An owner of a restaurant and sweet shop who runs both set-ups from the same premises will be eligible for an input tax credit (ITC) for his sweet shop under the GST regime, as long as the accounts of the two businesses are maintained separately, at least in Uttarakhand.
The appellate authority for an advance ruling (AAAR) of the state set aside AAR ruling in this matter.
Explaining the case, Harpreet Singh, Partner, Indirect tax, KPMG, said AAR had ruled that the sweet shop will be regarded as an extension of a restaurant. As such, GST at the rate of five percent would be imposed on the condition that input tax charged on goods and services used has not been set off. This would be applicable to all items, including takeaways, sold from the sweet shop.
Restaurants draw five percent GST, but ITC is not given.
The shop owner appealed to AAAR against the order, contending that items sold from the sweet shop and restaurant cannot be taken as composite supply.
AAAR set aside AAR order. It ruled that items sold from the sweet shop would draw applicable GST rates and ITC would be given. On the other hand, items sold at the restaurant would draw five percent GST without ITC.
This, however, is subject to the provision that the owner of the two businesses maintains separate records for each with respect to input and output and billings, along with other accounting records, AAAR ruled.
The ruling may have repercussions for many other different scenarios, such as an outlet selling eatables in a mall.
Singh said there is a thin line of difference between restaurants and food takeaway joints, kiosks or tuck shops and hence there is ambiguity surrounding classification under GST. The classification becomes blurred as supplying snacks such as chat, dhokla, and lassi from shops or kiosks also involves some amount of service, he said.
“This ruling is likely to provide much-needed clarity on the classification principle to be adopted in all such cases,” he said.