GST on Outsourced Hospital Catering: GSTAT Hyderabad Clarifies Taxability

1. Background of the Dispute

The case Boilla Venkataramana Reddy Vs Shivenari Canteen Services (GSTAT Hyderabad) arose from a departmental appeal against an order of the First Appellate Authority (FAA) in Order-in-Appeal No.HYD-GST-SC-AP2-029-23-24 dated 04.07.2023. The appeal was filed under Section 112(3) and Section 112(4) of the Central Goods & Services Tax Act, 2017.

The core controversy related to whether supplies of food by Shivenari Canteen Services (the Respondent) to in-patients of MGM Hospital, Warangal, under a catering contract, could be treated as an exempt composite supply of healthcare services, or whether such supplies were independently taxable as restaurant services under GST.

The period in dispute was January 2018 to November 2021, during which:

  • The Respondent supplied food within the hospital premises under a formal agreement with MGM Hospital.
  • The adjudicating authority (AA) had held such supplies taxable as “Restaurant Services” and raised a demand of ₹23,04,026 (as per the adjudication order) for the above period.
  • The FAA, however, treated the food supplied to in-patients as part of an exempt composite supply of healthcare, relying on Board Circular and exemption notifications, and had dropped the demand for that component.

The department, being aggrieved, approached GSTAT Hyderabad seeking restoration of the adjudication order and reversal of the FAA’s relief.

2. Department’s Stand Before the Tribunal

The department (Appellant) argued that:

  • The Respondent was an outsourced caterer, not a “clinical establishment”, “authorised medical practitioner” or “healthcare provider”.
  • Circular No.32/06/2018-GST dated 12.02.2018 issued by the Central Board of Indirect Taxes and Customs (CBIC) clarified that food supplied by hospitals themselves to in-patients as part of treatment is a component of a composite supply of healthcare and, therefore, not taxable separately.
    • This clarification, the department stressed, applied to hospitals, not to independent contractors supplying food to hospitals.
  • The AA had correctly classified the Respondent’s services as “Restaurant Services” taxable at 5% GST (2.5% CGST + 2.5% SGST) in terms of:
    • Explanation 4 (xxxii) to Notification No.12/2017-CT (Rate) dated 28.06.2017, as amended by Notification No.20/2019-CT (Rate) dated 30.09.2019.
  • Since MGM Hospital had outsourced its patient diet and staff meals to the Respondent, the contractor’s supply squarely fell under taxable restaurant services, and CBIC’s healthcare clarification did not shield the Respondent from tax.
  • The department sought confirmation of the tax demand of ₹23,04,026 for January 2018 to November 2021, contending that the FAA’s order was erroneous in law and facts and deserved to be set aside.

3. Respondent’s Defence and Cross-Objections

The Respondent contested the department’s appeal and filed cross-objections, broadly contending: