Separate GST Rates on supply from Restaurant & sweetshop operated from same premises :AAAR

Ashwarya Sharma, Adv. for the Appellant. D.C. Kandpal, Supdt. for the Respondent.

ORDER

1. The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act and Uttarakhand Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act and UKGST Act”) by M/s. Kundan Mishthan Bhandar, Ramnagar, Nainital, Uttarakhand (hereinafter referred to as the “1st Applicant”) against the Kundan Mishthan Bhandar, In re. [2018] 100 taxmann.com 181 [2019] 71 GST 211 (AAR – Uttrakhand) by the Authority for Advance Ruling, Uttarakhand in an application made by them. An appeal has also been filed by the jurisdictional CGST officer, Haldwani (hereinafter referred to as the 2nd Applicant) against the said ruling.

At the outset, we would like to make it clear that the provisions of both the CGST Act and the UKGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the UKGST Act.

Brief facts of the case

2. In the instant case the Party vide their application under sub-section (1) of Section 97 of the CGST [SGST Act, 2017 sought an Advance Ruling on:

3. Following the personal hearing given to the applicant on 28-8-2018, the members of the Advance Ruling Authority for the State of Uttarakhand, gave the following ruling:

1st applicant’s grounds of appeal

Aggrieved by the said order passed by the Authority for Advance Ruling for the State of Uttarakhand, the party has filed the instant appeal, on the following grounds :

1. The Advance Ruling Order having been passed on 22-10-2018, the party was required to file the appeal before the Appellate Authority for Advance Ruling on or before 27-11-2018 (within one month of passing of the order). However, the party has been able to file the instant appeal after a delay of 26 days, and has requested to the Appellate Authority for condoning the delay quoting the a reasons as under :

2. That the impugned ruling passed by the UAAR was a non-speaking order and thus liable to set aside.

In order to bolster the argument the party relied upon the following judgments:

3. That mere supply of food items is a transaction of supply of goods only and concept of composite supply is not applicable.

In order to bolster the argument the party relied upon the following judgments:

4. That the guidance for classification can be taken from statutes in pari materia and assistance from earlier statutes.

In order to bolster the argument the party relied upon the following judgments.

5. That the Sphere of restaurant services should be understood in its ‘commercial sense’.

In order to bolster the argument the party relied upon the following judgments:

6. That the deeming provision shall be understood in a restricted manner.

In order to bolster the argument the party relied upon the following judgments:

7. That taxing statutes must be construed strictly.

In order to bolster the argument the party relied upon the following judgments:

8. In light of the afore-mentioned the party has prayed to set aside the impugned ruling passed by the UAAR and to declare the following :-

1. Supply of pure food items such as sweetmeats, namkeens, cold drinks, and other pre-cooked or pre-packed edible items from a sweetshop which also runs a restaurant is a transaction of supply of such individual goods.

2. The rate of lax on pure food items as mentioned above from a sweetshop shall be the individual rate of GST as may be applicable from time to time to such items – with benefit of input tax.

3. Any item or takeaway ordered or consumed within/ from restaurant shall be considered as supply of restaurant service on which rate of GST of restaurant service shall apply and benefit of input tax shall not be available.

2nd applicant’s grounds of appeal

4. Aggrieved by the said order passed by the Authority for Advance Ruling for the State of Uttarakhand, the concerned jurisdictional Officer of CGST, Haldwani, has (filed the instant appeal, on the grounds that the decision and interpretation to treat combination of supply of service on the basis of nature of establishment i.e. principal supply by a restaurant and incidental or auxiliary supply by the mithai shop is faully and untenable as supply whether composite or mixed will be determined on the basis of satisfaction of the conditions/ingredients in the definition of ‘composite supply’ or ‘mixed supply’ under Section 2(30) and 2(74) respectively of the CGST Act.

5. Accordingly, the issue needs to be decided on the basis of individual supply and its constituents.

Personal hearing

6. An opportunity for personal hearing was granted to the appellant on 13-2-2019 which was attended by Shri Ashwarya Sharma, Advocate, M/s. Kundan Mishthan Bhandar, Ramnagar, Nainital. During the course of the personal hearing Shri Ashwarya Sharma reiterated the points covered in the grounds of appeal. He further stated that items sold from the sweet meat shop should not be covered under composite supply of restaurant services. The shop and restaurant are clearly demarcated and they are two separate areas. They further referred to GST law wherein, the supply of goods as transfer of title and supply of services are separately covered and they have to be interpreted accordingly. They also referred to the GST Council press release dated 22-12-2018, wherein, they have clarified that it is not the nature of establishment but the nature of supply which is the decisive factor. In the light of submissions they stated that the Advance Ruling be set aside and the supply from the shop should not be covered under the restaurant services.

7. From the CGST side, Shri D.C. Kandpal, Superintendent appeared for personal hearing. He stated that in case of mixed supply from the shop, such as aerated water, chocolate and sweets sold as a package, the highest rate of duty for a particular item in the package would apply for the entire package.

Discussions and findings

8. We have carefully gone through the ruling and the records of the issue as well as the submissions made at the time of personal hearing.

9. Main appeal memorandum against Advance Ruling Order No. 9/2018, dated 22-10-2018 was submitted by the party on 24-12-2018, with an application for condonation of delay, so this appeal could not be registered. Again, another appeal memorandum against the same Order No. 9/2018, dated 22-10-2018 was filed by jurisdictional Officer CGST on 17-1-2019, which on completion of documents, was registered on 23-1-2019, as Appeal Number UK/GSTARA03/10/13-2-2019.

10. On giving an opportunity of personal hearing in both appeals memorandum on date 13-2-2019, delay condoned in main appeal, and the appeal is registered as DKGSTARA02/10/13-2-2019.

11. At the very outset, we find 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.

12. ‘Composite supply’ is defined as “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 each other in the ordinary course of business, one of which is a principal supply.

Thus 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.

13. 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. These sales do not satisfy the basic requirement of ‘composite supply’ i.e. ‘being naturally bundled and supplied in conjunction with each other’. These sales are completely independent of restaurant activity and will continue even when the restaurant is closed, either temporarily or permanently. Hence such sales will be treated as supply of goods with applicable GST rates on the items sold. Input credit will be allowed on such supply.

RULING

14. In view of the foregoing discussions and findings, we pass the following ruling —