2019 (4) TMI 808 - AAR - GST

Classification of supply - supply of goods or services - composite supply/principal supply - supply of ice-cream by the applicant from its retail outlets - Notification No. 46/2017-Central Tax (Rate) (serial no. (i) entry no. 7) - entry 6(b) of the Schedule II of the CGST act, 2017 - Held that - In case of scoop, the flavor of choice is sold as per the customer preference i.e. in cup or cone. In either of the cases, the ice-cream received by the applicant from the franchisor is supplied as it is to the customer and is sold at agreed rates, as mentioned on menu cards. No extra money is charged from the customers who are free to consume the ice-creams inside or outside the outlet. No facility of serving/ dining is provided by the applicant. Only a few outlets of the applicant offer seating facility. However as informed by the applicant, same is predominantly made for the convenience of old persons or persons with disability, ladies and children and not for rendering any service of a kid like a restaurant, eating house, joint, etc. We find that the dominant object even in the case of ice cream in scoops as in the subject case, is a sale of goods. This transaction of selling ice cream received in bulk and selling them in scoops is akin to sales made by grocery shops in the case of sale of edible oil wherein the grocer sells such oil in various lesser quantities after receiving the same in bulk quantity of 20 litres, etc in tins/cans. Here the ice creams are sold in the same form as received by them and at agreed rates not exceeding the MRP and in most of the case the said ice creams appear to be consumed outside the premises of the applicant. Even if we consider the said transaction as a composite supply as per Section 2(30) of the CGST Act we find that the principal supply in the subject case is a sale of goods i.e. ice creams, being the predominant element of the transaction. In the subject case there is a transfer of title in ice creams from the applicant to their customers and therefore as per entry no. I(a) of the Schedule II of the CGST Act, the subject transaction is nothing but a supply of goods. Even the jurisdictional officer has agreed that in the subject case there is a sale of goods. In the instant case the transaction is to be considered as a sale/ supply of goods.

Summary

Issues Involved:
1. Classification of supply of ice-cream as "goods," "services," or "composite supply."
2. Applicability of entry 6(b) of Schedule II of the CGST Act, 2017.
3. Taxability of composite supply based on the nature of the principal supply.
4. Mandatory collection and payment of CGST @ 2.5% under Notification No. 11/2017 as amended by Notification No. 46/2017.

Issue-Wise Analysis:

1. Classification of Supply of Ice-Cream:
The applicant, engaged in reselling ice-creams, sought clarification on whether their supply of ice-cream from retail outlets constitutes a supply of "goods," "services," or a "composite supply." The applicant argued that the predominant nature of their transactions is the supply of goods, as they sell ice-creams in retail packs and scoops without any further processing. The Authority agreed, noting that the sale of ice-creams in tubs and scoops involves the transfer of property in movable goods, which constitutes a supply of goods. The Authority emphasized that the dominant intention of the transaction is the sale of ice-cream, and any incidental service element is minimal.

2. Applicability of Entry 6(b) of Schedule II:
The applicant contended that even if the supply is considered a composite supply, it should not be treated as a supply of service under entry 6(b) of Schedule II. The Authority noted that Schedule II deems certain activities as supplies of services, but since the transaction in question is primarily a supply of goods, entry 6(b) is not applicable. The Authority highlighted that the intention of the legislature must be gathered from the language used in the statute, and the transaction does not fall under the scope of entry 6(b).

3. Taxability Based on Principal Supply:
The applicant argued that if the transaction is considered a composite supply, the taxability should be determined based on the nature of the principal supply, which is the sale of ice-cream (goods). The Authority agreed, stating that even if the transaction is considered composite, the principal supply is the sale of goods (ice-cream), and thus, the transaction should be taxed as a supply of goods. The Authority referred to Section 8 of the CGST Act, which mandates that the tax liability on a composite supply is determined by the principal supply's nature.

4. Mandatory Collection and Payment of CGST @ 2.5%:
The applicant questioned whether they must collect and pay CGST @ 2.5% under Notification No. 11/2017 if the supply is deemed a service. The Authority did not address this question directly, as it had already concluded that the supply of ice-cream is a supply of goods, making the question moot.

Conclusion:
The Authority ruled that the supply of ice-cream by the applicant from its retail outlets is to be treated as a supply of "goods." Consequently, the supply is not subject to entry 6(b) of Schedule II of the CGST Act, and the taxability should be based on the nature of the principal supply, which is the sale of goods. The Authority did not address the questions related to the mandatory collection and payment of CGST @ 2.5%, as they were rendered irrelevant by the primary ruling.