Readily available food and beverages (not prepared in the restaurant) sold over the counter do not qualify as ‘restaurant services’. AAR ruling upheld

Copy of Judgement

Background of the Case

• M/s. Riddhi Enterprise, the appellant, is engaged in the restaurant business, offering food and beverages prepared in the restaurant as well as those purchased externally and sold over the counter.
• The appellant sought an Advance Ruling on:
  1. Whether food and beverages prepared and supplied in the restaurant, whether consumed on-premises or as takeaway, qualify as “restaurant services” and are taxable at 5% GST without Input Tax Credit (ITC).
  2. Whether pre-packaged, readily available food and beverages (not prepared in the restaurant) but sold over the counter qualify as “restaurant services” with a 5% GST rate.

Findings of the Gujarat Authority for Advance Ruling (GAAR)

• GAAR ruled that:
  1. Food and beverages prepared in the restaurant qualify as “restaurant services” and attract 5% GST.
  2. Readily available food and beverages purchased externally and sold over the counter are not restaurant services but rather a supply of goods and subject to applicable GST rates.

Arguments of the Appellant (M/s. Riddhi Enterprise)

• The appellant contended that:
  • The definition of “restaurant service” under GST includes both prepared and ready-to-eat food items.
  • The GST Council had clarified that restaurants should be taxed at 5% irrespective of whether the food is prepared on-premises or simply sold over the counter.
  • GAAR misinterpreted the ruling of M/s. Kundan Misthan Bhandar.
  • A similar ruling in M/s. Gangaur Sweets supported their view.

Appellate AAAR’s Observations and Ruling

• AAAR examined relevant legal provisions and GST notifications, including:
  • Schedule II, Clause 6(b) of the CGST Act, 2017.
  • Clarifications from Circular No. 201/13/2023-GST dated 01.08.2023 and 164/20/2021-GST dated 06.10.2021.
• AAAR reaffirmed GAAR’s decision:
  • Food prepared in the restaurant qualifies as “restaurant service” and attracts 5% GST.
  • Pre-packaged food items (not prepared in the restaurant) sold over the counter do not qualify as restaurant services and are subject to the applicable GST rate as supply of goods.
• Cited the Kundan Misthan Bhandar and Gangaur Sweets cases but found them inapplicable to Riddhi Enterprise’s situation.
• Ruled that Advance Rulings are only binding on the applicant and concerned jurisdictional officers.

Conclusion

• The appeal was rejected.
• The AAAR upheld the GAAR ruling that only food prepared in the restaurant is classified as “restaurant service.”
• Pre-packaged food sold over the counter is a supply of goods and subject to GST at applicable rates.