Tax Rate of goods after 01.10.2021

[VIGNESH]

Sir. selling self prepared ice cream in a shop , where burger and sandwich and other chat items too are sold . Can it be categorised as Restaurant charge 5%? or Tax rate differ?

[Shilpi Jain]

As per the circular issued recently, if there is no element of preparation by the seller then there is no service involved. However this circular has missed to note the recent judgement of the High Court under service tax where it was held that preparation of food is not a part of a service for supply of the food. Service for supply of food begins once the food is prepared. So merely the existence of a place to sit with Ambience should be considered as the supply of food along with service and should be eligible for a 5% rate of tax. Though the department seems to be having a different view altogether.

[KASTURI SETHI]

Dear Vignesh Ji,

Will you please elaborate your query ? I could not grasp what you want to ask. Do you want to differentiate between sale and service ?. Self-prepared means manufacturing. Are you talking of self-service ? Pl. clarify your query.

[Shilpi Jain]

In case of self prepared ice cream you will be the manufacturer and the 5% rate should be applicable even as clarified in the circular.

But I feel the differentiating factor whether it is goods or services would depend on the post preparation services that are made available to the customer

[VIGNESH]

Sir. My query is what will be the tax rate,

1. when i sell ice cream at restaurant ?

2. Tax Rate When ice cream is sole exclusive in ice cream parlous

3. Tax rate when sold in Restaurant as part of Buffet lunch or dinner?

[VIGNESH]

sir will ur decision differs if Ice Cream is self prepared by wending machine in Restaurant which has no brand?

[KASTURI SETHI]

Dear Vignesh Ji,

W.r.t. your query at serial no.4 above Query-wise my views are as under :

1. 5 %

2. 18% When ice cream is sole exclusive in ice cream parlous.

3. 5%

[KASTURI SETHI]

Dear Vignesh Ji,

Q. Will ur decision differs if Ice Cream is self prepared by wending machine in Restaurant which has no brand ?

A. No. My view remains the same.

[Shilpi Jain]

Pls note that whatever stand is being taken will be applicable even before 1.10.21, because the department view is coming as a clarification and not as an amendment in the law.

[Shilpi Jain]

To me this issue looks like one which is prone to litigation. Again repeating the same round of litigation which took place before the 46th Constitutional amendment. Looks like the department needs to go through those SC cases, correct its understanding and make changes in the law as per their requirement or issue a revised circular in this regard!!

[KASTURI SETHI]

Dear Sh.Vignesh Ji,

It is beyond doubt that the issue is not litigation-free. Ice cream is classified under Chapter/Heading No.2105 of the Customs Tariff Act (Applicable to GST Acts) and it attracts GST@ 18% as supply of goods. In the event of self-preparation (manufacture) of ice cream and supply of the same independently, it will attract GST@ 18%. In the case of Restaurant Service what is principal supply ? Whether service or goods ? That will determine the rate of tax .Hence the best and the safest option is to apply for advance ruling.

AI Summary

Tax classification of food supplies: restaurant service treatment can change the applicable tax rate for ice cream sold with service elements. Self-prepared ice cream sold independently or through an exclusive ice cream parlour is a supply of goods and attracts the goods tax rate; ice cream supplied as part of restaurant services where service elements (ambience, seating) make restaurant service the principal supply should attract the restaurant tax rate. Vending-machine preparation without branding does not change the supply character. Departmental clarifications differ from judicial considerations and litigation risk exists; an advance ruling is recommended for borderline cases.