JANUARY 21, 2022

By S Murugappan

THE last we met was almost two years ago. After another bout of the pandemic, lockdowns and voluntary closures of offices and factories, my lawyer friend Mr Raj came to my office yesterday. He was accompanied by his energetic assistant Mr Yash (our find at the Malabar Speciality restaurant). With instructions, circulars, notifications, press releases and a plethora of advance rulings to confront the taxpayers on the Good and Simple Tax , almost on daily basis, the duo had a flourishing practice in GST law.

After a long and tortuous wet spell, the midday Sun was glistening over Chennai city. I suggested to Raj that we go to the newly opened elite ice cream parlour next street and have a cool chat. Yash grabbed the idea and in the next five minutes we were there, staring at the colourful mix of ice cream flavours, sauces and toppings.

This is a popular joint where you can customise your Ice cream choices and toppings. On the inauguration day, I had ensured my presence at this place and tasted a variety of their offerings.

I ordered a combination of Almond Amore, Mango Litchi Medley and Butterscotch to be topped by chocolate sauce, roasted Badam nuts and dark cherry. Raj and Yash ordered their favourite combinations and we moved to the weighing counter and then the cash counter. When I opted to pay and collected the bill I noticed that for the bill worth Rs 1600, the simple tax was Rs. 288/- (@18%). I was aghast since, last time when I visited the ice cream parlour, it was only 5%.

With his quick grasp, Raj moved in and demanded from the cashier "Why are you charging 18%? After all, this is an 'eating joint' and tax for your service is only 5%"

The cashier was a short and stout man with an affable manner. He nonchalantly responded, "Yes sir, we did charge 5% initially for a few days. Later when our GST inspector came to our parlour to taste our ice cream combinations, he informed us that it is view of the department that since, at the end of the day, we are only 'selling' ice creams, therefore, 18% is to be charged. He even shared a circular issued from Delhi, on WhatsApp."

Yash interjected, "You are not selling ice creams off the shelf. You're mixing several ingredients as per our choice, rolling them in your cold stone and preparing the stuff before it is given to us. Therefore, how can it be a simple sale of ice cream?"

At this point, with a glee, the cashier decided to display the above circular 164/20/2021 - GST dated 6th October, 2021 to Yash, which he thought will silence Yash and put his questions to rest.

In part, paragraph 4 of this circular reads:

"4.2. Ice cream parlours sell already manufactured ice cream and they do not have the character of a restaurant. Ice cream parlours do not engage in any form of cooking at any stage, whereas, restaurant service involves the aspect of cooking/preparing during the course of providing service. Thus, supply of ice cream parlour stands on a different footing than restaurant service. Their activity entails supply of ice cream as goods (a manufactured item) and not as a service even if 'certain ingredients' of service are present…. Accordingly, it is clarified that ice cream sold by a parlour or any similar outlet would attract GST at the rate of 18%."

Raj retorted, "This circular is vague. It is admitted that there are certain ingredients of service present. Then why don't you apply the rule relevant for composite supplies?"

Yash, pointing to the array of people mixing and rolling different combinations of ice creams and toppings, asked the cashier, "Is this not a preparation? What are the legal definitions of 'cooking' and' preparing' ?"

For my part, I pointed to a large trashcan kept in a corner for disposing off used plates cups etc. and told the cashier that in a shop, merely selling ice creams, this will not be available.

Raj picked up another thread. He referred to the advance ruling given to Hatsun Agro Product Ltd by AAR, Karnataka where serving of ice cream in this manner in their outlets was treated as a service and the authority ruled that it will be a supply of service and will attract 2.5% CGST and 2.5% SGST, a total of 5% only. - 2019-TIOL-370-AAR-GST

Not to be left behind, Yash reminded the cashier of another advance ruling given by the Telangana State Authority for another supplier of ice creams to the effect that supply of ice cream served in a parlour with or without adding ingredients like fruits or topping sauces according to the customers taste, will be supply of 'service' and will attract 2.5% CGST and 2.5% is SGST. It held that such ice cream parlours will be 'eating joints'. - 2020-TIOL-111-AAR-GST - Sri Venkateshwara Agencies)

Raj and Yash thought that that these two rulings, given by eminent authorities in two different States, will turn the table against the cashier. But the cashier refused to budge.

He quipped - One expert like you, last week, asked the same thing and when I referred that to the GST inspector he told me not to be misguided by those rulings! That the only final authority to listen to is the CBIC and none else! In fact, the Inspector advised me to play 'safe'.

Yash wanted to know what Hatsun Agro (supra) will charge at Bangalore now in view of this circular. One of the customers who was following this drama, remarked - "They will charge 5% at Bangalore and for the same ice cream, 18% at Chennai."

I screamed - "Is it not One nation One tax?'', the GST tagline.

The cashier fell silent. To pull him out of this predicament and to give him some solace, I decided to look at the same issue from another angle. I asked Raj "Even if it is a composite supply what you finally get here is ice cream to eat."

Then I added, "All these preparations are fine; but finally do you eat the 'service' or you eat the ice cream."

Yash replied, "of course, ice cream"

I added, "so the essential character to the supply is given by ice cream, which is a commodity and, therefore, by applying the composite supply rule and the 'principal supply' logic, the supply is to be treated as supply of "goods".

The cashier was thrilled. At least, there is someone to support him.

Yash was not ready to give up. He added, "Then by the same logic, what you get in a restaurant also should be goods and not service. But they are always treated as service and charged at 5%."

Look Yash, I go to a hotel to eat 'Idli' tossed in 'hot sambar' and not for sitting on a chair and bath myself by cool air. Those are incidental. Finally, what I eat is their food and not their service.

There was an angry look from Yash - he said - "You mean to say that there also, they should charge 18%? But Government intends to treat them as 'services' only".

Raj added, "In a restaurant, several ingredients may be added and food may be cooked and prepared but as a customer what I am interested is not in the process of cooking/preparing but in the ultimate edible product and which is a commodity".

This brought us back to the fundamental question. After doing away with Excise law relating to manufacture and Service Tax law relating to services, why are we still grappling with the definitions of what is a 'service' and what are 'goods'? A million-dollar question.

In the meantime, Raj grabbed the bill from my hand and quietly chose to pay the same as our ice creams were being 'prepared'. We selected a corner table and in a few minutes the concoctions appeared.

I tasted a spoonful.

It was a little bitter.

Whether it was because of excess chocolate sauce or because of excess tax, I was not able to tell!

Perhaps, I need to consume more of the delectable dish rather than jumping the gun and arriving at a hasty decision.

[The views expressed are strictly personal. The characters in the article are all real but with names changed.]