Restaurant-cum-sweet shops are better off maintaining two books of accounts for the Goods and Service Tax (GST) regime. Besides, billing and taxation on the same items sold through restaurants and sweet shops located in same premise will be different. In one of the rare cases, the Appellate Authority for Advance Rulings for the State of Uttarakhand Goods and Services Tax (AAAR-UK) has set aside the ruling of AAR which allowed a restaurant-cum-sweetshop to levy one rate of 5 per cent on all the goods sweetmeats, namkeens, cold drinks, ready to eat (partially or fully pre-cooked/ packed) items supplied from live counters such as jalebi, chola bhaturaand other edible items, sold through sweetshops or served in the restaurants. Also, no input tax credit will be available.
Both the parties, the business entity Kundan Misthaan Bhandar and the concerned tax authority approached the AAAR, with the former challenging the ruling by saying that supply of food items is a transaction of supply of goods and the concept of composite supply cannot be applied in such cases. Also, the sphere of restaurant services should be understood in its ‘commercial sense’.The tax authority argued that the decision and interpretation to treat combination of supply of service on the basis of nature of establishment, that is, principal supply by a restaurant and incidental or auxiliary supply by the sweet shop is faulty and untenable. Also, a supply whether composite or mixed will be determined in accordance with the definition under the law.
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. 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 the restaurant as ‘principal’ and sweet shop as ‘ancillary’ and decided the tax rate accordingly.
The Appellate Authority said that sale of sweets, namkeens, cold drinks and other edible items through restaurant will be treated as ‘composite supply’, with restaurant supply being the principal service. Existing GST rates on restaurant service will also be applicable on all such sales and no input credit will be allowed. However, sale of same items from the sweetshop counter will be treated as supply of goods with applicable GST rates of the items being sold and input credit will be allowed on such supply. It also asked the applicant business to maintain separate records for restaurant and sweetshop with respect to input and output and billings as well as other accounting records.