2018 (11) TMI 1266 - AAAR - GST

Classification of supply - Supply of goods or supply of services - composite supply or mixed supply - Supply of pure food items such as sweetmeats, namkeens, cold drink and other edible items from sweetshop which also runs a restaurant - bundled services - rate of tax - entitlement of input tax credit. Held that - Composite supply is one where two or more goods or services or both are supplied together, in a natural bundle and in a normal course of business, provided one of which is a principal supply. However, principal supply will be that supply which is predominant over other supplies. This means that the goods and services are bundled owing to natural necessities. The composite supply is taxed at the rate applicable to the principal supply whereas a Mixed supply means two or more individual supplies of goods or service, or any combination thereof; made in conjunction with each other by taxable person for a single price where such supply does not constitute a composite supply. In Mixed Supply, the combination of goods, and/or services is not bundled due to natural necessities, and they can be supplied individually in the ordinary course of business. - In order to identify if the particular supply is a Mixed Supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply, As a corollary it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business then it would be a Mixed Supply. Once the amenability of the transaction as a composite supply is ruled out, it would be a mixed supply, classified in terms of a supply of goods or services attracting highest rate of tax. In the case of sweet shop cum restaurant, the services from the restaurant is a principle supply which provides a bundled supply of preparation & sale of food and serving the same and therefore it constitutes a composite supply - It further satisfied the following conditions of a composite supply (i) Supply of two or more goods or services or both together; and (ii) Goods or services or both are usually provided together in the normal course of business. In the instant case the nature of restaurant services is such that it may be treated as the main supply and the other supplies combined with such main supply are in the nature of incidental or ancillary services. Thus restaurant services get the character of predominant supply over other supplies. Therefore in the present case the supply shall be treated as supply of service and the sweet shop shall be treated as extension of the restaurant in as much as the said activity covered under Schedule II of the Act ibid. Rate of GST - Held that - Since we already held above that the activity of the applicant come under the purview of restaurant services , the same falls under Heading 9963 of GST rates on services under Notification No. 11/2017-Central Rate (Tax) dated 28.06.2017 (as amended time to time) - the rate of GST on aforesaid activity shall be 5% as on date. Admissibility of ITC credit - Held that - The applicant cannot avail credit on the GST paid on the goods and services used in their Said activity in terms of the notification. Ruling - The supply shall be treated as supply of service and sweet shop shall be treated as extension of restaurant. The rate of GST on aforesaid activity will be 5% as on date, on the condition that credit of input tax charged on goods and services used in supplying the said service has not been taken. All the items including takeaway items from the said premises shall attract GST of 5% as on date subject to the condition of non availment of credit of input tax charged on goods and services used in supplying the said service.

Summary

Issues Involved:
1. Determination of whether the supply of pure food items from a sweetshop running a restaurant constitutes a supply of goods or services.
2. Applicability of the nature and rate of tax on various food items supplied from a sweetshop with a restaurant and eligibility for input tax credit.

Issue 1: Supply of Goods or Services
The case involved an application seeking an advance ruling on whether the supply of pure food items from a sweetshop with a restaurant constitutes a supply of goods or services under the CGST/SGST Act, 2017. The applicant's business involved supplying goods and services and sought clarification on the nature of the transaction. The ruling considered the definitions of composite supply, goods, mixed supply, principal supply, and services under the Act to determine the classification of the supply. It was established that the services provided by the restaurant were the principal supply, bundling the preparation, sale, and serving of food, making it a composite supply. The ruling highlighted the distinction between composite and mixed supplies, emphasizing that in this case, the supply should be treated as a supply of service as per Schedule II of the Act.

Issue 2: Applicability of GST Rate
The ruling further addressed the issue of the applicable GST rate for the activity conducted by the applicant, which fell under "restaurant services" as per Heading 9963 of the GST rates on services. The relevant notification specified a GST rate of 2.5% for such services, subject to certain conditions. The ruling clarified that the GST rate for the activity would be 5%, with the condition that the input tax credit on goods and services used in supplying the service had not been claimed. Additionally, it was determined that the applicant was not eligible to claim input tax credit on the GST paid for the goods and services used in their activity. The order specified that all items, including takeaway items, would attract a GST rate of 5% subject to the condition of non-availment of input tax credit.

In conclusion, the judgment provided a detailed analysis of the issues raised by the applicant regarding the classification of the supply of goods or services from a sweetshop with a restaurant and the applicable GST rate. It clarified the nature of the supply as a service, outlined the relevant provisions of the Act, and determined the GST rate and eligibility for input tax credit for the activity conducted by the applicant.