In this sweltering heat, who can resist a scoop of ice-cream? Interestingly, the issue of whether serving a scoop of ice-cream would be a supply of services or goods or whether it would be a composite supply was recently examined by the Authority of Advance Ruling (AAR), Maharashtra bench.
Based on the facts of the case, the AAR agreed that even serving scoops of ice-cream did not contain any service element and was a supply of goods. It would attract GST at 18% and the applicant would be able to avail input tax credit (in simple terms it refers to credit that is available for taxes paid on its own purchases or expenditure).
Arihant Enterprises, under a franchise model, sold ice-creams in retail packs (party packs or tubs, typically of 500 grams) and also by way of ice-cream scoops. Sale of retail packs contributed 75% to the company’s turnover.
The company explained that even when it served scoops of ice-cream, the only activity was the transfer of goods (ice-cream) to a cone or a cup. The service element involved was minimal. Only some of its outlets provided a few seats, but this was to benefit senior citizens and mothers accompanied by toddlers. Customers were free to eat the scoops outside the outlets.
On the other hand, a restaurant, canteen or eating joint, refers to an establishment where people meet to eat and drink at the same place. There is a larger element of service involved, it added.
The AAR agreed that the company was a mere re-seller of ice-cream and was engaged in the supply of goods (ice-cream, whether by way of retail packs or scoops).
Sunil Gabhawalla, a chartered accountant and indirect tax expert, states, “For a stand-alone restaurant the GST rate is 5% without any input tax credit. For entities which are part of large franchisee chains or are in a prime area having a huge rent outflow, the loss of input tax credit is a significant blow. For them, a higher rate of tax with input tax credit could be more beneficial. On the other hand, for the mom-and-pop type of outlets with self-owned property and brands, 5% GST without input tax credit could be more beneficial.”
At first glance, it would appear that stepping into an ice-cream parlor would then be more beneficial from the customer point of view. After all, GST is passed on to the customer. However, an industry watcher explained when the input tax credit is not available, the burden is passed on to the customer by jacking the prices.
“Denial of input tax credit distorts the concept of GST and therefore such disputes arise,” admits Gabhawalla. As things stand, it may be tough for an ice-cream connoisseur to glean what the applicable GST rate is as it is dependent on many factors and as explained a lower rate without input tax credit to the seller, may not always work out in favour of the buyer.
Source: Times of India