ITC eligibility on Food

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

One of my clients running a Training institute in Chennai and providing food to the student who join the course during the course period. We are collecting the course fees from the student along with food, now my query is that, do we eligible to claim the input tax credit on the food bill.

Thanks in Advance.

[Muthukumar Muthunarasimhan]

Dear Kasturi Sethi ji,

Thanks for your comments and views.

[Ramakrishnan Krishnamurthy]

First we will examine whether it will be mixed supply or composite supply

Section 2 (74) “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately;

From the above it is clear that if a supply involves two or more individual supplies of goods or services which are unnaturally bundled, in other words the package is customized for a customer or customers and sold for single price and finally the supplier must be able supply the products separately also and in other words he must be in a business of supplying them separately also. In the given case he may not be interested in supplying food alone to a set of students who are not enrolling for the course. Hence, this shall not come under the mixed supply.

If we look in to Section 2 (30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration.- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

In my view this is more appropriate the course is the principal supply and the amount collected for the food is naturally bundled to make the principal supply enjoyable. The entire amount collected will be composite supply and subject to rate of tax applicable for the principal supply and the supply of food is a element of a taxable composite supply.

conclusions:- The supply is very much coming under the composite supply as the intention of the supplier, which very important to decide the taxability, is to supply both together to make the principal supply enjoyable and meaningful.

Now we will see the relevant provisions of blocked credit to see the eligibility to claim the ITC. As per the Section 17 (5) (b) THE CENTRAL GOODS AND SERVICES TAX (AMENDMENT) ACT, 2018 the reproduced below

(b) the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

Like in the airline services, the food supplied becomes an element of taxable a composite supply of service with the transport of passengers. Here also food becomes an element of a taxable composite supply.

Hence, the input tax credit is eligible

[KASTURI SETHI]

Dear Querist,

This decision of AAAR, West Bengal is worth perusal :-

2019 (27) G.S.T.L. 131 (App. A.A.R. - GST) = 2019 (7) TMI 314 - APPELLATE AUTHORITY FOR ADVANCE RULING, WEST BENGAL IN RE : SARJ EDUCATIONAL CENTRE

AI Summary

Input tax credit on food is generally blocked unless food is an element of a taxable composite or mixed supply.
Input tax credit on food and beverages is generally blocked under the exclusion rule, but the proviso permits credit where the inward supply is used to make an outward taxable supply of the same category or where it is an element of a taxable composite or mixed supply, or where provision is obligatory for an employer; whether training plus meals is a composite or mixed supply is fact-specific and determines eligibility.