The First-Tier Tribunal Tax Chamber of the United Kingdom, recently ruled that Dip Pots or Dips supplied as a part of KFC takeaway meals constitute a single standard rated supply.
The particular issue in this appeal is whether the supply of a dip pot as part of a KFC takeaway meal deal is a separate zero rated supply or whether it is part of a single, standard rated supply of hot food.
Read on till the end to find out the treatment of Dips for Goods and Services Tax in India as well.
Charlotte Brown, of counsel, instructed by PricewaterhouseCoopers LLP appeared for the appellant, Queenscourt Limited and for the respondents, Harry Jones and Max Simpson, litigators of HM Revenue and Customs’ Solicitor’s Office appeared.
The issue arises as a supply of takeaway hot food is standard rated whilst a supply of takeaway cold food is zero rated (the combined effect of s 30 and group 1 of schedule 8 VATA including, in particular, note 3 to group 1).
Based on this, the sale of a portion of takeaway chicken by one of Queenscourt’s KFC outlets (being hot food) is standard rated for VAT purposes whilst the sale of a dip pot (being cold food) is zero rated. The question is whether this remains the case where the two items are purchased together (along with other items) as part of a takeaway meal deal.
The Single member Bench observed that – “ There is no evidence that a dip is typically eaten on its own unlike, for example, coleslaw or a cookie. It is therefore difficult to see how the dip pot could be characterised as an aim in itself when purchased as part of a meal deal.”
It was further remarked that, “In any event, we do not consider the ability to choose to purchase a dip from the same KFC outlet but in a different way to be relevant to the question as to whether, from the point of view of the typical consumer of a meal deal, the supply of a dip pot as part of the meal deal is an end in itself or as a means of better enjoying the other items. As noted by the ECJ in Purple Parking at [31], “the fact that, in other circumstances, the elements in issue can be or are supplied separately is of no importance, given that that possibility is inherent in the concept of a single composite transaction”.”
The Bench of Tribunal Judge Robin Vos noted that, “ In our view, given the correspondence which had previously passed between PwC and HMRC which, as we have said, related only to the calculation of the amounts which were claimed and not to the wider issue as to whether the supply of the relevant items as part of a takeaway meal deal should be zero rated or standard rated, any reasonable recipient of the email would have interpreted the reference to the issue potentially being revisited during any future audit activity as being a reference to the way in which the amounts claimed were calculated and not to the question as to whether the relevant items could be treated as a separate supply and therefore zero rated.”
It was thus noted that, “Taking into account all of the circumstances, our conclusion is that the supply of a dip pot as part of a meal deal is not, for the typical consumer, an aim in itself but is a means of better enjoying the hot food which is included as part of the meal deal.”
Dismissing the appeal, it was held by the First-tier Tribunal Tax Chamber that, “The supply of dip pots as part of a takeaway meal deal is part of a single standard rated supply of the hot food and dips”.
It was also added that, “ Our conclusion therefore is that, based on the evidence available to us, whilst Queenscourt may have suffered some detriment to its business as a result of having to repay the VAT which had been reclaimed, it has not shown that there has been, or is likely to be, any serious detriment to it which results solely or primarily from HMRC making the recovery assessments.”
Indian Perspective
In India, the Goods and Services Tax is charged at flat 5% or 18% on restaurants, depending on some factors.
A composite supply is two or more goods or services that are only sold as a set and cannot be sold individually.
Every composite supply has a principal supply, which is the main product or service that the buyer primarily wants. The rest of the supply is made up of supporting elements that add value to the principal supply.
Restaurant businesses provide preparation of food and serve the same, a bundled supply. It is also a classic example of a composite supply. However, to avoid the confusion under earlier tax law, the GST Act clearly clarifies restaurants as a supply of service with specific tax rates.
One such recent advance ruling was issued by the Gujarat Advance Ruling Authority (Authority) wherein the Authority ruled as under:
1. The supply of ice cream from the outlets of the applicant cannot be considered as supply of ‘restaurant services’. The readily available ice creams [not prepared in their outlets] sold over the counter are a supply of goods. However, an ice cream when ordered and supplied along with cooked or prepared food, through their outlets would assume the character of composite supply, wherein the prepared food being the principal supply and hence qualifies as ‘restaurant services’.
2. The supply of ice cream from the outlets of the applicant is not classified as ‘restaurant services’. However, the composite supply, supra, classifiable under ‘restaurant service’ would be leviable to GST @ 5% with no input tax credit as per Sr. No. 7(ii) of notification No. 11/2017-CT (Rate) dated 28.6.2017 as amended vide notification No. 20/2019-CT (Rate) dated 30.9.2019.
3. The supply of only ice cream [not prepared in their outlets and which is readily available] from any of the outlets of applicants is held to be akin to supply of ice cream from ice cream parlour, leviable to GST @ 18%.
Read Also: Supply of Ice Cream from Outlets Not “Restaurant Services”: AAR
Thus, in India, unless the sale of pre-packaged ice cream is done separately, it forms part of a composite supply, taxable at Flat 5% or 18% depending on the classification of the restaurant.
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