2022 (2) TMI 1212 - AAR - GST

Central kitchen supplying food to multiple eating joints constitutes restaurant services under HSN 9963, taxable at 5% GST without input tax credit.

In Re: M/s. Shrivika Foodcraft (Prop. Mrs. Richa Jalani)

In Re: M/s. Shrivika Foodcraft (Prop. Mrs. Richa Jalani) - TMI Issues Involved:1. Classification of supply (goods or services) for food and beverages by eating joints.2. Classification and applicable tax rate on the supply made by the applicant.3. Eligibility for Input Tax Credit (ITC) if the supply is treated as supply of goods.4. Eligibility for ITC if the supply is treated as supply of services.Detailed Analysis:1. Classification of Supply (Goods or Services):The applicant, intending to set up restaurants offering various food items, sought clarification on whether the supply of food and beverages should be treated as supply of goods or services. The applicant's operations include a central kitchen preparing food items, which are then distributed to various eating joints for further processing or direct sale.The judgment refers to clause (b) of entry 6 of Schedule II to section 7 of the CGST Act, 2017, which states: 'The following composite supplies shall be treated as a supply of services, namely: (b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink...'. Additionally, the explanatory notes to the classification under heading 9963 define services provided by restaurants, cafes, and similar facilities, including takeaway and door delivery, as 'restaurant service.'The judgment concludes that the applicant's activities, including dine-in, takeaway, and delivery, fall under 'restaurant service' and are thus treated as a supply of services.2. Classification and Applicable Tax Rate:The supply made by the applicant is classified under heading 9963 (Accommodation, food, and beverage services) at SI. No. 7(ii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017, which is amended from time to time. The applicable tax rate is 5% GST (2.5% CGST + 2.5% SGST) without ITC.The judgment refers to Circular No. 164/20/2021-GST dated 06.10.2021, which clarifies that services by cloud kitchens/central kitchens are covered under 'restaurant service' and attract 5% GST without ITC.3. Eligibility for Input Tax Credit if Treated as Supply of Goods:Since the supply in the applicant's case is treated as a supply of services under 'restaurant service,' the question of ITC eligibility for supply treated as goods does not apply. The judgment reiterates that the supply attracts 5% GST without ITC as per SI. No. 7(ii) of Notification No. 11/2017-CT (Rate).4. Eligibility for Input Tax Credit if Treated as Supply of Services:As the supply is treated as 'restaurant service,' it attracts 5% GST without ITC. The notification specifies that the rate is mandatory and not optional, and ITC on goods and services used in supplying the service cannot be claimed.Conclusion:- Q1: The supply of food and beverages by eating joints (dine-in, takeaway, delivery) is treated as a supply of 'restaurant service.'- Q2: The supply is classifiable under heading 9963 at SI. No. 7(ii) of Notification No. 11/2017-CT (Rate) and taxable at 5% (without ITC).- Q3: As the supply is treated as a supply of services, ITC is not available.- Q4: ITC is not available for the supply treated as 'restaurant service,' attracting 5% GST.