If you have a confusion about taxation on your goods or services or both, you can file an application before the Authority of Advance Rulings (AAR) under GST. This is like getting an opinion from the department as per GST Act 2017.
So, I have brought one of the AAR cases which can help in understanding the GST implications on restaurants selling other items too like beverages, namkeen etc. This article discusses a case involving M/s. Kundan Misthan Bhandar, a sweet shop cum restaurant, to clarify how GST applies to their operations.
Key Details of the Case
| Details | Information |
| Applicant | M/s. Kundan Misthan Bhandar |
| Location | Nainital, Uttarakhand |
| Advance Ruling No. | 09/2018-19 |
| Date | 22nd October 2018 |
| Authority | Authority for Advance Rulings, Uttarakhand |
Questions Raised
- Nature of Supply: Whether the supply of items from a sweetshop with a restaurant is classified as a supply of goods or services.
- Tax Applicability and Rate: The nature and rate of tax applicable to various items supplied.
- Input Tax Credit (ITC): Eligibility for claiming ITC for the supplies made.
Analysis and Rulings
1. Nature of Supply
The supply of items such as sweetmeats, namkeens, cold drinks, and other edible items from a sweetshop that also operates a restaurant needs to be classified to determine the applicable tax regime.
- Composite Supply: When goods or services are supplied together naturally and necessarily in the course of business, one being the principal supply.
- Mixed Supply: When goods or services are supplied together for a single price but can be sold separately.
Ruling: The activity of the sweet shop cum restaurant is a composite supply, where restaurant services (food preparation and service) are the principal supply.
2. Tax Applicability and Rate
Based on the classification as a composite supply, the relevant GST rate must be determined.
- Restaurant Services: the same falls under Heading 9963 of (GST rates on services under Notification No. 11/2017- Central Rate (Tax) dated 28.06.2017, services involving food or beverages provided by a restaurant are taxed at 5%, provided no input tax credit is claimed for the goods and services used.
Ruling: The supply from the sweet shop cum restaurant is taxed at 5% GST, subject to non-availment of ITC.
3. Input Tax Credit (ITC)
Businesses generally prefer to claim ITC to reduce their tax liability. However, specific conditions apply under the GST law for the restaurant sector.
Ruling: M/s. Kundan Misthan Bhandar cannot claim ITC on goods and services used in their restaurant operations to avail the 5% GST rate.
Key Definitions Under GST
| Term | Definition |
| Composite Supply | A natural bundle of goods and/or services provided together, with one being the principal supply. |
| Mixed Supply | A bundle of goods and/or services provided together for a single price, not naturally bundled. |
| Principal Supply | The main, predominant supply in a composite supply. |
| Services | Activities other than goods, money, and securities, including the use of money for a fee. |
FAQs
Q1: What is a composite supply?
- A composite supply involves two or more goods or services supplied together naturally in the course of business, with one being the principal supply.
Q2: How is GST applied to a sweet shop cum restaurant?
- GST is applied as a supply of services at 5%, provided no input tax credit is claimed for goods and services used.
Q3: Can a sweet shop claim input tax credit on supplies?
- No, under the 5% GST regime for restaurant services, input tax credit cannot be claimed.
Conclusion
From the AAR order, it can be concluded that the restaurant selling namkeen and sweets have different GST rates, but the main supply is restaurant services which falls under Heading 9963 as per Notification No. 11/2017-Central Rate (Tax) dated 28.06.2017. Therefore, it has to be considered a composite supply and should be charged at 5% GST.
Read More: Concept of Distinct persons and Related persons in GST
Understanding the GST implications for businesses that operate both as a sweet shop and a restaurant is crucial for compliance and effective tax management. The classification as a composite supply ensures a simplified tax rate, though it restricts the claim of input tax credits. This ruling provides clarity for similar businesses on how to navigate their GST obligations.
