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Taxation of restaurant services in GST

Taxation of restaurant services in GST

It is a long story of nature of foods supply with serving. In pre GST regime also it was a big confusion. It persisted for years. In GST schedule II was specifically introduced to decide upon the nature of an activity. Para 6b of Schedule II covered the food article supply as a part of service. It fixed its nature as a supply of service. Taxation of restaurant services in GST is again causing confusion. AAAR in case of Kundan Mishthan Bhandar has changed the scenario.

Then notification no. 11/2017 fixed the tax rate for the same at 5% without ITC. It was also clarified that tax rate for food articles provided in mess etc. will also be covered in 5% tax rate.

 

Supply of foods items not served:

Let us have a look on basic structure of a restaurant. Generally restaurants provide following type of services:

  1. Serving of food items on table.
  2. Selling some of the packaged items over the counter to the people availed the dinning.
  • Supply of food at home using some E- commerce portal like swiggy or Zomato.
  1. Over the counter sale of items but the user can sit and eat the items, as sitting is available.
  2. Over the counter sale of items with no sitting. Take away outlets only without any place of eating.

 

Taxability of all of above transactions should be decided in light of GST provisions. The serving of food as a part of service is taxable at the rate of 5%. Notification no. 11/2017 provide for it. But the food items, which are not served, will be taxable as a goods at their respective rates. In this context it is important to understand when they will be deemed as a supply of food article as a part of serving and when they will be a sale of food item.

 

Observation in case of Kundan Mishthan Bhandar:

 

In this regard the AAR of Kundan Mishthan Bhandar will be very important. Whether the sale of food articles from a restaurant will partake the character of service or not?

In this advanced ruling it was held that any supply of food from a restaurant would be a service. The tax rate on the same will be 5% only. Input tax credit in this case will not be available.

The AAAR in case of Kundan Mishthan Bhandar set aside the decision of AAR. The authority observed that a composite supply should fulfil the conditions of section 2(30) to qualify as a composite supply. The goods sold over the counter have nothing to do with the restaurant part. Their sale can’t attract 5% tax. In this case their respective rates, as an item will be relevant.

Tax rate in case of sale from counter: Mixed Supply

Now the supply of a bunch of items from the counter wont attract the composite supply provision. It will get covered in mixed supply. In this case the tax rate of item having the maximum will be relevant. As per the provisions of section 8 of CGST Act, tax rate of highest rate item will be applied on entire supply.

e.g. Mr. X bough following items from KMB, a sweet shop.

i. 1 kg of Gujhiya for Rs. 500

ii. 1 Diet Coke for Rs.55

iii. 5 Kg Amul Milk for Rs. 300

What will be the applicable tax rate?

Ans: The tax rates of each item will be relevant here. Mixed supply will be relevant only in cases where a single price is charged.

e.g. In the above mentioned example if the price charged for all items is Rs. 1000.

In this case tax rate of item having the maximum tax rate will be relevant for taxation of restaurant services.

 

Conclusion for  Taxation of restaurant services in GST

Based on above discussion we can say that:

  1. When the food articles are purchased by a customer availed the dinning tax rate is 5% without ITC.
  2. Whena customer paid for dinning the tax rate is 5% without ITC.
  3. When a customer make over the counter purchase of food items and don’t avail any services tax rate will be rate of food item. In this case ITC will also be available to the taxpayer.
  4. When the food is supplied via an e-commerce operator the tax rate will be the rate of food item only. 5% rate will not be applicable in this case.

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Profile photo of CA shafaly girdharwal CA shafaly girdharwal

CA

New Delhi, India

CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.

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Opinions & information presented by ConsultEase Members are their own.