In re Hatsun Agro Product Ltd (GST AAR Karnataka)
a) Whether the supply of ice creams, chocolates, ice cream cakes, and pizza cakes in an IBACO outlet can be classified as a composite supply defined under section 2(30) of the CGST Act, 2017 and section 2(30) of the KGST Act, 2017, wherein the principal supply is the supply of goods namely the ice cream and other products while the services supplied namely the air conditioned place, place to sit, the service of mixing various ice creams being naturally bundled in the ordinary course of business?
b) Whether the said supply will be covered under serial no. 6(b) of schedule II of CGST Act and serial no. 6(b) of Schedule II of Karnataka GST Act? Serial no.6(b) deems the following composite supply as supply of service;
c) Whether the said supply will be classified under chapter “9963” and chargeable to 5% GST rate in accordance with serial no. (ii) of Notification No. 46/2017 dated 14.11.2017 – Central Tax (Rate) read with serial no. 7(iv) of Notification No.11/2017 dated 28.06.2017 and similar notification under KGST Act?
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICE TAX ACT, 2017 AND UNDER SECTION 98(4) OF THE KARNATAKA GOODS AND SERVICES TAX ACT, 2017
1. M/s Hatsun Agro Product Limited, (called as the ‘applicant’ hereinafter), having GSTIN number 29AAACH0945G1ZP, has filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The applicant is a private limited company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following questions:
a) Whether the supply of ice creams, chocolates, ice cream cakes, and pizza cakes in an IBACO outlet can be classified as a composite supply defined under section 2(30) of the CGST Act, 2017 and section 2(30) of the KGST Act, 2017, wherein the principal supply is the supply of goods namely the ice cream and other products while the services supplied namely the air conditioned place, place to sit, the service of mixing various ice creams being naturally bundled in the ordinary course of business?
b) Whether the said supply will be covered under serial no. 6(b) of schedule II of CGST Act and serial no. 6(b) of Schedule II of Karnataka GST Act? Serial no.6(b) deems the following composite supply as supply of service;
c) Whether the said supply will be classified under chapter “9963” and chargeable to 5% GST rate in accordance with serial no. (ii) of Notification No. 46/2017 dated 14.11.2017 – Central Tax (Rate) read with serial no. 7(iv) of Notification No.11/2017 dated 28.06.2017 and similar notification under KGST Act?
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant states that they are a listed company engaged in the business of producing and marketing of dairy products viz., Milk, Curd, Butter, Paneer, Ghee, Skimmed Milk Powder, Dairy Whitener, Pizza and Ice creams. The applicant operates under brands namely “ARUN” and “IBACO” in the Ice Cream segment, “AROKYA” in milk and curd segment, and “HATSUN” in Curd, Skimmed Milk Powder, Dairy Whitener, Ghee, Butter, Paneer, Lassi and flvoured Milk and “SANTOSA” in Cattle Feed and “OYALO” in Pizza, and all their brands are leading brands in South India and enjoy continued patronage from the customers for more than three decades.
b. The applicant states that “IBACO” is one of the premium brands of the applicant in their Ice Cream segment and has been in existence since 2012. IBACO has its presence in various States. It offers wide range of exotic ice cream flavours.
c. The applicant further submits that IBACO outlets are air conditioned. In these outlets the applicant ensures proper festive ambience to the customers. Here the ice creams are not sold as such in packaged condition, instead ice cream is prepared depending on the choice of the customer with the ice creams and toppings available in the outlet. Further, ice cream cakes and chocolates are packed as per the choice of the customer.
d. The applicant submits that the customer has the option to choose from various combinations and toppings such as chocolate buttons, chocolate sauce, chocolate fudge, assorted nuts, strawberry sauce, roasted badam nuts, dark cherry, mango chunks, waffle fan, etc. available in the outlet. The applicant also submits that IBACO offers ice creams in various format viz., Ice cream Cakes, Signature Cones, Sundaes, Ice cream bars, to the customers depending upon their choice of interest.
e. The selected ice cream mix is served in cups and cones in IBACO outlet as desired by the customer and the billing is done based on the total weight of the ice creams along with toppings selected by the customers. With about 45 varieties of ice creams and about 40 varieties of toppings, customers can make more than 1000 different varieties of ice cream sundaes as per his choice from the above.
f. The applicant submits that ice cream sold/served at IBACO outlets are not bought and sold as such. The ice creams at IBACO outlets are different from the normal packaged ice creams which are sold by other players in the ice cream segment.
g. The applicant submits that ice creams sold at IBACO outlets are also not covered by the Legal Metrology Act i.e. Ice creams sold at IBACO outlets are not subject to MRP since they are not sold in retail package form. Infact the applicant themselves sell ice cream through their other brand “ARUN” in a packed condition at MRP price through their franchisee outlets.
h. In addition to ice creams, the applicant also serves / supplies chocolates and ice cream cakes at IBACO outlets. The said cakes and chocolates are not pre-packed and hence not covered by Legal Metrology Act.
i. There are 15 varieties of chocolate offerings at IBACO outlets. The packages of chocolates are custom made to the choice and count of customer.
j. Cakes at IBACO outlets are of two types, cake based ice cream cake and pizza based ice cream cakes. The same shall have cake or pizza as a base and standard mix of ice creams on it.
k. Further, the varieties of ice creams artisan cakes are made available such as Butterscotch, Almond Amore, Choco Vanilla Chateau, Mango Litchi Medley, Choco-Vanilla delight, Mango Italian Fiesta, Choco-Caramel Waltz, etc.
4. The business model of IBACO, as per the submission of the applicant, is as under:
To demonstrate the flow of process on sale of an ice cream or ice cream cakes and chocolates, the applicant summarises the process with schedules to support:
a. Under IBACO brand the applicant is engaged in selling customized ice creams, chocolates and ice cream cakes. Once the customer enters the IBACO outlet, there is a display freezer with various varieties of ice creams, chocolates, ice cream cakes and Pizza cakes with name tags giving details of flavours like chocoloate, Vanilla, Butterscotch among various other flavours. Based on the said options, the customer shall be at the liberty of choosing various combinations as they feel free. Apart from the cakes displayed in freezer, IBACO outlets also undertake to supply custom made artisan cakes.
b. The customer is free to have the taste of ice creams of his choice for selecting his order. After tasting, the customer shall decide on the choice of ice cream and then place the order. The said choices would be served by the IBACO outlet to the customer in cup/ cone or bar depending on the choice of the customer.
c. Now the customer moves to the toppings section, wherein the customer is greeted with various choices like chocolate buttons, chocolate sauce, chocolate fudge, assorted nuts, strawberry sauce, etc. Based on the choices, the customer decides the combination.
d. Once the final combination is ready, the combination is weighed and the customer is billed on total weight of the ice cream along with the toppings selected by the customer. Based on the weight and based on the price, the customer is charged along with GST.
e. Once the customer has discharged the bill, the customer can enjoy the ice cream at the air conditioned outlet using the seating facility provided by the applicant or is at liberty to take home the ice cream.
f. With respect to ice cream cakes, the applicant submits that the ice cream cake selected is packed with special gel pad to retain the ice cream cake in frozen condition.
g. The applicant submits that based on the aforesaid process, it is very clear and an apparent distinction can be seen that the IBACO outlet is completely different from a normal ice cream shop selling packed ice creams. The applicant also submits that they not only sell ice creams but also provide services like scooping of ice cream, mixing of toppings, serving of ice cream, seating facility, air conditioning facility, drinking water facility, provision of dust bin and tissue papers, etc. This gives the customer a good ambience and overall different experience vis-a vis compared to a normal ice cream parlour. Similar to the aforesaid process the ice cream cakes are also sold to customers in a similar manner, where the customer provides various customizations of combination of ice creams.
5. The applicant makes the following submissions in relation to the questions on hand:
5.1 The supply made by IBACO is a composite supply:
5.1.1. The applicant submits that the consideration charged to customer for ice cream is a consolidated charge for following supplies:
a. Ice cream or a mix of ice creams
b. Service charges for mixing the toppings with ice cream as desired by customer
c. Service charges for serving the ice cream in cup or cone or ice cream bar as desired by the customer
d. air conditioned seating facility provided to customers
e. Drinking water facility, provision of tissue papers and dustbin.
Similarly the consideration charged for chocolates, ice cream cakes and pizza cakes at IBACO outlets also includes the service charges, air-conditioned seating facility and provision of drinking water and tissue papers and dustbin.
5.1.2. Thus, two or more goods and/or services are combined in supplies made by IBACO outlets leading to classification as composite supply to determine tax liability.
The applicant compares the supplies made by them with definition of composite supply to ascertain whether the said supplies would qualify as composition supplies in the table given below:
