Ice-Cream sold by Ice-cream parlour is not a restaurant services... writes Keshav R Garg

Ice-Cream sold by Ice-cream parlour is sale of goods and not restaurant services.

n  By Keshav R Garg, Partner, K D & Associates

+91-98880-90008, keshavgarg@kdai.in

In a very recent Advance Ruling by AAR, Maharashtra in case of Arihant Entreprises it has been held that serving of ice-cream in a parlour shall be trading of goods instead of restaurant services chargeable at 5% without ITC. The moot point before the Authority was whether the sale of ice-creams in small scoops would be treated as supply of goods or restaurant services. The authority held that since there is no change in the nature of goods being sold by the ice-cream parlour, merely because the good are sold in lesser quantity as per need of customer would not tantamount as a restaurant. The ruling held that the transaction of selling ice cream received in bulk and selling them in scoops is akin to sales made by grocery shops in the case of sale of edible oil wherein the grocer sells such oil in various lesser quantities after receiving the same in bulk quantity of 20 litres, etc in tins/cans. Further the ruling also held that place where customers go with the intention of ordering articles of foods for the purpose of consuming the same there only, which are then prepared and served by waiters, etc to the customers is to be treated as restaurant. Mere air conditioning in a business unit will not make a difference in classifying it as restaurant. Since air-conditioning is an essential ingredient to increase shelf life of ice-creams, its mere presence cannot result a business unit being classified as restaurant.  

With this background, it can be safely interpreted that restaurant is not merely a place to sell food but also coupled with ambiance and other facilities like serving etc. provided to the customer. The goods sold over the shelf in smaller quantities will not tantamount to restaurant. This ruling specifies three criteria based upon which a unit can be treated as supplier of goods  1) goods must be sold on a fixed MRP 2) Ready Made Consumable 3) as per quantities specified by the consumer. If the transaction satisfies all these conditions it shall not be classified as restaurant service. This means that not only the ice cream parlours but others such as frozen yogurt counters, snack counters selling off the shelf puffs, dhokla etc. would also be treated as traders instead of restaurant services. The ruling seems to be  complete mismatch with the provisions of earlier service tax law.

Going by this ruling and no contrary ruling comes in near future, the ice-cream parlours such as Baskin Robbins, Naturals , Gianis etc. would be able to opt for normal scheme charging 18% from customers on sale of ice creams. Not only this if their activity is treated as supply of goods they shall now be eligible to claim input tax credit on stock of ice-cream as on the date of adoption of new policy. As per our understanding we feel that if the company resorts to new tax structure, it might have to be careful while deciding new prices as it may lead to anti-profiteering issues. ITC which was not available earlier and was added to cost of operations would now be eligible having direct impact on reduction of cost of goods sold by these ice-cream parlours. We feel that this ruling might prove to be huge relief not only to ice-cream industry but other industries as well covered under this segment.