The Karnataka Commercial Tax Department ordered prescribed diet packages, and their food supply differs from that of a regular restaurant service. The Deputy Commissioner of Commercial Taxes (Audit) held that the taxpayer’s activity amounted to a compound supply and, therefore, will attract 18% GST under the provisions of the Karnataka State Goods and Service Tax (KGST) Act 2017.
In the case, The Karnataka Commercial Tax Department issued a show cause notice to the taxpayer stating that the taxpayer had been undertaking tax payments as liable to GST under section 9 of the KGST Act on a taxable supply under section 7(1)(a) of KGST Act. The Noticee, under the name of Food Darzee (3cad Hospitality LLP), had been conducting business by providing nutritional consultancy services to its customers. The customers of Food Darzee were supplied with prescribed diet packages to help with their health and weight management.
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The business process was to assist their clients in reaching their weight control objective; the noticee would assign a personal nutritionist to evaluate their eating patterns, lifestyle, health needs, and nutritional requirements. After that, the noticee provides its customers with meal plans suitable for their health goals and delivers meals to the customers as per the recommendation of the Nutritionist.
The Karnataka Commercial Tax Department, in the show cause notice, held that the noticee registered the service provided by it as Restaurant services and had been paying a GST of 5%. The notice held that the noticee has been providing a composite supply of Nutrition Consultancy and Dietitian Services along with the supply and delivery of Customized dietary food, where the principal supply is nutrition consultancy and dietitian services, which come under the classification of physical well-being services. The notice held that the taxpayer had misclassified the service it provided and would be liable to pay a tax of 18% as per the provisions of Section 8(A) of the KGST Act.
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The noticee, however, in reply to the show cause notice, denied all the allegations set out in the notice. The noticee held that the principal supply of Food Darzee is restaurant services, and nutritionist services are provided as ancillary services without any additional charges.
The Deputy Commissioner of Commercial Taxes compared the definitions of composite supply and principal supply according to the CGST Act. A “composite supply” is a combination of goods or services or both supplied as a composite whole, where some or all of the components are chargeable at different tax rates, and one of the components is a principal supply. The expression “principal supply” is 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.
The commissioner observed that in regular restaurant services, the customers get to select the kind of food they want to eat. Food Darzee makes its customers explain their health goals, and a meal is prescribed to their customers. Professional nutritionists analyse health goals, after which the food supply is not a separate entity but a part of the nutritional services the taxpayer provides. The Commissioner added that when the menu is not based on the customer’s preference and is prescribed to him based on the nutritionist’s recommendation, both become the same, resulting in a composite supply.
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As a result, the service in question is a composite supply, with the main supply being nutritionist services, which are subject to 9% SGST tax and 9% KGST Act, 2017 section 8(a) tax. These services fall under Service Accounting Code 999319, which is Other Human Health Services. This includes Homeopathy, Unani, Ayurveda, Naturopathy, Acupuncture, and other services classified under Entry No. 31 of the Rate Notification No. 11/2017, dated 28-06-2017.
Mr Kiran N Biradar, the deputy commissioner of commercial taxes (audit), ordered the taxpayer to pay the difference in tax rate of 13%. If the statutory liabilities as per the provisions of the act and rules remain unpaid, the commissioner can initiate recovery proceedings as per sections 78 and 79 of the KGST Act, 2017.
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