2021 (3) TMI 1093 - AAR - GST

Tax Categorization: Goods vs. Services under GST

The Authority categorized sales from the sweetmeats and bakery shop as supply of goods, allowing the applicant to avail input tax credit. Food items and ... Classification of supply as goods - restaurant services as composite supply - input tax credit eligibility on supplies of goods and restaurant services - exemption of catering services to educational institutions - outdoor catering taxable as event based supply - apportionment and reversal of common input tax credit under section 17 read with Rules 42 and 43Classification of supply as goods - input tax credit eligibility on supplies of goods - Sale of items from the sweetmeats counter is supply of goods and input tax credit is claimable for such supplies subject to conditions of Chapter V. - HELD THAT: - The Authority found that supplies from the sweetmeats parlour lack any element of a service or connection with restaurant activity and can be operated independently; customers purchasing from that counter have no facility to consume on the premises. Such supplies are not a composite supply and, therefore, shall be treated as supply of goods. Consequentially, input tax credit in respect of such supplies is available subject to the conditions and restrictions laid down in Chapter V of the GST Act and the Rules thereunder. [Paras 4]Supply from the sweetmeats counter is goods; ITC is eligible subject to Chapter V conditions.Restaurant services as composite supply - input tax credit eligibility on restaurant services - Supply of food and beverages by the restaurant (including takeaways from the restaurant counter) is a composite supply qualifying as restaurant services and is taxable at 5% with input tax credit disallowed for such supplies where credit has been taken. - HELD THAT: - Applying the Explanation in the relevant notification, the Authority held that where food and beverages are supplied by a restaurant which offers facility to eat on the premises (even if takeaway is also available), the supply has an element of service and qualifies as a composite supply with the principal supply being restaurant service. Such supplies attract the tax treatment prescribed for restaurant services and are subject to the condition that input tax credit on goods and services used in supplying the service is not available where the notified condition applies. [Paras 4]Food/beverage supply from the restaurant is restaurant service; taxable at 5% and ITC on inputs/services used for such service is not available where the notification prohibits it.Exemption of catering services to educational institutions - outdoor catering taxable as event based supply - Catering supplied to the educational institution for regular meals is exempt under the exemption notification; supplies to guests/parents/auditors on programme days are event based outdoor catering and taxable at 5% without ITC. - HELD THAT: - The Authority examined the agreement with the educational institution (which provides education up to secondary school) and applied entry 66(b)(ii) of the Exemption Notification: regular catering supplied to such an educational institution falls within the exemption entry and is therefore GST exempt. However, the agreement also requires supply of food/beverages to auditors, guests and parents on programme days; these are event based, occasional supplies and fall under the definition of outdoor catering, attracting tax under the notified entry for outdoor catering at 5%, subject to the non availability of input tax credit for such supplies. [Paras 4]Regular catering to the school is exempt; event based supplies to guests/parents/auditors are outdoor catering taxable at 5% and ITC for such supplies is not available.Apportionment and reversal of common input tax credit under section 17 read with Rules 42 and 43 - Common input tax credit used for both goods supply and restaurant/catering services must be apportioned or reversed in accordance with section 17(1)-(2) read with Rules 42 and 43. - HELD THAT: - The Authority directed that where inputs, input services or capital goods are common to supplies that attract different tax treatment (taxable restaurant/outdoor catering, exempt school catering, and supply of goods), the applicant must follow the statutory principle of apportionment and reversal of input tax credit as prescribed by section 17(1) and (2) of the GST Act read with Rules 42 and 43 of the CGST/WBGST Rules. The matter was thus left to be dealt with by applying the statutory apportionment and reversal mechanism.Applicant must apply section 17(1)-(2) read with Rules 42 and 43 for apportionment/reversal of common ITC.Final Conclusion: The Authority ruled that (i) supplies from the sweetmeats counter are goods and eligible for ITC subject to Chapter V, (ii) supplies by the restaurant (including takeaways from the restaurant) are restaurant services taxable at 5% with ITC restrictions as notified, (iii) regular catering to the school is exempt while event based supplies to guests/parents/auditors are taxable as outdoor catering at 5% without ITC, and (iv) common input tax credit must be apportioned or reversed in accordance with section 17 read with Rules 42 and 43. Issues Involved:1. Categorization of sales from the sweetmeats and bakery shop as supply of goods.2. Eligibility for input tax credit on the sale of items from the sweetmeats and bakery shop.3. Classification of supply of food items and beverages from the restaurant facility as restaurant services attracting a 5% GST rate.4. Eligibility for input tax credit on restaurant services.5. Requirement for reversal of input tax credit in terms of Rule 42 and 43 of the CGST Rules 2017 for common input tax credit.6. Qualification of catering services provided to an educational institution as an exempt supply.Detailed Analysis:1. Categorization of Sales from Sweetmeats and Bakery Shop as Supply of Goods:The applicant operates a business with two distinct sections: a sweet parlour for selling sweetmeats, namkeens, and bakery items as takeaways, and a restaurant for preparing and serving fast food snacks and beverages. The applicant argues that the sales from the sweet parlour should be considered as supply of goods since there is no service element involved. The Authority agrees, stating that when goods are supplied from the sweetmeats parlour without any service element, it cannot be considered a composite supply. Such supplies are treated as supply of goods and attract tax accordingly.2. Eligibility for Input Tax Credit on Sales from Sweetmeats and Bakery Shop:The Authority rules that the applicant is eligible to avail input tax credit for supplies from the sweetmeats counter, provided the conditions laid down in Chapter V of the GST Act and rules are met.3. Classification of Supply of Food Items and Beverages from Restaurant Facility as Restaurant Services:The applicant contends that serving fast food snacks and beverages, whether consumed on the premises or taken away, should be classified as restaurant services. The Authority concurs, stating that such supplies qualify as composite supplies with the principal supply being restaurant service. Tax on such supplies is levied according to entry serial number 7 of Notification No. 11/2017- Central Tax (Rate), attracting a 5% GST rate, provided input tax credit on goods and services used in supplying the service has not been availed.4. Eligibility for Input Tax Credit on Restaurant Services:The applicant agrees to the condition that input tax credit is not available for restaurant services as per the relevant notification. The Authority confirms this, aligning with the applicant's acceptance of the non-availability of input tax credit for restaurant services.5. Requirement for Reversal of Input Tax Credit for Common Inputs:The applicant acknowledges the necessity to reverse input tax credit where common inputs, input services, and capital goods are used for both premises. The Authority directs the applicant to follow the principles of apportionment of credit as laid down in Section 17(1) and (2) of the GST Act, read with Rule 42 and 43 of the CGST/WBGST Rules, 2017.6. Qualification of Catering Services to Educational Institution as Exempt Supply:The applicant provides catering services to an educational institution offering education up to secondary school. The Authority refers to Notification No. 12/2017- Central Tax (Rate) and Circular No. 85/04/2019-GST, concluding that catering services to such an institution are exempt from GST. However, catering services provided to auditors, guests, and parents on program days are classified as 'outdoor catering' and attract a 5% tax rate under entry serial number 7(iv) of Notification No. 11/2017- Central Tax (Rate), without the benefit of input tax credit.Ruling:1. Sales from the sweetmeats counter are categorized as supply of goods, and the applicant is eligible for input tax credit subject to conditions.2. Supply of food items and beverages from the restaurant is treated as restaurant services, attracting a 5% GST rate without input tax credit.3. Catering services to the educational institution are exempt from tax.4. Catering services to auditors, guests, and parents on program days are treated as 'outdoor catering' and attract a 5% tax rate without input tax credit.5. The applicant must follow the apportionment principles for common input tax credit as per Section 17 and Rules 42 and 43 of the CGST/WBGST Rules, 2017.This ruling is valid subject to the provisions under Section 103 until declared void under Section 104(1) of the GST Act.