Caterer's Food to Hospital In-Patients Is Taxable Under GST — Not Exempt Healthcare: GSTAT

Forum: GSTAT, Hyderabad Bench
Question: Is a caterer's in-patient food exempt?
Held: Taxable — not composite healthcare
But: Section 73, plus cum-tax relief

The short version

Food supplied by an outsourced caterer to hospital in-patients is taxable under GST — it is not an exempt "composite healthcare service."
The exemption in CBIC Circular 32/06/2018 covers a hospital providing healthcare (the principal supply) with food bundled in. A caterer supplies only food — a single supply — so there's no bundle to exempt.
The Tribunal still gave the taxpayer two breaks: it dropped Section 74 (no fraud) for Section 73, and allowed cum-tax valuation under Rule 35 since GST was never separately charged.
The lesson: exemptions follow the nature of the supply and who makes it — not where the food is eaten or who eats it.

"Food served to hospital patients is exempt, isn't it?" It's one of the most common assumptions in GST — and this ruling shows exactly where it breaks. When the hospital itself feeds its in-patients, yes. When an outsourced caterer does, the answer changes.

What happened

A caterer was engaged by MGM Hospital, Warangal to supply food to in-patients, out-patients, doctors and staff. Tax on the other categories wasn't disputed — the fight was over food supplied to in-patients between January 2018 and November 2021. The First Appellate Authority had treated it as an exempt composite healthcare service. The department appealed, and the Hyderabad Bench of the GST Appellate Tribunal (A P Ravi, Judicial, and Duvvuri Krishna Srinivas, Technical) allowed the appeal — holding the caterer's supply taxable.

Why it isn't a "composite healthcare service"

A composite supply under Section 2(30) needs two or more naturally bundled supplies, one of which is the principal supply. The Tribunal's key point: in the caterer's hands there was only one supply — food, sold to the hospital under a contract. With no bundle of multiple supplies, the essential ingredient of a composite supply simply isn't there.

And Circular 32/06/2018 was issued in the context of hospitals and clinical establishments. When a hospital treats an in-patient, food served as part of treatment is bundled with healthcare — and healthcare is the principal supply, so the whole thing is exempt. The caterer provides no healthcare at all. So the circular can't be stretched to cover it. The fact that the food is eaten by in-patients doesn't convert a catering contract into a healthcare service.

EXEMPT

Hospital feeds the in-patient

Healthcare is the principal supply; food is naturally bundled with treatment. One composite healthcare supply — exempt under the circular.

TAXABLE

Caterer feeds the in-patient

The caterer supplies only food to the hospital under contract — a single supply, no healthcare. Taxable as a catering/restaurant service.

Two breaks the Tribunal still gave the taxpayer

Even while holding the supply taxable, the Bench refused to let the department overreach — a useful reminder that losing on the core issue doesn't mean losing on everything.

Section 74 → Section 73, and cum-tax relief

No fraud, so no Section 74. The taxpayer's view was wrong, but there was no fraud, wilful misstatement or suppression to evade tax — just a mistaken reading of the circular. So the extended period and heavier penalties under Section 74 didn't apply, and the Tribunal directed the demand be recomputed under Section 73 instead.

Cum-tax valuation under Rule 35. Because the caterer never charged GST separately on its invoices, the invoice value is treated as inclusive of tax, and the liability is back-calculated from it — not added on top. The Bench stressed that authorities must collect only the tax legally due and can't deny a statutory benefit merely because the taxpayer didn't claim it.

What this means for you

Caterers and facility contractors: supplying food to a hospital (or any client) is your own taxable supply — the client's exemption doesn't flow to you.
Test the bundle in your own hands. A composite supply needs two or more bundled supplies you make. Supplying just one thing can't be "composite," whoever finally consumes it.
Read circulars in context. An exemption written for hospitals/clinical establishments won't automatically extend to third-party contractors.
If GST wasn't separately charged, claim cum-tax valuation under Rule 35 — the value is treated as tax-inclusive.
Push back on Section 74 where there's no fraud or suppression — an honest misinterpretation should fall under Section 73.

Catering, canteen or facility services to hospitals or offices?

efiletax reviews your contracts and supply structure, gets your GST classification right, and helps you respond to demands — including cum-tax and Section 73 arguments.

Talk to our GST team

Disclaimer: This article summarises a Tribunal order for general information and is current as at the date of publication. It is not legal or tax advice, and outcomes depend on the contracts and facts of each case. Please consult a qualified professional — talk to efiletax — before acting.