Supply of food and beverages in trains will face goods and services tax (GST) as applicable on such items and not the concessional rate of 5% as specified by the government through a circular, Authority for Advance Rulings (AAR) said on Tuesday.
A train is a medium of transport and cannot be termed restaurant, eating joint, mess or canteen, Delhi AAR said in a decision that would impact those supplying food on trains. The ruling comes even as the industry has represented to the government and the GST Council on differential rates on same service leading to issues and potential disputes later.
Outdoor catering attracts 18% GST, while canteen services faces 5%. The levy on supply of food or beverages by facilities such as a mess or canteen was reduced to 5% in November. Subsequently, in January supplies made to Indian Railways were also put in the 5% bracket via a circular.
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.
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 in railway stations.
AAR has observed that supply of food and beverages directly to passengers at fixed rate on platforms did not have any element of services, and hence GST shall be charged on individual items as per their respective applicable rates, it said.
It also noted that mere heating and cooling of beverages or similar services are incidental and not eligible for any tax benefit.
“Incidental services provided with supply of goods being the dominant intention would be treated as supply of goods in GST. Hence supply on board a train would be treated at par with like goods in a retail shop from a GST rate perspective,” said MS Mani. partner at consultancy firm Deloitte India.
Harpreet Singh, partner at KPMG, said the principle laid down by the advance authority may have far reaching impact on composite supply arrangements involving serving of food at various places such as kiosks, food stalls and food trucks.
Anita Rastogi, indirect tax partner at PwC, said there was a need to ensure there is no conflict. “Considering that there have been slew of clarifications issued by the CBEC and parallelly multiple advance rulings coming out in public domain, it is pertinent that there should be no conflict among the two as far as interpretation is concerned,” she said.