Rate applicability on banquet hall services under GST

Introduction: Banquet hall services are usually provided by hotels and it consists of supply of food and supply of other services i.e., renting the hall, serving, ambiance, etc. Restaurant services are also provided by hotels and it involves the supply of food and Supply of other services i.e. serving, ambiance, etc. In Banquet, renting the hall could be the main element (as there could be a case where only the hall is rented whereas food could be procured from elsewhere, but there can never be a case where only food is in scope for any banquet bookings), whereas in restaurant, supply of food is the main element.

Two relevant HSN classifications are found for the above supplies which are as follows:

In this article, we would try to identify the HSN classification and rate applicable to the banquet bookings.

Discussion on relevant provisions of CGST Act:

Under GST the taxable event is SUPPLY. This term is defined u/s 7 of the Act which includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease or disposal of goods or services or both made or agreed to be made in the course or furtherance of business and for a consideration,

Further, the activities mentioned in Schedule II to the Act shall be treated as a supply of goods or supply of services, as mentioned therein. If any activity under such schedule is deemed to be a supply of goods or supply of services then such shall the nature of the supply for the purpose of GST.

Entry 6(b) of Schedule II to the Act would be relevant for our examination, which is as under:

 “Composite supply, by way of or as a part of any service or in any other manner whatsoever, of goods, being food or any article for human consumption or drink (other than alcoholic liquor for human consumption), where such supply or service, is for deferred payment or other valuable consideration” is a supply of service.

In the case of the banquet bookings, there are 2 supplies i.e.

1. Supply of food, and
2. Supply of other services i.e. renting the hall, serving, ambiance, etc.

Banquet includes the supply of food along with the supply of service i.e. serving, ambiance, renting, etc. Hence, the banquet bookings would be a of service.

Classification and rate of tax:

The nature of the activity is identified as being the service, the HSN classification

has to be determined as per notification No.11/2017-CGST Rate dated 28.06.2017 as amended from time to time, and the relevant classification is as follows:

To get more clarity on the nature of services covered in the above referred entries we would refer to the explanatory notes to the scheme of classification of services. Under such notes, HSN 998553 includes arranging reservations for convention centres, etc. The said HSN is not applicable for banquet bookings in question as the instant services are for the actual renting of the banquet halls with food, and not mere arranging reservations.

The HSN 997212 as per such notes is for renting or leasing services concerning industrial, commercial or other non- residential building such as theatres, conventions etc, the said HSN could be applicable only in cases where leasing service are provided but in banquet hall service both leasing  and catering services are involved.

The HSN 996331 as per such notes is for the supply of food at places like restaurant, cafe, and other similar eating joints. Generally ‘eating joints’ would mean a place where food is served. This is also evident from the other places mentioned in the HSN entry i.e. restaurant or cafe. Hence, HSN 996331 would not be applicable for banquet services, as it is not in the nature of eating joints, but it is the place where events are conducted.

Further, the banquet service and restaurant services are two different services and cannot be considered as same for the following reasons:

1. In respect of the banquet service, apart from serving of food, beverages (which are part of restaurant service) the customer also gets the premises and other ancillary services such as decoration, lighting, music etc.
2. In the banquet hall service, equal importance is given to the renting of premises and supply of food. There can be a case where the hall is taken on lease for the event, etc and there is no supply of food e.g for conducting a seminar, but there can never be a case where there is a supply of food without the renting of premises for any event, etc. Thus the banquet service cannot be considered to be purely a food supply service.

A similar view was held in Tamil Nadu Kalyana Mandapan Association v. Union of India 2004 (167) E.L.T.3 (S.C.), wherein para 55 a comparison was made between the outdoor catering service and restaurant service and held that these 2 are different. It was held by the Supreme Court in such case “ in as much as, in the case of outdoor catering service, the food/eatables/drinks are the choice of the person who the service rendered by outdoor caterers is clearly distinguishable from the service rendered in a restaurant or hotel provided therein which result in providing the function to be solemnized with the required effect and ambiance. Similarly, say a star hotel, not merely for the food that they will provide but for the entire variety of servicesThe services provided by a Mandap keeper are professional services which he alone by virtue of his experience has the wherewithal to provide. A customer goes to a Mandap keeper, par takes the services. He is free to choose the kind, quantum and the manner in which the food is to be served. But in the case of a restaurant, the customer’s choice of food is limited to the menu card. Again, in the case of outdoor catering, the customer is at liberty to choose the time and place where the food is to be served. In the case of an outdoor caterer, the customer negotiates each element of catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalized service provided to the customer. Clearly, the service element is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and drink as in the restaurant.”

The above case law distinguishes the service of restaurants and mandap keeping service. In the case of the banquet hall (being of the genre of mandap keeper services), the customer is free to choose the kind, quantum, place (to some extent) and the manner in which the food is to be served. But in the case of restaurant services, the customer’s choice is restricted to the menu card. Further, in the case of outdoor catering, the customer has the liberty to choose the time and the type of food to be served. It also has an element of personalized service provided to the customer.

Hence, the service element is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and drink as in the restaurant. Hence, restaurant service and banquet hall service are of different nature and cannot be classified under same HSN of 996331.

Let us examine whether HSN 996334 “catering services in exhibition halls, events, marriage halls…” which is in relation to the catering for any event, could be applicable for banquet services. From the above HSN it can be seen that it could be applicable in cases where only catering services are provided at the specified places. However, in banquet hall services which involves catering services and renting of immovable property, where both supplies occur simultaneously, it could be said that such HSN would not be applicable as the instant activity is not only catering but something more.

Further, no other HSN entry for services seems to fit in for the banquet services. However, on examination of the rate entry serial No 7(vii) of notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 as amended from time to time, pertaining HSN 9963, which reads as ‘supply of food  in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises’, it can be seen that the said entry specifically mentions the nature of service as is involved in banquet services i.e. supply of food and renting of premises (which is missing in the HSN classification given in the Annexure to such notification & even in the HSN explanatory notes).

Thereby, to resolve the conflict between the HSN 997212 and 996334, we could consider that the banquet services would be classifiable under HSN 996334 as the rate entry is specific to the present services. Thereby, the rate of tax applicable shall be @18% w.r.t. the banquet services.                             

By: CA Monika Motta and Hema Muralidharan

Special thanks to CA Shilpi Jain for vetting the article.

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