GST on counter sales: Kerala AAR defines 5% rate, 18% for hotel premises

Selling Chat, Lassi, and Vada-Pav through a separate counter without a brand name inside a shop is a ‘restaurant service’ and will attract GST at 5 per cent, Kerala Authority for Advance Ruling (KAAR) has ruled. The rate will go up to 18 per cent if the separate counter is located in a hotel where the room tariff is Rs 7500 or more.

Ernakulam-based Devalokam Bakery is in the business of reselling bakery products. In addition, it cooks Pani Puri, Masala Chat, Punjabi Lassi, Sev Puri, Samosa Chat, Vada Pav and Pav Bhaji at its premises and sells through a separate counter in front of the shop to customers who consumers at the counter. It approached the AAR to seek a ruling on whether these items cooked and sold out without a brand name fall under restaurant sales taxable at 5 per cent. Also, what would the GST rate be if it is a restaurant service?

The shop itself argued that the products mentioned above, sold through a separate counter, qualify to be treated as restaurant services. These products are sold in ready-to-eat conditions and are liable to be taxed at 5 per cent for both regular and composite registration. After hearing all the arguments and examining all the facts presented, AAT said that the supply in question constitutes a service, supplying items with no brand.

Considering the law’s provisions, the AAR held that the sales in question fall under the ‘services provided by restaurants, cafes, and similar eating facilities including takeaway services, room services and door delivery of food’ category and HSN (Harmonised System of Nomenclature) 996331. However, the tax rate can be 18 per cent or 5 per cent, depending on certain conditions.

“If the applicant is located in the premises of hotels, inns, guest houses, clubs, camp sites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of ₹7,500 and above per unit per day or equivalent, the rate of GST shall be 18 per cent,” it said in a recent ruling. Further, “if the above conditions are not applicable, the rate if CGST and SGTS is 2.5 per cent each only, provided that credit of input tax credit of input tax charged on goods and services used in supplying the service has not been taken,” AAR added.

AAR and AAAR (Appellate Authority for Advance Ruling) rulings apply only to applicants and jurisdictional tax officers. They can be referred to in similar matters but cannot become precedent. However, they can be challenged in the High Court or even in the Supreme Court, and their rulings can be applied in similar matters. Many times, rulings by AAR and AAAR have become the basis for major policy changes, which then can be applied to all.