Central to the issue is this: Is giving bananas, a supply of goods or a supply of service?
Much has been written on actor Rahul Bose being charged an astronomical amount of Rs 442.50 (inclusive of GST) for two bananas at the JW Marriott hotel in Chandigarh.
After the furor, the GST authorities issued a show-cause notice to the hotel and levied a penalty of Rs 25,000 (under Section 125 of the Central Goods and Services Tax Act, 2017), presumably, for incorrectly collecting GST on the supply of exempted goods.
Contrary to popular perception, where it is believed that the hotel should not have levied GST on fruit, this article seeks to understand the issue from a different angle – if the hotel was indeed justified in charging the GST amount.
A supply of goods or a supply of service?
It is evident that the hotel invoiced the actor for the supply of fruit platter under Service code 996332 (of Annexure to 2017 notification of GST) which prescribes the rate of GST on supply of services. This code deals with “Services provided by Hotels, Inn, Guest House, Club and the like including room services, takeaway services and door delivery of food”. GST, in this case, was charged and collected for the supply of service and not for supply of goods.This leads us to the core issue on whether the supply of banana or fruit platter by a hotel (as in-room dining) should be construed as a supply of
goods or a supply of service.
Supply of food and food products by hotels, especially by luxury hotels, to its guests, by way of in-room dining, may not simply qualify as a supply of goods to its guests. This supply typically comprises of prudently selecting premium food and food products with the intention of maintaining pre-fixed standards, cleaning/disinfecting food products to ensure high hygiene levels and presentation of food and food products in an aesthetic manner, amongst other considerations.Most importantly, given that in-room dining allows guests to enjoy a variety of food from the comfort of their rooms, it could be considered as both – supply of goods and supply of service, which is akin to the concept of
composite supply under the GST law.Schedule II of the CGST Act clarifies the activities or transactions which are to be treated as supply of goods or as a supply of service. Serial Number 6(b) of this schedule provides that “composite supply, by way of or as part of any service or in any manner whatsoever, of goods, being food or any article
of human consumption, where such supply is for a consideration, should be treated as the supply of service.”
Further, a 2017 notification by the CBIC prescribes a GST of 18% on supply by way of or as a part of any service of goods (i.e. food) being provided by a restaurant located in the premises of a hotel (with a declared tariff of a unit of accommodation above Rs 7,500).
Courts under the erstwhile indirect tax regime have decided that when a sale of food and drinks takes place in hotels and restaurants, it is one indivisible contract of service coupled incidentally with sale of food and drinks.
Given the above considerations supply of fruits by hotels may be construed as a composite supply of foods by way of or as a part of restaurant service. This could, therefore, be inferred as a supply of service on which GST should be levied.
Also, treatment of the supply of food and food products as goods may have additional challenges under Legal Metrology – perhaps in situations where products supplied by the hotel (maybe as a part of minibar) are supplied at higher rates than the maximum retail price (MRP).The Hon’ble Supreme Court in a Special Leave Petition filed by Federation of Hotel and Restaurant Associations of India has held that hotels and
restaurants can sell bottled water and other packaged products above the MRP as they render a service, and cannot be governed by the Legal Metrology Act.
The Court while deciding this petition has observed that typically, a customer will not enter a hotel or restaurant to order a bottle of water or other packaged products. The intent of the customer would be to equally also enjoy the ambiance of the hotel or restaurant.While this decision pertains to packaged commodities, an inference could
be drawn that the supply of fruit platter by hotels and restaurants, could indeed be a supply of service and not a supply of goods.
The need of the hour is for the GST Council to release a clarification which may endorse the treatment followed by the hotels in this regard, as the same is well within the letter of law. Till the time a clarification is issued, it is quite probable that hotels will be questioned by its guests on the basis of an incorrect understanding of the law, which is evident from another recent incident where a guest staying at Four Seasons Hotel, went public with an invoice in which he was charged Rs. 1700 for two boiled eggs.(The authors are Nishant Shah, Partner, and Abhinay Kapoor, Senior Associate, at Economic Laws Practice)Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.