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Retail outlets selling ice-cream should be treated as supply of goods, rules AAR

Shishir Sinha New Delhi | Updated on April 14, 2019

Verdict gives clarity on classification of over-the-counter sales

What is in a simple cone of ice-cream, double scoop, triple scoop or even triple sundae? The Authority for Advance Ruling –Maharashtra (AAR-Maha) has an answer for you.

In a ruling on a case involving Pune-based ice-cream retailer Arihant Enterprises, the AAR ruled that the supply of ice-cream from retail outlets would be treated as supply of ‘goods.’

The applicant is engaged in the business of reselling ice-cream in wholesale as well as retail sale packages. It purchases ice-cream from sole manufacturer and after that sells ‘as it is’ without any further processing/alteration/structural or chemical changes.

Commenting on the ruling, Harpreet Singh, Partner in KPMG, felt that it is in line with the earlier ruling in the case of M/s Kundan Mishthan Bhandar.

Sale of goods or service?

With this ruling, the doubt over classification of over-the-counter sales may have been put to rest as the ruling has recognised the predominant intention as sale of goods vis-à-vis provision of service. “The discussion on what differentiates restaurants from outlets in this ruling could be handy in determining classification of kiosks, food trucks, stalls, etc,” he said.

The application approached the AAR with four questions — will the supply of ice-cream from its retail outlets be treated as supply of goods or supply of services; whether the supply, not being a composite supply, would be treated as supply of services; if it is composite supply, then how taxability would be decided; and if it is a supply of services, would there be GST at the rate of five per cent (as is in restaurants). It was explained that the sale of ice-creams is either in retail packs or by way of scoops. As regards sale in retail packs is concerned, the ice-cream is sold as a 500-gram retail pack.

The sale mainly consists of party packs popularly known as ‘tubs’. Sale by scoop, too, are done to those who wish to consume ice-creams on a take-away basis. It was argued that the sole intention in the transaction is that of sale. There is no contract for provision of any service.

No outlet of the applicant provides the facility of serving/dining to the customer.

Comparison with oil sales

After going through the facts of the case, AAR observed that the applicant offers no facility of serving/dining. It further held that the dominant object even in the case of ice-cream sold in scoops is a sale of goods.

This transaction of selling ice-cream received in bulk and selling them in retail is akin to edible oils sales made by grocery shops wherein the grocer sells such oils in various lesser quantities after receiving the same in bulk quantity of 20 litres etc in tins/cans.

The ruling further held that the applicant’s outlet differs from the conventional restaurants. In restaurants, generally the customers order food for the purpose of consuming the same there only, which are then prepared and served by waiters, etc to the customers.

The ice-creams here are sold in the same form as received by them and at agreed rates not exceeding the MRP. In most of the cases, ice-creams appear to be consumed outside the premises of the applicant.

The ruling further concluded that even if the transaction was to be considered as a composite supply, even then the principal supply in the subject case is a sale of goods i.e. ice-creams, being the pre-dominant element of the transaction.

Published on April 14, 2019

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