2025 (1) TMI 187 - AAAR - GST

Classification of services - restaurant services or not - supply of Cakes, bakery items, ice creams, chocolates, drinks and other eatable products prepared at the premises of the Petitioner and supplied to the customers from the counter with the facility to consume the same in the air-conditioned premises itself - composite supply or not - supply of items such as birthday stickers, candles, birthday caps, snow sprays etc. related items which are essentially used in birthday celebration - sale of handmade chocolates which are manufactured in the workshop of the Petitioner and are utilised for the purpose of providing other services such as shakes, brownies - nature and rate of tax. Classification of services - restaurant services or not - supply of Cakes, bakery items, ice creams, chocolates, drinks and other eatable products prepared at the premises of the Petitioner and supplied to the customers from the counter with the facility to consume the same in the air-conditioned premises itself - HELD THAT - On examining the records of the instant case, it was found that the Petitioner is supplying Cake, Ice Cream and other items of food which are made to order along with certain services. Hence the Petitioner is supplying both goods and services. In order to examine as to whether the said supply satisfies the conditions of a composite supply', it is pertinent to us to discuss the provisions of Section 2 (30) of the CGST Act - Since the supplies made by the Petitioner in its outlets involve both supplies of goods and services, with one of them as principal supply i.e. supply of goods which are naturally bundled and supplied in conjunction with each other, therefore, the same has to be considered as a composite supply. Further, Restaurant Services have been defined under the purview of composite supply (in clause (b) of para 6 of Schedule-II), the relevant extract is as under. It is seen that the Petitioner is supplying items of food as a part of service and since the provision of eating in the premises is provided or the customers may take the same away from the place, the transactions under question are covered under the amended provision of Entry 7 (i) of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 as amended by Notification No. 46/2017-Central Tax (Rate), dated 14-11-2017 and attracts a tax of 2.5% without any input tax credit. Supply of items such as birthday stickers, candles, birthday caps, Balloon, Carry Bags, snow sprays etc - HELD THAT - The said related items are being purchased and sold as such without any further processing in the restaurant. Sale of such bought out goods as such, is not a service but sale of goods. Entry No. 7(i) of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 relating to the supply of services reads as under 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 drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating Joint including mess, canteen. - Since this notification is applicable only to supply of services and not supply of goods, only Notification No. 1/2017-Central Tax (Rate) is applicable and hence all the supply of bought out goods as such which are enlisted by the Petitioner is taxable as 'supply of goods and at rates applicable as per Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017 as amended from time to time. Input tax credit - HELD THAT - Since the goods as specified above are supplied and output tax is payable on the same, the Petitioner is eligible to take applicable input tax credit which is admissible as per the GST laws. Conclusions - i) The petitioner's operations qualify as 'Restaurant Services', taxed at 5% GST. ii) Items like birthday caps and decorative items are taxed as goods per Notification No. 1/2017-Central Tax (Rate). iii) The petitioner is ineligible for the Composition Scheme due to ice cream manufacturing.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment presented revolves around the following core legal questions:

Whether the supply of cakes, bakery items, ice creams, chocolates, drinks, and other eatable products by the petitioner, which are prepared and supplied to customers from the counter with the facility to consume the same in the air-conditioned premises, qualifies as 'restaurant services' under the CGST Act, 2017?
Whether the supply of items such as birthday stickers, candles, birthday caps, snow sprays, etc., which are essentially used in birthday celebrations, can be classified as a 'Composite Supply' under Section 2(30) of the CGST Act, 2017?
Whether the sale of handmade chocolates manufactured in the petitioner's workshop and utilized for providing other services such as shakes and brownies, and retailed by packing in different containers, falls under 'restaurant services'?
What is the nature and rate of tax applicable to items such as birthday caps, knives, and decorative items bundled with cakes, whether utilized in the premises or taken away by customers?
Whether the petitioner is eligible for the 'Composition Scheme' under the CGST Act, given their status as a manufacturer of ice creams?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Restaurant Services Classification

Relevant Legal Framework and Precedents: The court considered the definition of 'Composite Supply' under Section 2(30) of the CGST Act and the classification of 'Restaurant Services' under Schedule II, Entry 6(b).
Court's Interpretation and Reasoning: The court determined that the supply of food items with options for consumption on-premises constitutes a composite supply, with the principal supply being a service.
Key Evidence and Findings: Evidence showed that the petitioner provided both goods and services, with facilities for dining in the premises.
Application of Law to Facts: The court applied the definition of 'Restaurant Services' to the petitioner's operations, concluding they qualify under this category.
Treatment of Competing Arguments: The court dismissed the jurisdictional officer's argument that the petitioner was not operating a restaurant, emphasizing the facilities and services provided.
Conclusions: The supply of food items in the petitioner's premises is classified as 'Restaurant Services' and taxed at 5% GST.

Issue 2: Composite Supply Classification for Birthday Items

Relevant Legal Framework and Precedents: Section 2(30) of the CGST Act defines 'Composite Supply'.
Court's Interpretation and Reasoning: The court found that the supply of birthday items does not constitute a composite supply as they are sold as goods, not services.
Key Evidence and Findings: Birthday items were purchased and sold without further processing.
Application of Law to Facts: The court applied the legal definition of composite supply, determining these items are not bundled with services.
Treatment of Competing Arguments: The petitioner's argument that these items were part of a composite supply was rejected.
Conclusions: Birthday items are taxed as individual goods, not under composite supply.

Issue 3: Handmade Chocolates and Restaurant Services

Relevant Legal Framework and Precedents: The court referred to the definition of 'Restaurant Services' and 'Composite Supply'.
Court's Interpretation and Reasoning: Handmade chocolates, when part of a service such as shakes or brownies, qualify under restaurant services.
Key Evidence and Findings: Chocolates were processed and customized for sale in the outlets.
Application of Law to Facts: The court concluded these sales are part of a composite supply, taxed as restaurant services.
Treatment of Competing Arguments: The jurisdictional officer's view that these were mere sales of goods was not upheld.
Conclusions: Sale of handmade chocolates is classified under restaurant services.

Issue 4: Tax Rate on Bundled Items

Relevant Legal Framework and Precedents: Notification No. 1/2017-Central Tax (Rate) applies to goods.
Court's Interpretation and Reasoning: Items bundled with cakes are taxed as goods, not services.
Key Evidence and Findings: These items were sold as goods, not processed further.
Application of Law to Facts: The court applied the notification to determine tax rates.
Treatment of Competing Arguments: The petitioner's argument for composite supply was rejected.
Conclusions: Tax rates for these items follow Notification No. 1/2017-Central Tax (Rate).

Issue 5: Eligibility for Composition Scheme

Relevant Legal Framework and Precedents: The CGST Act's provisions on the Composition Scheme.
Court's Interpretation and Reasoning: The petitioner, as an ice cream manufacturer, is ineligible for the Composition Scheme.
Key Evidence and Findings: The petitioner's business activities include manufacturing ice creams.
Application of Law to Facts: The court applied the CGST Act's provisions, confirming ineligibility.
Treatment of Competing Arguments: The court upheld the jurisdictional officer's position on ineligibility.
Conclusions: The petitioner cannot opt for the Composition Scheme.

3. SIGNIFICANT HOLDINGS

Restaurant Services: The court affirmed that the petitioner's operations qualify as 'Restaurant Services', taxed at 5% GST.
Composite Supply: "Composite Supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with such other in the ordinary course of business, one of which is a principal supply."
Tax on Goods: Items like birthday caps and decorative items are taxed as goods per Notification No. 1/2017-Central Tax (Rate).
Composition Scheme Ineligibility: The petitioner is ineligible for the Composition Scheme due to ice cream manufacturing.