2026-VIL-105-GSTAT-HYD
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SGST Tribunal

GST – Classification of supply of food to hospital in-patients by third party caterer, Composite Supply of healthcare service or supply of restaurant service – Appellant outsourced caterer supplied food to in-patients of medical institution under contractual agreement with hospital – Whether supply of food to in-patients by outsourced caterer constitutes composite supply of healthcare service exempt from GST or constitutes taxable supply of restaurant service – HELD - Supply by outsourced caterer does not constitute composite supply within meaning of Section 2(30) of CGST Act, 2017 because caterer makes only single supply of food and not two or more taxable supplies naturally bundled together - The Board's clarification No. 32/06/2018-GST dated 12.02.2018 regarding composite supply of healthcare service applies only to healthcare service provider directly supplying food to in-patients as part of healthcare service, not to outsourced caterers - The caterer supplied food to hospital under agreement and hospital is direct recipient of supply though food ultimately consumed by in-patients. Caterer was under mistaken belief that Board's clarification applies to their supply but such clarification has no bearing on caterer's supply. Outsourced caterer liable to pay GST on food supplied for in-patient consumption – The FAA, without understanding the clarification of the Board, has erred in concluding that the supplies in the hands of the Respondent is that of composite supply. However, the respondent is entitled to cum-tax-benefit under Rule 35; proper officer directed to re-determine liability extending cum-tax valuation benefit - The order impugned is set aside and Revenue appeal is partly allowed - Levy of Penalty under Section 74 – Respondent-caterer did not separately invoice tax on food supplied to in-patients from January 2018 to November 2021 and claimed benefit of Board's clarification on composite healthcare supply – Whether penalty under Section 74 of CGST Act for fraud, willful misstatement or suppression of facts to evade tax is applicable – HELD - Invoking Section 74 requires establishment of ingredients of fraud, willful misstatement or suppression with intent to evade tax. Caterer relied upon Board's clarification albeit mistakenly and did not deliberately choose not to pay tax. This constitutes gross error in understanding provisions of law and clarification, not deliberate evasion or mala fide intention. No concrete evidence establishes necessity for invoking Section 74. Department's own proposal of penalty under Section 122 was dropped by Adjudicating Authority further fortifying that caterer did not deliberately opt against payment of tax - Under Section 75(2), since charges of fraud or willful misstatement or suppression of facts to evade tax not established, show cause notice shall be deemed issued under Section 73(1) and proper officer shall determine tax payable accordingly - Appeal allowed to extent that normal demand procedure under Section 73 applies instead of fraud procedure under Section 74; proper officer directed to re-determine liability considering demand as issued under Section 73(1) - Cum-Tax Valuation and Rule 35 Benefit - Caterer issued invoices for food supply without separately identifying tax component; values represented in invoices admittedly inclusive of any tax to be charged from January 2018 to November 2021 – Whether differential tax should be calculated on entire invoice value or whether benefit of cum-tax principle under Rule 35 of CGST Rules, 2017 should be extended when tax component not separately invoiced – HELD - Rule 35 provides formula for determining tax amount where value of supply is inclusive of integrated tax or central tax or state tax. Present case falls within scope of Rule 35 - Since caterer did not collect tax separately from recipients and no allegation that caterer collected tax over and above invoice value, declared invoice value must be treated as inclusive of tax. Tax component must be extracted in accordance with formula prescribed under Rule 35 – Respondent is entitled to benefit of Rule 35 even though not specifically claimed, as this ensures tax correctly calculated in accordance with prescribed rule and authorities must collect only legally due tax neither more nor less. Proper officer directed to recompute differential tax liability by treating declared value as cum-tax and applying Rule 35 formula after verifying invoices and ascertaining that no amount as tax was collected during period for supplies made for in-patients – Appeal allowed with modification.
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