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Frozen food supplied to airlines, hotels, and other firms will attract Goods & Services Tax (GST) at the rate of 18 per cent, Karnataka’s Authority for Advance Ruling (KAAR) has said.
This ruling came on an application by SATS Food Solutions Limited (SFSI), a wholly owned subsidiary of SATS (Singapore Airport Terminal Services) Limited. In their application, SFSI said they are proposing to set up a highly automated food factory in Bangalore to provide food solutions to the Aviation Industry, Institutional, Quick Service restaurants, hotels, food aggregators, ghost and cloud kitchens, online restaurants, and cafes.
They produce, manufacture, and supply ready-to-eat/ready-to-cook food in frozen form with a shelf-life extension. Their supplies consist of semi-manufactured and fully manufactured frozen food items. The option of takeaway and food parcels to individual customers is not available.
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These products are not fit for immediate human consumption and need further processing such as thawing, final cooking (in case of processed and semi-processed), portioning, re-heating, and re-packing with MRP. These activities are undertaken by the businesses or customers of SFSI to whom the frozen-in bulk institutional packs are supplied. The minimum thawing time for frozen products is 36 to 48 hours.
Seeking clarity
The company sought an advance ruling on the applicable GST rates on their products. They submitted that since SFSI does not supply the products directly to end consumers over the counter, their activity is not a ‘restaurant service’ for charging lower rate of tax. On the other hand, considering the bulk supplies to B2B (Business-to-Business), it may attract a higher rate of tax and allow input tax credit. Furthermore, SFSI will not be applying for any licenses specific for running restaurant business.
The applicant also said that most of the food items manufactured by them are classifiable either under HSN (Harmonised System of Nomenclature) Code 2007 or HSN Code 2106 90 99, which comprise other food preparation not elsewhere specified or included. These are liable either at 12 or 18 per cent. Lacking clarity on the rate, the applicant wanted to know the rate of GST on their products.
After going through all the facts, submission, and arguments, AAR said that since the applicant is into the manufacture of ready-to-eat and ready-to-cook food products, these are covered under explanation to tariff heading 2106, which is “preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk or other liquids), for human consumption” Accordingly, these products will attract GST at the rate of 18 per cent, AAR ruled.
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