Ice cream outlets selling pre-manufactured products taxed at 18% GST as goods supply, not restaurant services

AAR Gujarat ruled that standalone ice cream sales from outlets constitute supply of goods at 18% GST, not restaurant services, since the outlets sell pre-manufactured ice cream without cooking or preparation. The ice cream division was sold in 2017, confirming no manufacturing occurs at outlets. However, when ice cream is served as dessert with cooked food, it becomes part of composite supply under restaurant services, as the ice cream is naturally bundled with the principal supply of prepared food in ordinary business course.

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Issues Involved:
1. Classification of supply of ice cream from the applicant's outlets as 'restaurant services'.
2. Applicable rate of GST on supply of ice cream if classified as 'restaurant services'.
3. Classification and GST rate if the supply of ice cream is considered as supply from an ice cream parlour.

Issue-wise Detailed Analysis:

1. Classification of Supply of Ice Cream from the Applicant's Outlets as 'Restaurant Services':

The applicant operates three types of outlets: '1944 the HOCCO Kitchen', 'The HOCCO Eatery', and 'Huber and Holly'. These outlets serve a variety of food items including ice creams, which are not prepared by the applicant but are sold as pre-packaged products. The primary question is whether the supply of ice cream from these outlets constitutes 'restaurant services'.

The Authority for Advance Ruling (AAR) examined the definition of 'restaurant services' as per Notification No. 11/2017-Central Tax (Rate) and subsequent amendments, which includes services provided by restaurants, cafes, and similar facilities, including takeaway services, room services, and door delivery of food. The AAR referred to CBIC Circular No. 164/20/2021-GST, which clarifies that 'restaurant service' involves cooking and supplying food, whereas ice cream parlours sell already manufactured ice creams without any cooking involved.

The AAR concluded that the applicant's outlets selling already manufactured ice creams do not engage in cooking, thus, the supply of ice cream does not qualify as 'restaurant services'. Instead, it is considered a supply of goods.

2. Applicable Rate of GST on Supply of Ice Cream if Classified as 'Restaurant Services':

The applicant contended that they should be liable for GST at 5% by treating the supply of ice cream as 'restaurant services' without availing Input Tax Credit (ITC). However, the AAR clarified that since the supply of ice cream from the outlets does not involve cooking or preparation, it does not fall under 'restaurant services' and thus does not qualify for the 5% GST rate applicable to restaurant services.

3. Classification and GST Rate if the Supply of Ice Cream is Considered as Supply from an Ice Cream Parlour:

The AAR referred to CBIC Circular No. 164/20/2021-GST, which states that ice cream parlours selling already manufactured ice cream are not considered restaurants and their activity is classified as the supply of goods. This classification attracts GST at the rate of 18%.

The AAR further clarified that if ice cream is supplied along with cooked or prepared food, it constitutes a composite supply, with the principal supply being the prepared food. In such cases, the supply is classified as 'restaurant services' and attracts GST at 5% without ITC as per Notification No. 11/2017-CT (Rate) as amended by Notification No. 20/2019-CT (Rate).

Ruling:

1. The supply of ice cream from the applicant's outlets cannot be considered as 'restaurant services'. Readily available ice creams sold over the counter are classified as the supply of goods.
2. When ice cream is ordered and supplied along with cooked or prepared food, it constitutes a composite supply, with the principal supply being the prepared food, thus qualifying as 'restaurant services' and attracting GST at 5% without ITC.
3. The supply of only ice cream, which is not prepared in the outlets and is readily available, is akin to the supply from an ice cream parlour and is leviable to GST at 18%.

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