2025 (2) TMI 129 - AAAR - GST

Classification of supply - restaurant services or not - readily available food and beverages (not prepared in the restaurant) sold over the counter by the Applicant to the customer whether consumed in the restaurant or by way of takeaway - classifiable under SAC 996331 or not - applicability of Sr. No. 7 (ii) of Notification No. 11/2017 - Central Tax (Rate) dated June 28 2017 read with Sr. No.7(ii) of Notification No. 11/2017 - State Tax (Rate) dated June 30 2017. HELD THAT - The definition of restaurant service means supply of goods viz food/beverages etc fit for human consumption provided by a restaurant/eating joint including mess canteen by way of or as part of any service irrespective of whether it is consumed at the restaurant premises or otherwise. Now clause 6(b) of schedule-II read with section 7(1A) ibid in a similarly worded sub-clause mentions activity of supply of food articles by way of or as part of any service as supply of service. The reason for undertaking a conjoint reading of both the definition and clause 6(b) of schedule-II is to highlight the fact that to fall within the ambit of restaurant service the pivotal factor is that the supply of food has to be a composite supply along with the supply of service. It goes without saying that sans supply of service a supply of goods being food/beverages fit for human consumption is a case of pure supply of goods. Conclusion - The sale of readily available food and beverages not prepared in the restaurant is a supply of goods and subject to the applicable GST rate not qualifying as restaurant services.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

I. Whether the food and beverages prepared and supplied by the appellant, whether consumed in the restaurant or by way of takeaway, qualify as 'restaurant services' and are classifiable under SAC 996331, thereby attracting GST at 5% with no input tax credit.

II. Whether the readily available food and beverages (not prepared in the restaurant) sold over the counter qualify as 'restaurant services' and are subject to the same GST classification and rate.

ISSUE-WISE DETAILED ANALYSIS

Issue I: Classification of Prepared Food and Beverages as Restaurant Services

The relevant legal framework includes the Central Goods and Services Tax Act, 2017, and the corresponding Gujarat Goods and Services Tax Act, 2017, along with Notification No. 11/2017-Central Tax (Rate) and its amendments. The Court examined whether the appellant's activities fell under the definition of 'restaurant services' as per the SAC 996331.

The Court's interpretation focused on the nature of services provided by the appellant, which involved preparing food in the restaurant's kitchen and serving it to customers for consumption either on the premises or as takeaway. The Court relied on Circular No. 164/20/2021-GST, which clarified that all standalone restaurants attract GST at 5% without ITC, and takeaway services are included under restaurant services.

The Court concluded that the appellant's activities of preparing and supplying food and beverages in the restaurant or as takeaway qualify as 'restaurant services' under SAC 996331, attracting GST at 5% with no ITC.

Issue II: Classification of Readily Available Food and Beverages Sold Over the Counter

The core issue was whether the sale of food and beverages not prepared in the restaurant but sold over the counter qualifies as 'restaurant services.' The legal framework involved the same GST Acts and notifications, with a focus on Schedule II of the CGST Act, which distinguishes between supply of goods and services.

The Court analyzed the nature of the appellant's activities concerning these items, which were purchased from the market and sold directly to customers without any preparation or cooking in the restaurant. The Court referred to the definition of 'restaurant service' and Circular No. 164/20/2021-GST, which clarified that such activities are considered a supply of goods and not services.

Competing arguments from the appellant suggested that the GST Council intended to levy 5% GST on all food and beverages sold by restaurants, regardless of preparation. However, the Court found that the absence of a service component in the sale of these items meant they did not qualify as 'restaurant services.'

The Court concluded that the sale of readily available food and beverages not prepared in the restaurant is a supply of goods and subject to the applicable GST rate, not qualifying as 'restaurant services.'

SIGNIFICANT HOLDINGS

The Court preserved the following crucial legal reasoning:

"To fall within the ambit of 'restaurant service', the pivotal factor is that the supply of food has to be a composite supply along with the supply of service. It goes without saying that sans supply of service, a supply of goods being food/beverages, fit for human consumption, is a case of pure supply of goods."

Core principles established include the distinction between supply of goods and services, emphasizing the necessity of a service component for classification as 'restaurant services.'

The final determination on each issue was as follows:

I. The appellant's activities of preparing and supplying food and beverages qualify as 'restaurant services' under SAC 996331, attracting GST at 5% with no ITC.

II. The sale of readily available food and beverages not prepared in the restaurant is a supply of goods and subject to the applicable GST rate, not qualifying as 'restaurant services.'

In conclusion, the appeal filed by the appellant against the Advance Ruling No. GUJ/GAAR/R/2022/51 was rejected, affirming the Gujarat Authority for Advance Ruling's decision. The Court's reasoning was consistent with the definitions and clarifications provided by the GST Council and relevant circulars. The reliance on previous rulings was deemed untenable due to differing facts and the binding nature of Advance Ruling Authority decisions.

← Previous Next →