Ice Cream Prepared & Served By Ice-Cream Parlours – Supply of Goods or Service : A Critical Analysis

The CBIC has recently issued CIRCULAR NO. 164/20/2021-GST dt 6.10.21. In this article we submit our critical analysis and legal submissions w.r.t. treating the supply of ice-creams by ice-cream parlours as a supply of goods.

I. What is Restaurant Service? 

The term Restaurant Service has been defined in Para 3.2 of The CIRCULAR NO. 164/20/2021-GST dt 6.10.21 with reference to Notification No. 11/2017 – CT (R) as follows –

• In Para 3.2 of the Circular the word ‘restaurant service’ is defined in Notification No. 11/2017 – CT (R). Extract is as below: –

‘Restaurant service’ means supply … as part of ..any service… of goods, being food … or … drink, provided by a ..eating joint … whether for consumption on or away from the premises …..’

• 3.3 Explanatory notes to the classification provides as follows –

‘restaurant service’ includes… takeaway services, room services and door delivery..’

This would .. cover services provided by cloud kitchens/central kitchens.

Thus it is Important to note that Restaurant Service would mean a supply as a part of food and beverage, any service. The word ‘any service’ suggests ‘a value added activity’ performed along with supply of food or drink by an eating joint.

II. Supply of Ice Cream by Ice-Cream Parlors…

Para 4.2 of the Circular goes on to state that Ice cream parlors sell already manufactured ice- cream and they do not have a character of a restaurant.

It also states that –

– Ice-cream parlors do not engage in any form of cooking …,

– Restaurant service involves the aspect of cooking/preparing during the course of providing service.

– Thus, supply of icecream parlor stands on a different footing than restaurant service.

Hence the activity of ice-cream parlour entails supply of ice cream as goods (a manufactured item) and not as a service, even if certain ingredients of service are present.

In our view, the Circular takes the following contradictory and whimsical views in this para –

1. The fact that an ice cream parlour does not indulge in some sort of ‘cooking’ has been stated to start with. The same is correct.

2. Thereafter it is stated that that restaurants do some sort of cooking/preparation. Hence, the circular itself draws a difference between cooking and preparing. It accepts that a restaurant can do either cooking or preparing a dish.

3. In the last part of the Para, the Circular goes on to equate cooking and preparing on the same footing which in our view is whimsical and a contradiction to the fact that the circular itself starts with the fact that a restaurant can either prepare or cook.

4. The Circular also states that ice-cream parlours do not do any sort of preparing. This may not be fully correct as the ice-cream parlours indulge in preparing activities like reducing large part into small parts, adding sauces, serving the ice-cream with a cherry and in a cone, etc.

‘Preparing’ is a much wider term than ‘Cooking’.  Infact ‘Cooking a dish’ is a part of ‘preparing a dish’. While ice-cream parlours may not cook a dish but they do prepare a dish and serve. Further the provision of a seating space to customers and an ambience for socialising are value added services provided by the ice-cream parlours in addition of selling ice-creams.

5. While accepting the fact that some service is involved, and still stating that ice-cream parlours supply goods and not services, the Circular may be going beyond the notification which requires a restaurant to provide ‘any service’ as a part of supply of food and beverage.

Para 4.3 thereafter concludes by stating that Accordingly,…where ice cream parlors sell already manufactured ice- cream and do not cook/prepare ice-cream for consumption like a restaurant, it is supply of ice cream as goods and not as a service, even if the supply has certain ingredients of service.

Accordingly, it is clarified that ice cream sold by a parlor or any similar outlet would attract GST at the rate of 18%.

III. Our Analysis of the above Circular is as follows –

1. Notification No. 11/2017 – CT (R) defines restaurant service as supply of food as a part of any service and para 4.2 & 4.3 accept that there is a part of a service. The word ‘any’ is important herein. The supply of ice-cream by ice-cream parlour would qualify as a service incase it provides any service as a part of and in addition to supply of food.

The very fact that there is a service involved, is sufficient to classify a supply of ice-cream by parlours as a ‘service’

2. It is clear and uncontested that ice-cream parlour is an ‘eating joint’ and therefore even a take away ice-cream supplied is a restaurant service

3. The Circular also states that ice-cream parlours do not do any sort of preparing. This may not be fully correct as the ice-cream parlours may do preparing like reducing large part into small parts, adding sauces, serving the ice-cream with a cherry and in a cone, etc.

‘Cooking a dish’ is a part of ‘preparing a dish’. ‘Preparing’ a dish a much wider term. While ice-cream parlours may not cook a dish but they do prepare a dish and serve. Further the provision of a seating space to customers and an ambience for socialising are value added services provided by the ice-cream parlours in addition of selling ice-creams.

4. While accepting the fact that some service is involved, and still stating that ice-cream parlours supply goods and not services, the Circular may be going beyond the notification which requires a restaurant to provide ‘any service’ as a part of supply of food and beverage.

Conclusion: It seems that a narrow view may have been taken by the circular in holding that the supply of ice-creams by ice-cream parlours is not a ‘service’ but supply of ‘goods’.  Our legal contentions as above, in this regard may be noted. It is our view that the Circular may be amended in the light of the issues above or else it would be a big blow to the Ice-Cream Industry. Important to note that the Circular is a clarification and hence the impact on the GST Rates would be retrospective.

The Video for the above Article can be accessed at the following Link

YouTube Link : https://www.youtube.com/watch?v=nL-nxWqgxjk 

BRIEF ABOUT THE AUTHOR :

Vivek Jalan, from Tax Connect, is a Chartered Accountant & a qualified L.LM (Constitutional Law) & LL.B. He is The Chairman of The Ease of Doing Business Committee therein. He is the member of The Confederation of Indian Industries (CII)- Economic Affairs & Taxation Committee. He is the Member of The Consultative Committee of The Commissioner of SGST. He is also The Member of The Regional Advisory Committee of The Chief Commissioner of CGST. He is advising Large MNCs, PSUs & PAN India Organizations in GST & Income Tax and has offices in Kolkata, Delhi, Bangalore, Mumbai & now Surat.

He is a regular Columnist and guest expert in Economic Times, Times of India, Dalal Street Journal, Money Control, Live mint, CNBC, Hindustan Times, Zee Business, Financial Express, other dailies and business magazines like Business Today, etc. He is also a guest expert on Taxation matters in All India Radio and other media platforms. He is the Editor of Weekly Bulletin TAX CONNECT, a publication on Indirect Taxes and Direct Taxes which reaches more than 70000 professionals.

He is also a visiting faculty for Taxes in The Confederation of Indian Industries (CII), The Institute Of Chartered Accountants of India, Institute of Cost Accountants of India, Indian Institute of Foreign Trade, The Bengal Chamber of Commerce and Industry, The Indian Chamber of Commerce and other Business Forums. He has also delivered Lectures at various Government Taxation Forums including the CGST & SGST Departments across the country.

He has worked as a Finance Manager in ITC Ltd. and Chief Compliance Officer with IntraSoft Technologies Ltd. He has more than 15 years of experience in the field of Indirect & Direct Taxation. He was also an All India Rank holder in CA Final Examination conducted by the Institute of Chartered Accountants of India.

His Books on taxation include the following –

• COMMENTARY ON UNION BUDGET 2021 – Feb 2021
• SECTION-WISE COMPENDIUM ON GST – Oct 2020
• INTEGRATED APPROACH TO GST E-INVOICE, E-WAYBILL & RETURN E-FILING – Oct 2020
• COMMENTARY ON UNION BUDGET 2020– Feb 2020
• COMMENTARY ON DIRECT TAX VIVAAD SE VISHWAS SCCHEME – Feb 2020
• SECTION-WISE COMMENTARY ON GST – SEPTEMBER 2018
• HOW TO HANDLE GST-TDS, GST-TCS, GST AUDIT & GST ANNUAL RETURN – NOVEMBER 2018
• COMMENTARY ON UNION BUDGET 2019 – July 2019
• WITHDRAWAL OF LEGAL TENDER 2016
• COMMENTARY ON UNION BUDGET 2017
• A COMPENDIUM ON GST W.E.F. 1ST JULY 2017
• GST MODEL LAW (NOVEMBER 2016) & BUSINESS PROCESSES – A TECHNICAL COMMENTARY
• GST MODEL LAW (JUNE 2016) & BUSINESS PROCESSES – A TECHNICAL COMMENTARY
• “SERVICE TAX AND VAT IN WORKS CONTRACT: A COMPREHENSIVE TECHNICAL GUIDE”.

He is a regular speaker at various professional forums on the various key areas in Indirect & Direct Taxes and has delivered more than 300 lectures on various topics under GST, Customs, Foreign Trade Policy of India, Income Tax, etc.