With the passage of time, GST is widening its scope to levy the tax and making it muskier for the authorities to fill the revenue coffers.
With effect from Jan 1 2022 E-commerce operators (“ECO”) are now made liable to pay GST on “restaurant services” provided through their e-commerce platform. The change will not only impact the compliances of ECO but also affect their eateries i.e. restaurant owners.
This change will impact all the stakeholders of this sector, including restaurants, food delivery apps, and consumers. Through this article, we will clarify various models that exist in the food delivery ecosystem.
Business models:
Restaurant service inter alia means to supply, by way of or as part of any service, of food or any other article for human consumption or any drink. Such services can be provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises.
We have divided the eateries based on their operational functionalities so as to do a thread bear analysis of GST laws applicable from Jan 1, 2022:
Pure Restaurant services.
Luxurious Hotels.
Eateries other than specified restaurant services.
Hybrid Model.
Liquor Shops.
Groceries.
Pure Restaurant services:
A restaurant is a place that is in the business of preparing and serving food. Examples; Food and beverages are sold as a part of restaurant services, eg, Subway, McDonald’s, Dominos etc; Cloud kitchens providing restaurant services, eg. Boss Burger, Hello Panda. etc Standalone restaurants that are not ice cream parlors or bakeries.
For the eateries that provide pure restaurant services, the ECOs shall be responsible for charging tax @ 5% on the supplies made through their e-commerce platform on behalf of such eateries. Further, the responsibility to issue invoices also lies on the ECO.
ECO will pay these restaurants after deducting such GST and disclose such payment made in the GST returns as prescribed by GST Authorities. Furthermore, the ECO is not required to charge and deposit any amount of TCS as they are paying tax @5%.
However, while determining the turnover threshold consideration or any other purpose in the Act, the person providing restaurant service through ECO shall account for such services in his aggregate turnover.
Luxurious Hotels:
In this category, we are concerned only with restaurants in hotels where the declared tariff of any accommodation unit is more than INR 7500/-. These are generally found in those establishments which provide accommodation, meals, and other services for travelers and tourists, such as Radission, Taj hotels, etc.
Government notification expressly excludes the restaurant services that are provided from a premise with a declared tariff of Rs. 7,500/- or above per day as the same falls under the category of tax bracket of 18% GST.
Thus, the ECOs are not liable to pay GST on the same and will continue to operate in the same manner as is being done at present where hotels are solely responsible to discharge and pay the applicable taxes to the Government. ECO’s will be responsible for deducting TCS on such supplies through them.
Eateries other than specified restaurant services:
Eateries supplying other edible goods which do not qualify as “restaurant services” shall fall under this category.
Examples:
Standalone ice cream parlor who is not supplying “restaurant services” like Giani Ice Cream, Baskin-Robbins, etc; Standalone bakery not supplying “restaurant services” like Mr. Brown; Sweet shops if are not supplying “restaurant services” like Aggarwal sweet shop; Standalone chocolate shop not supplying “restaurant services” Such suppliers will continue to charge and pay applicable GST as per the classification of products.
Recently Government has clarified ice cream parlors that sell already manufactured ice- cream are not rendering any “restaurant services”. They are supplying ice cream as goods and not as a service, even if the said supply has certain service ingredients.
Accordingly, it was clarified that ice cream sold by a parlor or any similar outlet would attract GST at the rate of 18%. Thus, the same methodology will be applied while determining tax rates on other categories.
Thus, present dispensation continues for ECO, on supplies by such eateries. GST will continue to be billed, collected, and deposited by the said eateries, and ECO will deposit the applicable TCS on such supplies.
Hybrid Model
Wherein an eatery is involved in providing “restaurant services” as well as supplying other goods like ice-creams, sweets, etc. that do not qualify as “restaurant services”, such eatery will be categorized under the ‘hybrid model’. Fully operational Haldiram and Bikaner Wala restaurants are classic examples of the same.
Such suppliers will have to bifurcate the “restaurant services” and other goods supplied through ECO. Such ECO shall pay GST on “restaurant services” provided through ECO as a supply of restaurant service @5%. For non-restaurant services, applicable GST on goods supplied through ECO shall be continued to be paid by the eatery where ECO will only collect and deposit the TCS portion only.
Considering the issuance of an invoice to a customer continues to lie with the respective suppliers for non-restaurant services, ECO should raise separate bills on restaurant service in such cases where ECO provides other supplies to a customer under the same order. It would be advisable to issue individual invoices even if an order for both supplies is given under the customer's single set of instructions.
Liquor shops:
The government has also not yet approved ECOs to sell alcoholic beverages on food delivery apps. Thus the new introductory provisions will not apply to liquor shops.
Moreover in the future, if the same is allowed, then ECO would not be liable to pay tax on the supply of alcoholic liquor for human consumption as the same is outside the ambit of GST and non-leviable to tax. Also, TCS provisions would not be applicable on the same supplies.
Groceries shops
The Grocery shops are supplying prepackaged or loose goods items. These can not be categorized as restaurant services, thereby ECOs are not liable to pay tax on such supplies made from their platform. However, they are required to follow the provisions related to TCS.
CONCLUSION:
This new year has begun with a five per cent GST levied on supplies made by any food delivery apps like Zomato and Swiggy. All restaurants that currently have 0% GST, will now have 5% GST applicable from January 1, 2022, thus making supplies dearer, which may impact sales in the short run.
Central Government decided to levy 5% GST on food delivery apps to prevent revenue leakage by unregistered restaurants due to the lack of mandatory registration checks by apps. It may be noted that though the tax rate is low, some reports estimated the revenue loss at around INR 2,000 crore. Hope with this change revenue will garner additional taxes at the expense of rising in cost for consumers.