Facts of the Case:

In this case, the appellant was engaged by MGM Hospital under an agreement to supply food to in-patients, outpatients, doctors and staff within the hospital premises. The dispute related to food supplied to in-patients during January 2018 to November 2021. The First Appellate Authority treated such supply as part of a composite supply of healthcare services, relying upon CBIC Circular No. 32/06/2018-GST dated 12.02.2018, and accordingly dropped the corresponding demand. The Department challenged the order before the GSTAT, contending that the taxpayer was an outsourced caterer and not the healthcare provider.

Issue:

Whether food supplied by an outsourced caterer to hospital in-patients forms part of a composite supply of healthcare services and is consequently not separately taxable in the hands of the caterer; and whether the demand under Section 74 was sustainable.

Held That:

The GSTAT held that, in the hands of the respondent, there was only one supply i.e. supply of food under the catering agreement. Since a composite supply under Section 2(30) requires two or more taxable supplies naturally bundled and supplied in conjunction with each other, the caterer’s supply could not constitute a composite supply of healthcare services.

The Tribunal distinguished CBIC Circular No. 32/06/2018-GST, observing that the clarification regarding food supplied to in-patients as part of composite healthcare services applies where the hospital/healthcare provider itself supplies the food along with healthcare services. It does not extend to an independent caterer supplying only food to the hospital under a contractual arrangement, even though the food is ultimately consumed by in-patients.

However, the Tribunal held that the ingredients of Section 74 were not established. The taxpayer had relied upon the Board’s circular, albeit erroneously, and its non-payment of tax resulted from an incorrect understanding of the legal position rather than established fraud, wilful misstatement or suppression with intent to evade tax. Accordingly, invoking Section 75(2), the Tribunal directed that the proceedings be treated as having been initiated under Section 73.

The Tribunal further held that since the taxpayer had not separately collected tax from the recipients, the invoice value was to be treated as inclusive of tax. The proper officer was therefore directed to recompute the liability after extending the cum-tax benefit under Rule 35, even though the taxpayer had not specifically claimed such benefit.

Accordingly, the Department’s appeal was allowed with modification: taxability of the food supply was upheld, but the demand was directed to be re-determined under Section 73 and on a cum-tax basis under Rule 35, along with consequential interest and penalty as applicable.

Case Name: BOILLA VENKATARAMANA REDDY Versus M/S SHIVENARI CANTEEN SERVICES, PARTNER dated 18.09.2026

Citation No. 2026 Taxo.online 2930