Applicability of Service Tax on above transaction:
The query pointed by you is considered before the Allahabad High Court of in case of Indian Coffee Workers Co-operative society Limited (2014). The facts, analysis and decision of case are as under;
- Whether supply of food, edibles and beverages provided to the customers, employees and guests using canteen or guesthouse of the other person, result in outdoor caterer service?
Argument of Assessee: The assessee charged amounts in cash from Individual customers for food, eatable and beverages supplied according to rates stipulated in the menu card. The assessee did not pay any service tax as it was of the view that it did not provide any service to Company (i.e. NTPC or LANCO in this case) but only sold goods in their canteen to Individual customers.
Company just provided a place for running the canteen on rent and reimbursed certain expenses for maintenance and running.
High court held: The assessee if a person who supplies food, edibles and beverages for a purpose. The purpose is to cater to persons who use the facility of canteen which is provided by company within their own establishment. Further, since the assessee provides the services as a caterer at a place other than his own, he is an outdoor caterer.
Based on above Court held that the assessee was liable for payment of service tax as an outdoor caterer.
Therefore, in your case you are also liable to pay service tax.
Applicability under GST for second Issue:
To understand whether GST is applicable or not let me first quote section 3 of Draft model law.
Meaning and Scope of supply
1) Supply includes
- All form of supply of goods/services such as sale, transfer, and barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
- Importation of service whether or not for consideration or whether or not in the course or furtherance of business;
- Supply provided under Schedule I whether or not for consideration
2) Schedule II,in respect of matter mention therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services
2A) Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.
3) Subject to sub-section (2), the Central or a State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as –
(i) a supply of goods and not as a supply of services; or
(ii) a supply of service and not as a supply of goods; or
(iii) neither a supply of goods nor a supply of services.
4) Notwithstanding anything contained in sub-section (1), the supply of any branded service by an aggregator, as defined in section 43B, under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the aggregator.
Analysis
Not going to too much detail let me come on to the point directly. The transaction would cover only in sub clause (a) of clause (1) above. However, to cover in that clause two important conditions needs to satisfy:
a) Supply is for consideration
b) Supply is made in the course or furtherance of business
In our case, first condition is clearly satisfied that the supply is for consideration i.e. company is charging a sum of Rs 350 p.m. However, a doubt is still in my mind that whether the rent charged by company which is very nominal is in the course or furtherance of business or not.
To check whether above transaction is in the course or furtherance of business or not, let me quote business test which is applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business (as specified in FAQ issued by CBEC)
1) Is the activity, a serious undertaking earnestly pursued? (No in our case)
2) Is the activity is pursued with reasonable or recognizable continuity? (Yes in our case)
3)Is the activity conducted in a regular manner based on sound and recognised principles?( yes in our case)
4) Is the activity predominantly concerned with the making of taxable supply for consideration/profit motive? (No in our case)
Ooops!!!! Difficult to say, but I will go with safer side, and say yes it is in the course or furtherance to business and constitute as supply.
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