Food supplied in restaurant-cum-sweet shop to be treated as service, attract 5% GST: AAR

At present, all types of sweetmeats attract GST at the rate of 5 per cent.


Planning to open a sweet shop without attracting multiple GST rates? Here is how you can do it — Bring in some chairs and table and name it XYZ Restaurant-cum-Sweet Shop. You may be able to attract customers with the single Goods and Service Tax (GST) rate of 5 per cent.

This follows a ruling by Uttarakhand’s Authority for Advance Rulings (AAR). The petitioner approached the authority to seek ruling on two issues — whether supply of pure foods such as sweetmeats, namkeens, cold drinks and other edible items from a sweetshop, which also runs a restaurant, is a transaction of supply of goods or a supply of services; and what would be rate of GST on various sweetmeats, ready-to-eat (partially or fully pre-cooked/ packed) items supplied from live counters such as jalebichola bhatura and other edible items and will the applicant be entitled for input tax credit (ITC).

At present, all types of sweetmeats attract GST at the rate of 5 per cent, cake and pastries have 18 per cent, unbranded bhujia has 5 per cent and branded bhujia has 12 per cent.

The AAR ruled, “The supply shall be treated as supply of services and sweet shop shall be treated as extension of restaurants. The rate of GST on the aforesaid activity will be 5 per cent as on date, on the condition that credit of input tax charged on goods and services used in supplying the said services has not been taken.” Even takeaways would attract GST at the rate of 5 per cent.

Composite supply

The petition has brought the concept of composite and mixed supply into limelight. According to the GST law, composite supply means supply of two or more goods or services or both together. Also, here goods or services or both are usually provided together in the normal course of business. Here, one goods and service will be treated as principal and the other as incidental.

GST rate for principal will be on the entire supply. Similarly, mixed supply means bouquets of various goods or services. Highest rate among such goods or services will be the rate for the entire supply. Here, the AAR treated restaurant as ‘principal’ and sweet shop as ‘ancillary’ and decided the tax rate accordingly.

An attractive biz model?

Tax experts feel the ruling may help in formulating an attractive business model. With ‘Restaurants-cum-Sweet Shop,’ one can draw customers with a single rate of GST which is 5 per cent. Though such a mechanism will not have a provision for ITC, it will not be a deterrent.

Most of the sweet shops record sales less than 50,000 a day. This means, even if their annual turnover is 20 lakh or more, they will fall under composition scheme which means no ITC.

According to the tax expert, such a ruling will guide them to expand their shops into ‘Restaurants-cum-Sweet Shop,’ and take advantage of lower tax.

Significance of ruling

Though the AAR rulings are applicable only on the assessees and the tax jurisdiction involved in the matter and do not have precedent value such as rulings by the Supreme Court or High Court, such rulings have persuasive value. Also, businesses would like to use such ruling in their tax planning and business strategy.

MS Mani, Partner at Deloitte India, said the multiplicity of advance rulings on similar issues would lead to businesses filing appeals and writ petitions, leading to further complexity in GST. “Businesses would obviously tend to apply favourable rulings and debate adverse rulings, hence it is essential to have some form of centralised advance rulings,” he said.


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