Appellate Authority Ruling: Restaurant Sales as 'Composite Supply' with 5% GST Rate

The appellate authority set aside the Advance Ruling Order, determining that sales of food items through the restaurant constitute a 'composite supply' with restaurant service as the principal supply, subject to a 5% GST rate without input tax credit. Conversely, sales from the sweetshop counter are treated as supplies of goods, with applicable GST rates and input tax credit allowed. Separate records for the restaurant and sweetshop must be maintained for input and output transactions.

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Issues Involved:

1. Whether the supply of pure food items from a sweetshop that also runs a restaurant is a transaction of supply of goods or a supply of service.
2. The nature and rate of tax applicable to various items supplied from the sweetshop and restaurant.
3. Entitlement to claim the benefit of input tax credit.
4. The validity of the Advance Ruling Order No. 9/2018-19.
5. Interpretation of composite and mixed supply under the CGST Act.

Issue-Wise Detailed Analysis:

1. Nature of Supply:
The primary issue is whether the supply of pure food items such as sweetmeats, namkeens, cold drinks, and other edible items from a sweetshop that also runs a restaurant is a transaction of supply of goods or a supply of service. The ruling clarified that the nature of the business establishment does not determine the supply type. Instead, it depends on the constituents of each individual supply and whether they satisfy the conditions of a 'composite supply' or 'mixed supply' as defined under Sections 2(30) and 2(74) of the CGST Act, respectively.

2. Tax Rates and Input Tax Credit:
The ruling specified that items supplied from the restaurant, including takeaways, should be treated as a 'composite supply' with restaurant service being the principal supply. Consequently, the GST rate applicable to restaurant services (5% without input tax credit) applies to these items. Conversely, items sold exclusively from the sweetshop counter are treated as a supply of goods, subject to individual GST rates applicable to those items, with the benefit of input tax credit allowed.

3. Entitlement to Input Tax Credit:
The ruling differentiated between supplies from the restaurant and the sweetshop. For supplies from the restaurant, input tax credit is not allowed. However, for supplies from the sweetshop counter, input tax credit is allowed, provided separate records are maintained for inputs and outputs.

4. Validity of the Advance Ruling Order:
The appellant contested the validity of the Advance Ruling Order No. 9/2018-19, arguing it was a non-speaking order. The appellate authority found merit in the appellant's arguments and set aside the original ruling. The authority emphasized that the nature of supply should be determined based on the constituents of each supply rather than the business establishment's nature.

5. Interpretation of Composite and Mixed Supply:
The ruling provided clarity on the interpretation of composite and mixed supply. It stated that when goods such as sweets, namkeens, and cold drinks are supplied in conjunction with restaurant services, they form a 'composite supply' with the restaurant service as the principal supply. This interpretation aligns with the definition under Section 2(30) of the CGST Act. For items sold exclusively from the sweetshop, these do not form a composite supply with restaurant services and should be treated as independent supplies of goods.

Ruling:

1. The Advance Ruling Order No. 9/2018-19, dated 22-10-2018, is set aside.
2. Sales of sweets, namkeens, cold drinks, and other edible items through the restaurant are treated as 'composite supply' with restaurant service being the principal supply. The applicable GST rate for restaurant service applies, and no input tax credit is allowed.
3. Sales of sweets, namkeens, cold drinks, and other edible items from the sweetshop counter are treated as supplies of goods, subject to the applicable GST rates for those items, with input tax credit allowed.
4. The applicant must maintain separate records for the restaurant and sweetshop regarding input and output, billing, and other accounting records.

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