2019 (5) TMI 312 - AAAR - GST

Classification of supply - supply of goods or supply of services - supply of pure food items such as sweetmeats, namkeens, cold drink and other edible items from a sweetshop which also runs a restaurant - Composite supply - rate of tax - items supplied from ground floor of a sweetshop in which restaurant is also located on the first floor - input tax credit. HELD THAT - The applicants are running sweetshop and a restaurant in two distinctly marked separate parts of the same premises and are also maintaining separate accounts as well as separate billings for the two types of business. The goods sold from the sweetshop are being billed exclusively as sweetshop sales whereas the goods supplied from the restaurant are billed under restaurant head. In such a situation, nature of the business establishment making supply of food, drinks and other articles for human consumption will not determine whether the same is a supply of goods or services but will depend on the constituents of each individual supply and whether same satisfies the conditions/ ingredients of a 'composite supply' or 'mixed supply', as defined under Section 2(30) and 2(74) of the CGST Act respectively. Supply in/through restaurant - When the goods such sweets, namkeens, cold drinks and other edible items are supplied to customers in the restaurant or as takeaway from the restaurant counter and which are being billed under restaurant sales head should fall under 'composite supply' with restaurant service being the principal supply. Since supply of food in this case, is naturally bundled with the restaurant service. The taxability of all such goods supplied to or through the restaurant will be governed by the principal service i.e. restaurant service and GST rate with applicable conditions will also be applicable to all such goods also. Input credit will not be allowed in this case. Supply from shop - All goods which are supplied to customers through sweetshop counter have no direct or indirect nexus with restaurant service. Anyone can come and purchase any item of any quantity from the counter without visiting the restaurant. The billings of such sales are also done separately. Thus such sales, by no stretch of imagination, can be clubbed with restaurant service. Sale of sweets, namkeens, cold drinks and other edible items from sweetshop counter will be treated as supply of goods with applicable GST rates of the items being sold and input credit will be allowed on such supply.

Summary

Issues Involved:

1. Whether the supply of pure food items from a sweetshop that also runs a restaurant is a transaction of supply of goods or a supply of service.
2. The nature and rate of tax applicable to various items supplied from the sweetshop and restaurant.
3. Entitlement to claim the benefit of input tax credit.
4. The validity of the Advance Ruling Order No. 9/2018-19.
5. Interpretation of composite and mixed supply under the CGST Act.

Issue-Wise Detailed Analysis:

1. Nature of Supply:
The primary issue is whether the supply of pure food items such as sweetmeats, namkeens, cold drinks, and other edible items from a sweetshop that also runs a restaurant is a transaction of supply of goods or a supply of service. The ruling clarified that the nature of the business establishment does not determine the supply type. Instead, it depends on the constituents of each individual supply and whether they satisfy the conditions of a 'composite supply' or 'mixed supply' as defined under Sections 2(30) and 2(74) of the CGST Act, respectively.

2. Tax Rates and Input Tax Credit:
The ruling specified that items supplied from the restaurant, including takeaways, should be treated as a 'composite supply' with restaurant service being the principal supply. Consequently, the GST rate applicable to restaurant services (5% without input tax credit) applies to these items. Conversely, items sold exclusively from the sweetshop counter are treated as a supply of goods, subject to individual GST rates applicable to those items, with the benefit of input tax credit allowed.

3. Entitlement to Input Tax Credit:
The ruling differentiated between supplies from the restaurant and the sweetshop. For supplies from the restaurant, input tax credit is not allowed. However, for supplies from the sweetshop counter, input tax credit is allowed, provided separate records are maintained for inputs and outputs.

4. Validity of the Advance Ruling Order:
The appellant contested the validity of the Advance Ruling Order No. 9/2018-19, arguing it was a non-speaking order. The appellate authority found merit in the appellant's arguments and set aside the original ruling. The authority emphasized that the nature of supply should be determined based on the constituents of each supply rather than the business establishment's nature.

5. Interpretation of Composite and Mixed Supply:
The ruling provided clarity on the interpretation of composite and mixed supply. It stated that when goods such as sweets, namkeens, and cold drinks are supplied in conjunction with restaurant services, they form a 'composite supply' with the restaurant service as the principal supply. This interpretation aligns with the definition under Section 2(30) of the CGST Act. For items sold exclusively from the sweetshop, these do not form a composite supply with restaurant services and should be treated as independent supplies of goods.

Ruling:

1. The Advance Ruling Order No. 9/2018-19, dated 22-10-2018, is set aside.
2. Sales of sweets, namkeens, cold drinks, and other edible items through the restaurant are treated as 'composite supply' with restaurant service being the principal supply. The applicable GST rate for restaurant service applies, and no input tax credit is allowed.
3. Sales of sweets, namkeens, cold drinks, and other edible items from the sweetshop counter are treated as supplies of goods, subject to the applicable GST rates for those items, with input tax credit allowed.
4. The applicant must maintain separate records for the restaurant and sweetshop regarding input and output, billing, and other accounting records.