Advance Ruling on Supply of food and beverages in trains: Till now many rulings have been given by the AAR under GST, one of the examples for the same is the recent ruling on supply of food and beverages in trains, where the issue was whether the supply of food and beverages in trains is ‘supply of goods’ or ‘supply of service’ and if it is a service, then what is the applicable rate?

LAW for Supply of food and beverages in trains

Supply of food by restaurants, hotels, food joints etc. will be classified as composite supply as there is supply of goods and supply of services based on the provisions of ‘supply of service’ - Para 6(b) of schedule II of CGST Act. Supply, by way of or as part of any service or in any other manner, whatsoever, of goods, being food or any other article for human consumption or drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration is supply of service.

The applicable tax rate for such supplies is 5%, provided that credit of input tax charged on the goods and services used in supplying the service has not been taken.

From the above provisions in GST, it is clear that it is the supply of service but as per the provisions of the Constitution of India, it is supply of goods. The provisions of the CGST Act are contradicting with that of the provisions of the Constitution. As per Article 366(29A)(f) of constitution of India, a tax on the supply, by way of or as part of any service or in any other manner, whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.

‘Outdoor catering’ means caterer engaged in providing services in connection with catering at a place provided by way of tenancy or otherwise by the person receiving such services.

The applicable tax rate for such supplies is 18%. Further, the credit of input tax charged on goods and services used in supplying the service are allowed to avail.

Mere supply of food at customer’s place without serving it, there would not have come within the definition of outdoor catering.

CASE

The AAR ruling came in response to an application by Deepak & Co. that entered into an agreement with the Indian Railways for supply of food and beverages (packaged, cooked or at MRP) on mail and express trains. It had also signed an agreement to open food stalls and food plazas at railway stations. The contention of applicant was supply of food to passengers or at food plaza/ food stall would be the supply of service and would attract tax rate of 5% without the benefit of ITC.

The Jurisdictional officer was of the opinion that the supply of service by applicant is outdoor catering as service is provided in a place other than applicant’s premises, thus, the applicable tax rate is 18%. However, the contention related to supply of food at food stall/ food plaza seems correct and the applicable tax rate is 5%.

Central Board of Indirect Taxes and Customs vide Circular F. No. 354/03/2018-TRU dated 31 March, 2018, has clarified that the rate of GST applicable on supply of food and drinks made available in trains, platforms or stations by the Indian Railways or IRCTC or their licensees, whether in trains or at platforms (static units), will be 5% without input tax credit.

Further, the circular from Central Board of Indirect Taxes and Customs, announcing lower GST rate for food on trains, did not say whether such transactions shall be treated as supply of goods or services.

On the contrary to all above, the Delhi bench of authority for advance ruling has ruled that train is a medium of transport and cannot be termed as restaurant, eating joint, mess or canteen etc., hence, catering services provided onboard is not a supply of service. The supply of food and beverages on board to the passengers as per the menu/ rates fixed by IRCTC/Railways does not have any element of service and shall be considered as pure supply of goods. Accordingly, GST shall be charged on individual items at the respective applicable tax rates.

Also, it has been held in the said ruling that the supply of food and beverages to passengers/general public at fixed rate (By IRCTC/Indian Railways) at Food Stalls on Railway Platform does not have any element of service and hence, the same shall be considered as pure supply of goods. Mere heating/cooling of beverages or similar other services are incidental and minimally required to supply such food items and such supply cannot be said to be a ‘composite supply’.

Conclusion

Hence, the ruling decided by the authority has held that the supply of food and beverages in trains will attract GST as applicable on such item, not the concessional rate of 5% as clarified by the Government itself in a Circular issued earlier in this regard.

Further, as the relevant documents pertaining to details of items supplied, pricing details, extent of services provided are not submitted, no ruling has been given in respect of supply from food plaza on the railway platform.

Impact

The aforementioned contradiction by the advance ruling authority and the clarification provided by CBIC may have far reaching impact on railways. The ruling given by the authority may impact the prices of railway tickets as the rate for supply of food will differ from item to item, which may enhance the prices of ticket. Further, if contractor supplies food at platform, it will create a chaos at what rate it should be supplied at, as no ruling has been given by the authority on it.

Also, various questions arise like - Whether circulars are binding on the revenue?; Whether revenue can challenge circulars issued by its own board?; Whether revenue has the power to issue show cause notice taking a view contrary to a favorable circular?

Another challenge is the people selling the food stuff at stations and in the train will be the same as they are from the same contractor and as a result of it, they will get confused on charging the money from the passengers. Or there will be cases where the items are shifted from the food plaza at the station to the train to be sold to passengers or vice versa. This will create chaos in the accounting and tracking of the same. Same item is being sold at two different locations by the same taxpayer and it being taxed separately; this increases the complexity of the business and defeats the intent of simplification of taxation.

The same logic should be applicable in the case of airlines or in buses operated by various state road transporters, private operators etc.

As per section 103 of the CGST Act, 2017, the Advance Ruling is binding only on the applicant and the concerned officer or the jurisdictional officer in respect of the applicant. As per the GST Law, the board cannot quash the orders of the AAR. So, at least as far as the applicant and his jurisdictional officer are concerned, the AAR ruling is binding. The contrary views of AAR and CBIC lead to an absurd position under GST which is built on the premise of "One Nation One Tax".