The Karnataka Commercial Tax Department held that food supply under prescribed diet packages is a ‘composite supply’, different from normal restaurant services, 18% GST is applicable.
Table of Contents
Background
The taxpayer operates a business providing nutritional consultancy services, along with supplying prescribed packages of food to help their customers manage their weight and diabetic conditions. The process of services provided by the taxpayer under the name of Food Darzee.
The taxpayer will assign their customer a personal nutritionist who assesses their lifestyle, health requirements, eating habits and nutritional needs to help them achieve their weight management goal.
The consultation will take place over a phone call, WhatsApp, or email.
The taxpayer delivers meals for the Ketogenic, low-carb, High Protein, Vegan and Balanced diet in accordance with the lifestyle, health requirements, eating habits, and nutritional needs of the customers as prescribed by the nutritionist.
The taxpayer classified the services provided by it as restaurant services and paid 5% GST.
The notice issued to the taxpayer stating that the noticee is providing composite supply of Nutrition Consultancy and Dietitian Services along with supply and delivery of Customised Dietary Food, wherein the principal supply is nutrition consultancy and Dietitian Services which is nothing but physical well-being services. Therefore, rate of tax for principal supply i.e., Nutrition Consultancy and Dietitian Services in terms of section 8(A) of the KGST Act, 2017 read with entry no 35 of Notification no. 11/2017, dated 28-06-2017 that is physical well-being services is 18%.
However, the Notice stated that the taxpayer has mis-classified the supply as restaurant services and admitted tax of 5% which is found to be not in order. The noticee is liable to discharge the difference tax rate of 13%.
Karnataka Commercial Tax Dept’s Rationale
The Deputy Commissioner of Commercial Taxes has observed that the supply and delivery of food are restaurant services that are not tenable in the eyes of the law and, hence, not considered the same. In normal restaurant services, the customer will select the food he wants. In the instant case, before having food, he will have to explain his goal or objective, i.e., Loose Weight, Healthy Eating, Gain Muscle, Diabetes Management.
Supply Of Food Bundled With Nutritional Consultancy Service Amounts To Composite Supply
The supply of food and articles is determined by a prescribed diet package tailored to an individual’s lifestyle, health requirements, eating habits, and nutritional needs in order to achieve their weight management goals. This analysis is conducted by nutritionists. The provision of food and articles becomes integrated with the provision of physical well-being services, losing their separate identity.
However, if the menu is based on the customer’s specific request rather than a pre-determined diet package, the supply maintains a separate identity. If the food and articles are supplied separately, a question arises about whether they are naturally bundled and supplied in conjunction with the nutritional consultancy. It’s important to note that at the suggestion of the nutritionist, the taxpayer may serve different food packages to the customer. Therefore, the supply of food becomes naturally bundled with the nutritional consultancy service, resulting in a composite supply.
The expression “composite supply” has been defined as “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.”
The expression “principal supply” has been defined as “the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary”. According to the CGST Act, a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.
A composite supply is a combination of goods or services, or both supplied as a composite whole, where some or all the components of supply are chargeable at different tax rates, and one such component is the principal supply. Principal supply must be the one which is at the essence of the whole package of goods or services or their combination.
18% GST On Supply Of Food Bundled With Nutritional Consultancy Service
The consultants will suggest the package of foods that will help to achieve their goal. Therefore, here the food will be prescription not a selection and thus lose its identity as a separate supply and merge with the supply of Nutritionist services.
Therefore, it is a composite supply wherein the principal supply is Nutritionist services liable for tax @ 9% under SGST and 9% in terms of section 8(a) of KGST Act, 2017 fall under SAC Code 999319 i.e. Other Human Health Services Including Homeopathy, Unani, Ayurveda, Naturopathy, Acupuncture etc classified under Entry No. 31 of the Rate Notification no. 11/2017, dated 28-06-2017.
Karnataka Commercial Tax Dept’s Direction To Discharge Difference Tax Rate Of 13%
The taxable person is directed to pay the difference tax rate of 13%. If statutory liabilities as per the provisions of the Act and the rules made thereunder remain unpaid, the undersigned may initiate the recovery proceedings as per sections 78 and 79 of the KGST Act, 2017.
Author’s Opinion Conclusion
This order will make waves. Open many fresh enquiries from all over India.
Case Details
Name of the Taxable Person: M/s Food Darzee
File No. DCCT(A)-5.4/GST(ADJ)-4/2024-25
Date: 21.08.2024
