gst on ice cream parlour need clarification

[satbir singhwahi]

GST Clarification Query - Ice Cream Parlour Business

Dear Sir/Madam,

We seek your clarification regarding the GST applicability on our client engaged in the business of retail sale of ice cream products.

Business Nature:

Our client is engaged in the retail sale of:

Kulfi

Faluda

Milk Badam

Ice Cream products

Sales are made through:

Direct counter sales from the shop

Online food delivery platforms such as Zomato and Swiggy

The HSN codes presently being used are:

HSN 21050000

HSN 0402

We request clarification on the following GST matters:

Applicable GST Rate

Whether the business shall be treated as an 'Ice Cream Parlour' under GST provisions and whether GST should be charged at:

5% without ITC, or

18% with ITC

Correct HSN Code

Whether the HSN codes presently used by us i.e.:

21050000

0402

are correct for the products sold, or whether any other HSN code is required to be used.

GST Treatment for Zomato / Swiggy Sales

Currently, Zomato and Swiggy are charging GST @ 5% from customers on supplies made through their platforms.

However, our client is filing GST returns by paying GST @ 18% and claiming Input Tax Credit (ITC).

Kindly clarify:

Whether this treatment is correct under GST law.

Whether GST should instead be paid at 5% without ITC.

Whether any adjustment or different treatment is required for online platform sales.

Kindly provide your valuable guidance on the above matters.

Thanking You.

[YAGAY and SUN]

Based on the facts provided and upon examination of the prevailing GST provisions, CBIC Circulars, Notifications and judicial/advance ruling position, our considered view is as under:

1. The activity undertaken by the assessee, namely sale of Kulfi, Faluda, Milk Badam and Ice Cream products from retail outlets and through online platforms such as Zomato/Swiggy, is liable to GST at the rate applicable to supply of goods and not as "restaurant service", provided the products are pre-manufactured and merely supplied/sold without substantial cooking or preparation at the outlet.

2. CBIC vide Circular No. 164/20/2021-GST dated 06.10.2021 has specifically clarified that ice cream parlours selling already manufactured ice cream do not qualify as "restaurant service" and such supply attracts GST @ 18% with eligibility of Input Tax Credit (ITC).

3. Accordingly, the concessional GST rate of 5% without ITC applicable to restaurant services under Notification No. 11/2017-CTR is not applicable to standalone ice cream parlours engaged in sale of pre-manufactured ice cream products.

4. As regards classification, HSN 2105 ("Ice Cream and other edible ice, whether or not containing cocoa") is the appropriate classification for ice cream, kulfi and similar frozen dessert products. Therefore, HSN 21050000 appears to be correct for such supplies. However, HSN 0402 pertains to milk and cream products and would generally not apply to retail sale of prepared ice cream/faluda products unless separately supplied as milk products.

5. In respect of supplies made through Zomato/Swiggy, the provisions relating to ECO liability under Section 9(5) of the CGST Act apply only to notified "restaurant services". Since supply by an ice cream parlour has been specifically clarified as supply of goods and not restaurant service, the liability to discharge GST continues to remain upon the supplier itself.

6. Therefore, payment of GST @ 18% with availment of ITC by the assessee appears legally sustainable, subject to proper classification and documentation. Mere collection of 5% GST by the online platform from customers would not alter the statutory taxability if the underlying supply is classifiable as supply of goods taxable at 18%.

7. It is advisable to review agreements/invoicing structure with Zomato/Swiggy to ensure correct tax treatment and avoid duplication or short-payment exposure under GST law.

[Ryan Vaz]

Your client's business is generally treated as an Ice Cream Parlour under GST if they are selling already manufactured ice cream/kulfi products without substantial cooking/preparation similar to a restaurant.

Accordingly:

• GST should generally be charged at 18% with ITC.
• HSN 21050000 is the correct HSN for ice cream/kulfi/frozen dessert products.
• HSN 0402 is usually not appropriate for retail ice cream sales.
• Swiggy/Zomato collecting GST @5% may create a mismatch if the supply is actually classified as sale of goods (ice cream parlour supply). In such cases, your client may still remain liable to discharge GST correctly at 18%.

[Sadanand Bulbule]

Well clarified.

[Kashish Gupta]

The classification of supply of goods, being food, as a "restaurant service" or "goods" is based on analysis of supply model of company. As per GST law, supply of goods, being food, by way of or as a part of any service or in any other manner whatsoever, is deemed to be a supply of service. However, there are differences of opinion on various supply models of items of food wherein sometimes the supply is also characterised as supply of goods. To reach to any such conclusive answer, analysis is also required to be done qua registration of entity under Food Safety and Securities Act, Legal Metrology Act, Factories Act, and also the manner in which compliances are done Packaging / Pre-Packaging Regulations.

In order to opine prima-facie on your question, and presuming that you are engaged in supply only of four (4) specified items of food i.e., (i) Kulfi (ii) Faluda (iii) Milk Badaam (iv) ice-cream products, if all of said items are brought over the counter in already packed form and bears a MRP, then the supply is to be construed as of goods which is taxable at its respective GST rates. However, if the items are brought in a semi-finished form, their prices are given in the form of menu card, and are finally prepared pursuant to receipt of an order from the customer, then a view can be taken that supply is of service which is taxable at 5% GST rate without any benefit of input tax credit.

Zomato / Swiggy - ECO Treatment

Under Section 9(5) of the CGST Act, the liability to pay GST is cast upon the Electronic Commerce Operator (ECO), inter-alia, in respect of restaurant services. Therefore, if the supplies are categorised as supply of restaurant service, then GST liability would be paid by respective ECOs. On the contrary, if the supplies are classified as supply of goods, then GST liability would be paid by company itself.

A Note of Caution:

Whilst the advise is given as per our understanding of law, however, caution must be taken that CBIC vide its Circular No. 164/20/2021-GST dated 06.10.2021 has been clarified that ice cream parlours selling already manufactured ice cream do not qualify as "restaurant service". Such supply constitutes supply of goods attracting GST @ 18% with full Input Tax Credit (ITC) eligibility.

[Sadanand Bulbule]

My understanding is, merely because an establishment is registered and taxed as a "restaurant service provider" paying 5% GST without ITC under Notification No. 11/2017-CT(R) as amended by Notification No. 46/2017-CT(R), it does not automatically mean that every item sold by such restaurant qualifies for 5% GST. The crucial test is the nature of the individual supply.

CBIC Circular No. 164/20/2021-GST specifically clarifies that where already manufactured ice cream is sold without any cooking/preparation, the supply is of "goods" taxable at 18%, even if certain service elements exist. Importantly, the Circular uses the expression: "ice cream sold by a parlor or any similar outlet" Thus, the clarification is not confined only to exclusive ice cream parlours. The phrase "any similar outlet" considerably expands the scope.

Therefore, even a regular restaurant opting for 5% composition-like restaurant taxation may still be required to charge 18% GST on ready-made ice cream sold as such, if: the ice cream is pre-manufactured, no cooking/preparation is undertaken, it is merely stored and served, and the supply retains the character of sale of manufactured ice cream.

The argument is: restaurant service under Notification No. 11/2017 is defined widely; it covers supply of food "by way of or as part of any service"; the notification nowhere mandates cooking as an essential condition; when ice cream is supplied as part of restaurant dining experience, along with seating, serving, ambience, menu-based ordering, and composite hospitality elements, the supply may still partake character of restaurant service.

Still, after Circular No. 164, the safer and more litigation-resistant position is: Sale of ready-made branded/manufactured ice cream as such 18% GST with ITC. Freshly prepared dessert-based supplies involving substantial preparation/service possible classification as restaurant service taxable at 5% without ITC.

Hence, the issue is not whether the supplier is a restaurant or an ice cream parlour. The decisive factor is whether the particular supply retains the character of mere sale of manufactured ice cream or whether it transforms into a restaurant-style prepared food service.

Experts may offer further comments.

[Shilpi Jain]

The safest way out is to pay GST @ 18% considering the GST circular already quoted by the experts.

Better to also inform swiggy and zomato regarding not paying GST @ 5%.

[Shilpi Jain]

The above reply is given considering that your client is not running a restaurant but is only a retail ice cream shop

AI Summary

Ice cream parlour GST turns on whether the supply is goods or restaurant service, affecting rate, ITC, and platform liability. GST treatment of retail sale of ice cream, kulfi, faluda, milk badam and similar frozen dessert products depends on whether the supply is pre-manufactured goods or restaurant service. Where the products are already manufactured and only sold or served without substantial cooking or preparation, the supply is treated as goods taxable at 18% with Input Tax Credit, and the 5% rate without ITC for restaurant services does not apply. HSN 2105 is identified as the appropriate classification, and the electronic commerce operator mechanism applies only if the supply is a notified restaurant service.