2019 (4) TMI 808 - AAR - GST

Ice-cream sold in scoops from retail outlets constitutes supply of goods, not services under CGST Act Schedule II

AAR Maharashtra ruled that supply of ice-cream from retail outlets constitutes supply of goods rather than services. The applicant received ice-cream in ... Supply of goods - supply of service - composite supply - principal supply - dominant nature / dominant intention test - transfer of title - deeming fiction under Schedule II entry 6(b) - taxability of composite supply under Section 8 - conditional rate notification - benefit subject to non availment of input tax creditSupply of goods - transfer of title - dominant nature / dominant intention test - Supply of ice cream by the applicant from its retail outlets is a supply of goods. - HELD THAT: - The Authority found that the transactions involve transfer of movable property (ice cream) to customers and that the substance and dominant object of the transactions is sale. Sales in retail packs (tubs) and sales by scoops were held to be sales across the counter where the goods are sold in the same form as obtained from the franchisor; any service element in scooping or packaging is incidental and insignificant. The Authority relied on the established approach of determining tax character by the dominant nature of the transaction and analogised the scooping activity to other instances of resale from bulk (e.g., grocery sales of edible oil). The jurisdictional officer's earlier conclusion holding the applicant to be a reseller and not a restaurant was noted. On these findings the transaction falls within entry 1(a) of Schedule II as transfer of title in goods and is therefore a supply of goods. [Paras 5]Held to be supply of goods.Deeming fiction under Schedule II entry 6(b) - supply of service - composite supply - Entry 6(b) of Schedule II (deeming certain supplies of food/drink as services) is not applicable to the applicant's supplies. - HELD THAT: - Applying the definitions in the GST law and having concluded that the transactions are sales of goods, the Authority held that entry 6(b) - which treats supply 'by way of or as part of any service' of food or drink as a supply of services - does not apply. The Authority distinguished supplies that are genuinely part of a service from pure resale across the counter, observing that the applicant's outlets do not provide table service and that the supply is not made 'by way of' or 'as part of' a service. Consequently, the conditional concessional rate notification for restaurant/eating house services (2.5%) is not attracted. [Paras 5]Entry 6(b) of Schedule II is not attracted; concessional notification not applicable.Composite supply - principal supply - taxability of composite supply under Section 8 - Whether, if treated as a composite supply, taxability should follow entry 6(b) or the nature of the principal supply was not adjudicated on merits. - HELD THAT: - The question as to taxability in the event the supply were to be held a composite supply (and whether entry 6(b) would then apply or the nature of the principal supply under Section 8 would govern) was left unanswered because the Authority had determined that the supplies are goods. No fresh adjudication on the composite supply point was undertaken.Not decided for fresh consideration in view of the finding that the supply is of goods.Conditional rate notification - benefit subject to non availment of input tax credit - deeming fiction under Schedule II entry 6(b) - Whether it would be mandatory for the applicant to collect and pay tax at the concessional rate under the notification (despite its conditional nature) was not adjudicated on merits. - HELD THAT: - Because the supply was held to be supply of goods and entry 6(b) was held not to apply, the Authority did not answer whether the applicant would be mandatorily liable to collect/pay tax at the concessional rate (or whether the notification's condition of non availment of input tax credit renders the concessional rate optional). That question therefore remains unadjudicated.Not decided for fresh consideration in view of the primary finding.Final Conclusion: The Authority ruled that the applicant's retail sale of ice cream is a supply of goods (transfer of title) and not a supply of services; Schedule II entry 6(b) (deeming certain supplies of food/drink as services) and the concessional restaurant/eating house rate do not apply to the transactions. Questions concerning alternative characterisation as a composite supply and the conditional concessional notification were not decided in view of the primary finding. Issues Involved:1. Classification of supply of ice-cream as 'goods,' 'services,' or 'composite supply.'2. Applicability of entry 6(b) of Schedule II of the CGST Act, 2017.3. Taxability of composite supply based on the nature of the principal supply.4. Mandatory collection and payment of CGST @ 2.5% under Notification No. 11/2017 as amended by Notification No. 46/2017.Issue-Wise Analysis:1. Classification of Supply of Ice-Cream:The applicant, engaged in reselling ice-creams, sought clarification on whether their supply of ice-cream from retail outlets constitutes a supply of 'goods,' 'services,' or a 'composite supply.' The applicant argued that the predominant nature of their transactions is the supply of goods, as they sell ice-creams in retail packs and scoops without any further processing. The Authority agreed, noting that the sale of ice-creams in tubs and scoops involves the transfer of property in movable goods, which constitutes a supply of goods. The Authority emphasized that the dominant intention of the transaction is the sale of ice-cream, and any incidental service element is minimal.2. Applicability of Entry 6(b) of Schedule II:The applicant contended that even if the supply is considered a composite supply, it should not be treated as a supply of service under entry 6(b) of Schedule II. The Authority noted that Schedule II deems certain activities as supplies of services, but since the transaction in question is primarily a supply of goods, entry 6(b) is not applicable. The Authority highlighted that the intention of the legislature must be gathered from the language used in the statute, and the transaction does not fall under the scope of entry 6(b).3. Taxability Based on Principal Supply:The applicant argued that if the transaction is considered a composite supply, the taxability should be determined based on the nature of the principal supply, which is the sale of ice-cream (goods). The Authority agreed, stating that even if the transaction is considered composite, the principal supply is the sale of goods (ice-cream), and thus, the transaction should be taxed as a supply of goods. The Authority referred to Section 8 of the CGST Act, which mandates that the tax liability on a composite supply is determined by the principal supply's nature.4. Mandatory Collection and Payment of CGST @ 2.5%:The applicant questioned whether they must collect and pay CGST @ 2.5% under Notification No. 11/2017 if the supply is deemed a service. The Authority did not address this question directly, as it had already concluded that the supply of ice-cream is a supply of goods, making the question moot.Conclusion:The Authority ruled that the supply of ice-cream by the applicant from its retail outlets is to be treated as a supply of 'goods.' Consequently, the supply is not subject to entry 6(b) of Schedule II of the CGST Act, and the taxability should be based on the nature of the principal supply, which is the sale of goods. The Authority did not address the questions related to the mandatory collection and payment of CGST @ 2.5%, as they were rendered irrelevant by the primary ruling.