Synopsis: The Hon’ble AAR, Karnataka in the matter of M/s. Hatsun Agro Product Limited Advance Ruling No. KAR ADRG 68/ 2019 decided on September 21, 2019 held that the activity of supplying ice-creams, chocolates, ice-cream cakes and pizza cakes made as per the orders of the customers and served in outlets qualifies as ‘composite supply’ of service under section 2(30) of the Central Goods and Service Tax Act, 2017 (“CGST Act”)/ Karnataka Goods and Service Tax Act, 2017 (“KGST Act”) subject to 2.5% respectively CGST & KGST, totalling together 5% without ITC
Facts:
M/s. Hatsun Agro Product Limited (“the Applicant”) is engaged in the business of producing and marketing of dairy products viz., Milk, Curd, Butter, Paneer, Ghee, Skimmed Milk Powder, Dairy Whitener, Pizza and Ice creams. The Applicant operates under brands namely “ARUN” and “IBACO” in the Ice Cream segment, wherein IBACO outlets are air conditioned. In these outlets, the Applicant ensures proper festive ambience to the customers. Here the ice creams are not sold as such in packaged condition, instead ice cream is prepared depending on the choice of the customer with the ice creams and toppings available in the outlet. Further, ice cream cakes and chocolates are packed as per the choice of the customer.
The customer has the option to choose from various combinations and toppings and are available in various format viz., Ice cream Cakes, Signature Cones, Sundaes, Ice cream bars, to the customers depending upon their choice of interest.
Ice cream sold/served at IBACO outlets are not bought and sold as such. The ice creams at IBACO outlets are different from the normal packaged ice creams which are sold by other players in the ice cream segment.
Ice creams sold at IBACO outlets are also not covered by the Legal Metrology Act, 2009 (“Legal Metrology Act”) i.e. Ice creams sold at IBACO outlets are not subject to MRP since they are not sold in retail package form. In fact, the Applicant themselves sell ice cream through their other brand “ARUN” in a packed condition at MRP price through their franchisee outlets.
In addition to ice creams, the Applicant also serves/ supplies chocolates and ice cream cakes at IBACO outlets. The said cakes and chocolates are not pre-packed and hence not covered by Legal Metrology Act.
Issues involved:
- Whether the supply of ice creams, chocolates, ice cream cakes, and pizza cakes at IBACO outlet can be classified as a composite supply of services, as defined under section 2(30) of the CGST Act/ KGST Act?
- Whether the said supply will be covered under Serial no. 6(b) of Schedule II of CGST Act/ KGST Act, as ‘composite supply’ of services?
- Whether the said supply will be classified under Chapter “9963” and chargeable to 5% GST rate in accordance with serial no. (ii) of Notification No. 46/2017 dated November 14, 2017 – Central Tax (Rate) read with serial no. 7(iv) of Notification No.11/2017 dated June 28, 2017 (“Service Rate Notification”) and similar notification under KGST Act?
Held:
The Hon’ble AAR, Karnataka in Advance Ruling No. KAR ADRG 68/ 2019 decided on September 21, 2019 held as under:
- The transaction of the Applicant was examined and found that the Applicant is supplying ice cream and other items of food which are made to order along with certain services like providing air-conditioned seating facility, provision of drinking water, tissue papers, dustbin. Hence the Applicant is supplying both services and goods and they are naturally bundled. Since the supplies made by the Applicant at IBACO outlets involves both supplies of goods and services, with one of them as principal supply, the same must be considered as a composite supply.
- The composite supply of goods being food or any other article for human consumption or any drink, where supply or service is for a consideration, then such composite supply shall be treated as a supply of services. Since the Applicant is supplying ice creams, which are items for human consumption, by way of or as part of any service or in any other manner, the composite supply has to be treated as a supply of services.
- The Applicant is supplying items of food as a part of service and since the provision of eating in the premises is provided or the customers may take the same away from the Applicant’s place, the transactions under question are covered under the amended provision of Entry 7(i) of Service Rate Notification (as amended) and attracts a tax of 2.5% respectively CGST & KGST, totalling together 5% without ITC.
Relevant provisions:
Entry 7(i) of Service Rate Notification
| S.No. | Chapter Heading | Description of Service | Rate |
Condition |
|
7. |
Heading 9963 (Accommodation, food and beverage services) |
Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent.
Explanation.- “declared tariff” includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit. |
2.5% |
Provided that credit of input tax charged on goods and services used in supplying the service has not been taken
[Please refer to Explanation no. (iv)].] |
Explanation (iv) to the Service Rate Notification:
(iv) Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that, –
(a) credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and
(b) credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder.