Odisha AAR: Supply on Birthday Stickers & Candles Also Taxable as Per GST

The Odisha Authority of Advance Ruling (AAR), on Tuesday of this week, has passed a ruling that the Supply of items such as birthday stickers, candles, and so on does not qualify as Composite Supply.

Here, in this case, The Applicant is “Pioneer Bakers” that is a registered Partnership Firm and since the year 1997, it has been working under the Brand “Go cool”. Consequently, It has transformed itself as a brand in the confectionery Industry. It also provides customary products to its customers. Additionally, it has several outlets that are operating in the various cities and towns of the state of Odisha. So, the mainstream business of the applicant is producing and selling bakery products.

It is worthwhile mentioning here that the bakery products are produced/made either in the Premises of the outlets itself and then served to customers or
In its workshop that is located nearby to the premises of the outlet of the applicant.

It is worthwhile mentioning here that that generally the raw material such as cookies and chocolates are manufactured only in workshops as these raw materials require heavy machinery and they are labor-intensive in nature, and consequently, the aforesaid raw material is prepared in the nearby workshop and transferred to the outlets for customization as per the requirements of the customer. It is further clarified that no good is sold directly from the workshop. In other words, each and every item is transferred to the outlet for sale.

The authority noted that the supply of items such as candles, birthday caps, snow sprays and related items that are used in birthday celebration cannot be categorized as Composite Supply that is defined as per Section 2 (30) of the CGST Act, 2017 and Section 2 (30) of the OGST Act, 2017. The principal supply of goods is consists of bakery items whereas the supply of services includes the supply of an air-conditioned place to sit and to celebrate a birthday.

The AAR ruled that “The sale of handmade chocolates which are manufactured in the workshop of the Applicant and are utilized for the purpose of providing other services such as shakes, brownies and are also retailed by packing in different containers as per the choice of the customer will be covered under the under the restaurant services,”

It was further added by AAR that items such as birthday stickers, birthday caps, Balloon, candles, Carry Bags, snow sprays, and related items are being bought and sold without any further processing in the restaurant, So the aforesaid items are not articles of food and drinks and consequently covered under goods. And hence the sale of such bought-out goods is not a service but a sale of goods considering. Entry Number. 7 of Notification No. 11/2017-Central Tax Rate bearing date 28-6-2017 that relates to the supply of goods.

“We observe that raw chocolates are manufactured in the nearby workshop of the applicant which is utilized for the purpose of providing other services such as shakes, brownies and is also retailed by packing in different containers as per the choice of the customer. In no case, chocolates are sold as such from the workshop but are customized and sold from the outlets. Therefore, we agree with the submission of the Applicant that the sale of handmade chocolates which are manufactured in the workshop and brought to the outlets for further processing will be covered under the ‘restaurant services’,” the AAR said.

Finally, the AAR held that the act of the supply of items namely chocolate, cookies that are manufactured in the nearby workshop of the applicant and thereafter processed to customize in the outlets of the applicant classifies as ‘composite supply’ under Section 2(30) of the CGST Act. The aforesaid composite supply shall be deemed as supply of service as per Entry 6(b) of the Schedule II to the CGST Act and more precisely the ‘Restaurant Service’ and rate of tax is 5% without considering any input tax credit.