Dine-in/Takeaway/Delivery- Classification of supply, Rate of tax and ITC- AAR RJ

The applicant will have a dedicated central kitchen for the preparation of food items and there will be various eating joints under the brand name of applicant from where the food preparations will be offered to the customers. The consumers will only have access to such eating joints.

A substantial part of cooking process of majority food items will be carried out at the central kitchen and the eating joints will receive the pre-cooked or semi -cooked preparations from the kitchen in different forms, containers or packaging having a self-life as applicable for the food item. The preparations may be sent to the outlets in packed form to be offered to the customers as such or to be further processed for offering the food items or dishes at the choice and desire of consumers.

The applicant will procure raw materials, equipments and machinery for preparation and display of food items, take premises on rent, incur expenses for designing of the premises as per standard infrastructure, repair and maintenance of the premises and the machinery, hiring of manpower for the designated roles and various other administrative expenses.

The Advance Ruling is sought from the Authority for Advance Ruling in respect of the following questions :-

1.Whether the supply of food and beverages by the eating joints by way of following should be treated as supply of goods or supply of services?

• Dine In
• Take Away
•  Delivery

2. What should be the classification and applicable tax rate on the supply made by the applicant?
3. If the supply shall be treated as supply of goods, whether Input Tax Credit will be available to the applicant?
4. If the supply shall be treated as supply of services, whether Input Tax Credit will be available to the applicant?

 

Ruling: AUTHORITY FOR ADVANCE RULING, RAJASTHAN

1. Whether the supply of food and beverages by the eating joints by way of following should be treated as supply of goods or supply of services?

1. Dine In
2. Take Away
3.  Delivery

We are of the view that activity of sale of food items along with services thereof to be performed by the applicant in respect of central kitchen/ eating joints by way of Dine In, Take away & delivery is covered under 'supply' as per section 7 of the CGST Act. 2017 and liable to tax as per section 9 of the CGST Act, 2017. As tar as nature of supply in the present case is concerned, we can visit the clause (b) of entry 6 of the Schedule II to the section 7 of the CGST Act, 2017 which is as under: -

" (b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration"

As per explanatory notes to the scheme of classification under heading 9963: Accommodation, Food and Beverage service, we find that activity to be performed by the applicant will be classified under heading 996331 “services provided by Restaurants, Cafes, and similar eating facilities including take away services, Room services, and door delivery of food”

Further, the GST rates on services have been notified by the Government vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended vide Notification No. 20/2019-CT(R) dated 30.09.2019.

There is a specific entry for Supply of 'restaurant service' other than at specified premises in Entry 7(ii) and for the purpose of the said Notification, 'restaurant service' has been defined in the notification itself as under:

(xxxii) “Restaurant service” means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied.

The only exclusion from the entry 7(ii) is supply of such service at 'specified premises'. In the notification No. 11/2017-CT(R) dated 28.06.2017 at explanation No (xxxvi) the “specified premises defined as under:

“Specified premises” means premises providing “hotel accommodation” services having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.

In present facts since the eating joints of the appellant are not intended to be located in any premises having hotel accommodation services. Hence the case of the applicant is not covered in exclusion as premises will be as standalone restaurant(s).

Further, we can also visit the Circular No. 164 /20 /2021-GST dated 6-10-2021 in respect of 'Clarifications regarding 'Services by cloud kitchens/central kitchens'. The clarification in the Circular is reproduced as under for reference:-

“3. Services by cloud kitchens/central kitchens:

3.1 Representations have been received requesting for clarification regarding the classification and rate of GST on services rendered by Cloud kitchen or Central Kitchen.

3.2 The word “restaurant service” is defined in Notification No. 11/2017 -CTR as below: -

“Restaurant service” means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied.”

3.3 The explanatory notes to the classification of service state that “restaurant service” includes services provided by Restaurants. Cafes and similar eating facilities including takeaway services, room services and door delivery' of food. Therefore, it is dear that takeaway services and door delivery services for consumption of food are also considered as restaurant service and, accordingly, service by an entity, by way of cooking and supply of food, even if it is exclusively by way of takeaway or door delivery or through or from any restaurant would be covered by restaurant service. This would thus cover services provided by cloud kitchens/central kitchens.

3.4 Accordingly, as recommended by the Council, it is clarified that service provided by way of cooking and supply of food, by cloud kitchens/central kitchens are covered under “restaurant service”, as defined m notification No. 11/2017-Central Tax (Rate) and attract 5% GST [without ITC]

The aforesaid circular has clarified that when the service is provided by an entity, by way of cooking and supply of food, even if it is through or from any restaurant, it would be covered by restaurant service. The circular has categorically mentioned that this would thus cover services provided by cloud kitchens/central kitchens.

Hence, we find that the supply of food by the entity partially or completely cooked in the central kitchen through or from the various eating joints would be covered by 'restaurant service' and the supply of all the items of food and beverages offered by the eating joints/central kitchen of applicant are classifiable under HSN 9963 under SI. No. 7(ii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended time to time and are taxable at the rate of 5% (without ITC).

2.  What should be the classification and applicable tax rate on the supply made by the applicant?

 In this regard, we are of the view that in the instant case supply made by the applicant is classifiable under Chapter, Section or Heading 9963 under SI. No. 7(ii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended time to time and is taxable at the rate of 5% (without ITC).

3.  If the supply shall be treated as supply of goods, whether Input Tax Credit will be available to the applicant?

4. If the supply shall be treated as supply of services, whether Input Tax Credit will be available to the applicant?

 In this regard, we find that supply to be made by the applicant is covered under “restaurant service”, as defined in notification No. 11/2017- Central Tax (Rate) as amended and attract 5% GST (2.5% CGST + 2.5% SGST) provided that credit of input tax charged on goods and services used in supplying the service has not been taken. The aforesaid notification is prescribing rate with specific condition, no option is provided. Wherever the intention to provide option is there, it is clearly mentioned by providing multiple rates 'with ITC' and 'without ITC'. Thus, we find that applicant is not entitled to take ITC as per condition laid down at SI. No. 7(ii) of Notification No. 11/2017 - CT (Rate) dated 28.06.2017.

-  LDR | Chartered Accountant in Practice

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