TAXABILITY AND RATE ON SUPPLY OF FOOD ITEMS - ADVANCE RULING

[Dr. Sanjiv Agarwal]

In Re: Kundan Mishtan Bhandar  (2019) 5 TMI 312; 2019 (5) TMI 312 - APPELLATE AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND, appeal has been preferred by both, assessee and Department, against advance ruling dated 22.10.2018 [2018 (11) TMI 1266 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTARAKHAND].

The advance ruling was sought on following issues:

(a)     Whether supply of pure food items such as sweetmeats, namkeens, cold drink and other edible items from a sweetshop which also runs a restaurant is a transaction of supply of goods or a supply of service?

(b)    What is the nature and rate of tax applicable to the following items supplied from ground floor of a sweetshop in which restaurant is also located on the first floor and whether the applicant is entitled to claim benefit of input tax credit with respect to the same:

(i)     Sweetmeats, namkeens, dhokla, etc., commonly known as snacks, cold drinks, ice creams and other edible items;

(ii)    Ready to eat (partially or fully pre-cooked/packed) items supplied from live counters such as jalebi, chola bhatura and other edible items;

(iii)   Takeaway order of sweetmeats or namkeens by a person sitting in the restaurant of sweetshop when such products are not consumed within the premises or the applicant but are takeaway.

The AAR ruled as follows:

(a)     The supply shall be treated as supply of service and sweetshop shall be treated as extension of restaurant;

(b)    The rate of GST on aforesaid activity will be 5% as on date, on the condition that credit of input tax charged on goods and services used in supplying the said service has not been taken;

(c)     All the items including takeaway items from the said premises shall attract GST of 5% as on date subject to the condition of non-availment of credit of input tax charged on goods and services used in supplying the said service.

Being aggrieved, appellant and Department, both filed appeals before AAAR.

Appellant prayed to set aside the advance ruling and declare that:

(a)     Supply of pure food items such as sweetmeats, namkeens, cold drinks, and other pre-cooked or pre-packed edible items from a sweetshop which also runs a restaurant is a transaction of supply of such individual goods.

(b)    The rate of lax on pure food items as mentioned above from a sweetshop shall be the individual rate of GST as may be applicable from time to time to such items - with benefit of input tax.

(c)     Any item or takeaway ordered or consumed within/ from restaurant shall be considered as supply of restaurant service on which rate of GST of restaurant service shall apply and benefit of input tax shall not be available.

The Department appealed on the ground that the decision and interpretation to treat combination of supply of service on the basis of nature of establishment i.e. principal supply by a restaurant and incidental or auxiliary supply by the mithai shop is faully and untenable as supply whether composite or mixed will be determined on the basis of satisfaction of the conditions/ingredients in the definition of ‘composite supply’ or ‘mixed supply’ under Section 2(30) and 2(74) respectively of the CGST Act and the issue needs to be decided on the basis of individual supply and its constituents.

The AAAR observed that the applicants are running sweetshop and a restaurant in two distinctly marked separate parts of the same premises and are also maintaining separate accounts as well as separate billings for the two types of business. The goods sold from the sweetshop are being billed exclusively as sweetshop sales whereas the goods supplied from the restaurant are billed under restaurant head. In such a situation, nature of the business establishment making supply of food, drinks and other articles for human consumption will not determine whether the same is a supply of goods or services but will depend on the constituents of each individual supply and whether same satisfies the conditions/ ingredients of a ‘composite supply’ or ‘mixed supply’, as defined under Section 2(30) and 2(74) of the CGST Act respectively.

When the goods such sweets, namkeens, cold drinks and other edible items are supplied to customers in the restaurant or as takeaway from the restaurant counter and which are being billed under restaurant sales head should fall under ‘composite supply’ with restaurant service being the principal supply. Since supply of food in this case, is naturally bundled with the restaurant service. The taxability of all such goods supplied to or through the restaurant will be governed by the principal service i.e. restaurant service and GST rate with applicable conditions will also be applicable to all such goods also. Input credit will not be allowed in this case.

All goods which are supplied to customers through sweetshop counter have no direct or indirect nexus with restaurant service. Anyone can come and purchase any item of any quantity from the counter without visiting the restaurant. The billings of such sales are also done separately. Thus such sales, by no stretch of imagination, can be clubbed with restaurant service. These sales do not satisfy the basic requirement of ‘composite supply’ i.e. ‘being naturally bundled and supplied in conjunction with each other’. These sales are completely independent of restaurant activity and will continue even when the restaurant is closed, either temporarily or permanently. Hence such sales will be treated as supply of goods with applicable GST rates on the items sold. Input credit will be allowed on such supply.

The AAAR set aside the advance ruling and held that:

(a)     Sale of sweets, namkeens, cold drinks and other edible items through restaurant will be treated as ‘composite supply’ with restaurant supply being the principal service. Existing GST rates on restaurant service will also be applicable on all such sales and no input credit will be allowed.

(b)    Sale of sweets, namkeens, cold drinks and other edible items from sweetshop counter will be treated as supply of goods with applicable GST rates of the items being sold and input credit will be allowed on such supply.

(c)     The applicant should maintain separate records for restaurant and sweetshop with respect to input and output and billings as well as other accounting records should also be separately maintained.