Don’t be surprise if you find a table and a chair in a food shop it will save your GST Recently the AAR has brought out an interesting ruling for cake shops and sweetmeats in order to save GST just by adding furniture in their premises. In this article you shall come across the interesting facts of this ruling and also know if this ruling creates confusion or proves to be a boon to the cakes shops and Sweetmeats. In accordance to the ruling products attract 5% GST inside eateries and 12% and 18% in other shops. In the recent ruling it is to say that in case a restaurant is running in the same premises of the cake shop or sweet mart than the rate of GST applicable shall be 5% instead of 12% or 18% as is currently charged for branded snacks and pastries/ cakes. Which means just by adding a few tables and chairs the applicability of tax for cake shops and sweetmeats may change from 18% or 12% to that of 5% thereby saving tax. So don’t feel surprise if you see your favourite outlets rebranding their shops and premises in order to avail this tax benefit. This clearly means that if in a cake shop or sweetmeat you come across a restaurant in the same premises the rate of GST shall be 5%. But where there is no such provision of restaurant in the same premises the GST rate shall differ. For example: in a sweetmeat if you buy any snacks the rate of Gst shall be 12% but if in the same premises there is a restaurant set up available just by adding some tables and chairs the GST shall be at 5%. This ruling however may create a lot of confusion but can prove to be a boon as well for many shops functioning/ operating on similar model. Further, there can be confusion as the rates under GST scheme are product specific and not dependent on the manner of supply. The interpretation may be as such that the supplies made by say cake shops having a restaurant set up may be treated as restaurant services the same on take away basis shall consider the applicable rate of GST on products being sold. A detail of this AAR ruling can be highlighted from M/s. Kundan Misthan Bhandar, (Uttarakhand) case where the applicant was engaged in the business of supplying goods and services both for the better understanding. In this case 5 major points have been brought into notice; Whether supply of pure food items such as sweetmeats, namkeens, cold drink and other edible items from the sweet shop which also runs the restaurant is a transaction of supply of goods or supply of services;
What is the nature of tax applicable to the following items supplied from ground floor of a sweetshop in which restaurant is also located on the first floor and whether the applicant is entitled to claim benefit of input tax credit with respect of the same:
Sweetmeats, namkeens, dhokla etc commonly known as snacks , cold drinks, ice creams and other edible items,
Ready to eat (partially or fully pre- cooked / packed) items supplied from live counters such as jalebi, chola bhatura and other edible items,
Takeaway order of sweetmeats or namkeens by a person sitting in the restaurant of a sweetshop when such products are not consumed within the premises of the applicant but are takeaway.
The AAR in the ruling spoke of two concepts in GST framework — mixed supply or composite supply. Mixed supply is when two products with different tax rates are bundled together. Say, hair oil and comb — where tax rate for oil is 18% while for comb is 12%. If a manufacturer were to combine both and sell it as a combo then tax rate of 18%, or the highest of the two shall apply. However, composite supply under GST talks about certain services that are incidental. Like if one were to take a flight and meals are provided on the flight, the food would be categorised as incidental supply as the main supply for the airline is operating flights. Hence, in this case, GST rate of the principal supply— that is tax on airline services — will apply even on the food provided on the plane. The AAR ruling said in the Kundan Mishtan Bhandar’s case that it is a composite supply and hence the tax rate of the restaurant should apply. The following order was passed in the above case: The supply shall be treated as supply of services and sweet shop shall be treated as extension of restaurant
The rate of GST on aforesaid activity will be 5% 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
All the items including takeaway items from the said premises shall attract GST of 5% as on date subject to the condition of non availment of credit of input tax charged on goods and services used in supplying the said services.
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