2018 (11) TMI 1266 - AAAR - GST

Supply of pure food from sweetshop with restaurant: GST ruling on composite supply & input tax credit

The court ruled that the supply of pure food items from a sweetshop with a restaurant constitutes a supply of services under the CGST/SGST Act, 2017. The ... Composite supply - principal supply - mixed supply - supply of goods - supply of services - treatment of supply of food by a restaurant as supply of services - admissibility of input tax credit - rate of tax on restaurant, eating and beverage services (Heading 9963)Composite supply - principal supply - treatment of supply of food by a restaurant as supply of services - supply of goods - supply of services - Supply of pure food items from a sweetshop which also runs a restaurant is to be treated as supply of service (restaurant services). - HELD THAT: - The Authority examined the definitions of composite supply, mixed supply, principal supply, goods and services. Where goods and services are supplied together in a natural bundle and one element is predominant, the transaction is a composite supply and is taxed according to the principal supply. In the facts before it the restaurant services (preparation and serving of food) constitute the predominant element and other supplies are incidental or ancillary. The activity therefore falls within the composite-supply concept and, having regard to Schedule II (entry treating supply of food by way of a service as a supply of services), the supply is to be treated as a supply of service; the sweetshop is an extension of the restaurant. [Paras 5]Supply from the sweetshop cum restaurant is a composite supply with restaurant services as the principal supply and shall be treated as supply of service.Rate of tax on restaurant, eating and beverage services (Heading 9963) - admissibility of input tax credit - The activity attracts GST at the rate specified for restaurant/food services under Heading 9963 and input tax credit in respect of goods and services used in supplying such service is not admissible where credit has not been taken in terms of the notification. - HELD THAT: - Having classified the activity as restaurant services, the Authority applied the entry under Heading 9963 in the GST rate notification dealing with accommodation, food and beverage services. The specified concessional rate applies to supplies of food by restaurants and eating joints, including where food is consumed away from the premises, subject to the condition that input tax credit on goods and services used in supplying the service has not been taken. Consequently, all items supplied from the premises (including takeaway) fall within the aforesaid heading and attract the rate and conditions prescribed therein. [Paras 5, 6]GST at the rate applicable under Heading 9963 (as notified) shall apply (subject to the non availment of input tax credit); takeaway items from the premises also attract the same rate and condition.Final Conclusion: The Authority ruled that supplies of food from the sweetshop cum restaurant constitute a composite supply treated as a supply of service (restaurant services); such supplies (including takeaway) attract the concessional rate applicable to restaurant/food services under Heading 9963 and the benefit is subject to the condition that input tax credit on goods and services used in supplying the service has not been availed. Issues Involved:1. Determination of whether the supply of pure food items from a sweetshop running a restaurant constitutes a supply of goods or services.2. Applicability of the nature and rate of tax on various food items supplied from a sweetshop with a restaurant and eligibility for input tax credit.Issue 1: Supply of Goods or ServicesThe case involved an application seeking an advance ruling on whether the supply of pure food items from a sweetshop with a restaurant constitutes a supply of goods or services under the CGST/SGST Act, 2017. The applicant's business involved supplying goods and services and sought clarification on the nature of the transaction. The ruling considered the definitions of composite supply, goods, mixed supply, principal supply, and services under the Act to determine the classification of the supply. It was established that the services provided by the restaurant were the principal supply, bundling the preparation, sale, and serving of food, making it a composite supply. The ruling highlighted the distinction between composite and mixed supplies, emphasizing that in this case, the supply should be treated as a supply of service as per Schedule II of the Act.Issue 2: Applicability of GST RateThe ruling further addressed the issue of the applicable GST rate for the activity conducted by the applicant, which fell under 'restaurant services' as per Heading 9963 of the GST rates on services. The relevant notification specified a GST rate of 2.5% for such services, subject to certain conditions. The ruling clarified that the GST rate for the activity would be 5%, with the condition that the input tax credit on goods and services used in supplying the service had not been claimed. Additionally, it was determined that the applicant was not eligible to claim input tax credit on the GST paid for the goods and services used in their activity. The order specified that all items, including takeaway items, would attract a GST rate of 5% subject to the condition of non-availment of input tax credit.In conclusion, the judgment provided a detailed analysis of the issues raised by the applicant regarding the classification of the supply of goods or services from a sweetshop with a restaurant and the applicable GST rate. It clarified the nature of the supply as a service, outlined the relevant provisions of the Act, and determined the GST rate and eligibility for input tax credit for the activity conducted by the applicant.