, in an activity wherein goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity at a restaurant or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely :-

TABLE

Sl. No.	Description	Percentage of the total amount
(1)	(2)	(3)
1.	Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant	40
2.	Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of such outdoor catering	60

[KASTURI SETHI]

Cenvat credit is not to be availed in respect of inputs falling under Chapter 1 to 22 of Central Excise Tariff Act.

[KASTURI SETHI]

'Supply' of food is service. The Querist is on right track.

[YAGAY andSUN]

Please check Section 2 (26) (e) of the Rajasthan VAT Act in this regard. For rates, please check appended link.

http://blog.ritulpatwa.com/taxation-on-hotel-restaurants-in-rajasthan-f-y-2016-17/

AI Summary

Service tax on outdoor catering applies to the service portion of food supplies, potentially alongside state VAT. Food supplied as outdoor catering in trains involves two tax elements: state VAT on the goods element (the food) and service tax on the service portion of the total charge determined by the statutory valuation mechanism for outdoor catering. Characterisation disputes may arise where only delivery occurs, and cenvat credit eligibility is restricted for certain inputs, requiring separate accounting for VAT, service tax and input credit treatment.