Restaurant or canteen

[Ravikumar Doddi]

Applicant running a canteen in a Hospital, Hospital provides power supply by a sub meter to the canteen, which bills are coming ₹ 1 lak and above per month, hospital collecting 18% GST, is it correct sir, if any exemption please provide Notification/circular and HSN/SAC Code on which they are collecting 18%

[KASTURI SETHI]

Dear Querist,

Hospital is correct. HSN Code is 9969. The relevant extract of Notification No. 11/17-Central Tax (Rate) dated 28.6.17 is reproduced as under :

Sl.No.	Chapter, Section, Heading, Group or Service Code (Tariff)	Description of Service	Rate (per cent)	Condition
(1)	(2)	(3)	(4)	(5)
13	Heading 9969	Electricity, water, gas and other distribution services.	9	-

It is presumed that Hospital is collecting GST from you and depositing the same with State Electricity Board. Thus Hospital is acting as pure agent. They are not keeping tax with themselves (in their pocket) It is my presumption.

Exemption available vide Notification No.2/17-CT(RATE)12/17-CT(Rate) both dated 28.6.17 is not applicable in the situation explained by you.

[Spudarjunan S]

Dear Sir,

In your case the GST charged by hospital is proper. Now the issue will be you can't avail the ITC of the same due notification no.13/2018 C.T.(R) dated 26th July 2018 clarifying the notification no. 46/2017 C.T(R) dated 14th November 2017.

Only way to avail exemption from GST levy by Hospital on this transaction is through Pure Agency Concept.

Pure Agent is the person enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; does not use for his own interest such goods or services so procured and receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Further, in order to fall under Pure Agency following conditions has to be satisfied:-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Kindly analyse your situation whether the Hospital can act as a Pure Agent, If not so whatever the Hospital is charging is proper as already explained by Mr. Kasthur Sethi sir.

AI Summary

GST on electricity distribution services: hospital may charge GST; input tax credit limited unless pure agent conditions are satisfied. Hospital-supplied electricity to a canteen is taxable as an electricity distribution service (Heading 9969) and the hospital may correctly charge GST and remit it to the electricity supplier. Exemption notifications cited are inapplicable. Input tax credit on that GST may be restricted by clarifying notifications, and exemption from GST charging by the hospital is possible only if the hospital satisfies and evidences the conditions of acting as a pure agent: authorized third party payments, separate invoice disclosure, and supplies procured as an adjunct to its own services.