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 bulk and sold it in scoops at agreed rates without charging extra for consumption on premises. Limited seating was provided only for convenience of elderly, disabled, ladies and children, not as dining service. The dominant object was sale of goods, similar to grocery shops selling edible oil in smaller quantities. Even if considered composite supply, principal supply remained goods as ice-cream was transferred in same form with title passing to customers, qualifying as supply of goods under Schedule II entry 1(a) of CGST Act.

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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.

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