GST Exemption for Hospital Diets: Relief for Healthcare Providers, Not Outsourced Canteens

Case: Boilla Venkataramana Reddy v. Shivenari Canteen Services
Forum: GSTAT, Hyderabad (18.09.2026)
Held: Caterer's food is taxable
Reliefs: Section 73 (via 75(2)) + cum-tax

The short version

The healthcare-services exemption applies to what the hospital supplies its in-patients — not to an outsourced caterer who merely supplies food to the hospital.
A composite supply needs two or more bundled supplies in the caterer's own hands. The caterer makes only one supply — food — so there's nothing to bundle, and CBIC Circular 32/2018 doesn't reach it.
The recipient of the caterer's supply is the hospital, not the patient — end use doesn't override the legal character of the supply, and third-party letters can't create an exemption the statute doesn't give.
The taxpayer still won on two counts: no fraud, so no Section 74 (converted to Section 73 under 75(2)), and cum-tax valuation under Rule 35 — even though it never claimed it.

"Food for hospital patients is exempt" is one of the most quoted lines in GST — and one of the most misapplied. This Hyderabad Tribunal ruling draws the line cleanly: the exemption follows the supplier and their role, not the plate or the person who finally eats the meal.

The case

A canteen contractor supplied food to MGM Hospital under a contract, for in-patients, out-patients, staff and doctors. The disputed slice was food for in-patients from January 2018 to November 2021. The First Appellate Authority had treated it as an exempt composite healthcare service. The department appealed, and the GST Appellate Tribunal set that order aside — holding the caterer's supply taxable, while trimming the penalty exposure.

Who is supplying — and in what capacity?

Under Section 2(30), a composite supply needs two or more naturally bundled supplies, one of which is the principal supply. Look at the transaction from the caterer's side and there is only one supply: food. The caterer gives no treatment, nursing, diagnosis or dietary consultation — its contract is simply to prepare and supply meals at agreed rates. With no second supply to bundle, there is no composite supply and no "principal" healthcare element to absorb the food.

The same meal can therefore sit in two different places at once:

EXEMPT

Hospital → in-patient

Treatment is the principal supply; a prescribed diet is ancillary to it. The food is absorbed into an exempt composite healthcare service.

TAXABLE

Caterer → hospital

A single, independent supply of food under a commercial contract. No healthcare, no bundle — taxable (the department pegged it as restaurant service at 5%).

Recipient is not the same as end-consumer

The heart of the reasoning is a distinction taxpayers routinely blur. The caterer's recipient is the hospital it contracts with; the end-consumer is the in-patient. GST classification follows the supply the supplier actually makes to its recipient — the ultimate use of the goods can't override the legal character of that transaction. So the hospital may well be giving an exempt healthcare service to the patient, while the caterer is making a taxable supply of food to the hospital. Both are true at the same time.

The circular protects the provider, not the contractor

CBIC Circular 32/06/2018 exempts food supplied to in-patients as part of treatment — but it was written for the healthcare provider that supplies that food as part of patient care. It does not convert an outsourced caterer into a healthcare provider. The caterer treats no one and advises no one; it simply supplies food to the hospital. A genuine but mistaken reading of the circular explains why the tax wasn't paid — it doesn't change what the supply is.

Third-party letters can't create an exemption

The caterer also leaned on communications from the hospital and the Principal Accountant General suggesting the diet was part of composite healthcare. The Tribunal gave them no weight: neither body is the authority to decide the caterer's GST liability. An exemption must flow from the statute, a notification, or a binding circular that actually applies to your transaction — never from another institution's view of the position, an audit note, or an internal letter.

Where the taxpayer won

Losing on taxability didn't mean losing on everything — and this is the instructive part for any interpretation dispute.

No fraud → Section 73, and cum-tax valuation

Section 74 needs intent. Fraud, wilful misstatement or suppression to evade tax must be clearly established. A gross but honest misreading of a circular isn't that — and the fact that the adjudicating authority had itself dropped the Section 122 penalty reinforced the absence of mala fides. Using Section 75(2), the Tribunal directed the notice be treated as one under Section 73(1), and the demand recomputed on that footing.

Cum-tax under Rule 35. Since the caterer never charged GST separately, the invoice value is treated as inclusive of tax, and the tax is extracted from it — not added on top. The Tribunal applied this even though the caterer hadn't claimed it, citing the principle from Unichem Laboratories that authorities must collect only the tax legally due — a statutory benefit isn't lost just because it wasn't cited at the right stage.

What this means for you

Caterers and facility contractors: your client's exemption doesn't flow to you — classify your supply by what you supply, to whom, under your contract.
Test the bundle in your own hands. One supply can never be "composite," however it's finally consumed. Two or more bundled supplies by you are essential.
Mind recipient vs end-consumer. You're taxed on the supply to your contractual recipient — end use doesn't rewrite it.
Don't rely on third-party letters. An exemption must come from the statute, notification or a circular that applies to you — get it confirmed, not assumed.
If challenged on Section 74, press the intent requirement, and claim cum-tax valuation under Rule 35 where you never charged GST separately.

Catering, canteen or facility services under contract?

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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.