At the time of writing this article, almost 28 months has been completed from the incorporation of GST laws in Indian Indirect Taxation System. In these 28 months, hundreds of notifications, amendments, enhancements were brought into GST laws for betterment of industry as well as exchequer. However, still it lacks to satisfy a major portion of industry.
GST law was a complete change over for industry which demands time for correct implementation. However, unstructured implementation at its incorporation and then, hundreds of amendments to cover loops due to improper implementation, made the law a messy tax law as of today.
In this article, we will discuss messy tax system of a restaurant business.
In this article, restaurant would include every type of food point, be it called by, canteen, mess, food joint, food corner, food on wheels, eating joint, etc.
Supply of any “prepared/served” food or beverage in a Restaurant is treated as supply of services.
Any packaged item like biscuits, namkeen, cold-drink cans, cold-drink bottles, etc. are not covered under Restaurant service. These are treated as trading of goods only.
As per Schedule-II to CGST Act, 2017:-
“supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration shall be treated as Supply of Service.”
Initially, (in July 2017), GST rates for restaurant sector were varied on the basis of following features of a restaurant :-
- whether it has facility of air-conditioning or central air-heating in any part of the establishment;
- whether it has licence or permit or by whatever name called to serve alcoholic liquor for human consumption in its premises;
At this time, there was no restriction to claim credit of Input Tax Credits in any tax slab.
In November 2017, above said criteria was removed and new criteria added to decide tax rates, i.e. “whether it is located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent”;
In November 2017, along with above criteria, govt also brought tax slabs with an option to adopt lower tax rate (i.e. 5%) to be charged on sales. However, it could be applied only when they sacrifice their claim for Input tax credits.
It has put an obligation on supplier of these services to charge tax @ 5% without ITC . Option for availing ITC and charging tax on outward Supplies @ 18% not available.
In July 2018, an amendment was brought in to bring the contractual supply of food at canteen, mess, cafeteria or dining space of an institution under Restaurant services. Earlier these were treated as “Outdoor Catering Services” and were chargeable to 18% rate of tax.
In recent, From 1st October 2019, this industry got a complete brand new structure for tax on its supplies which is based on “whether restaurant is located in a specified premise”;
From October 2019, tax rate for restaurant services and outdoor catering services brought into same slab of 5% with similar conditions and restrictions.
It has put an obligation on supplier of these services to charge tax at 5% without ITC .
Earlier, definition of terms like “Restaurant service”, “Outdoor catering”, “Hotel accommodation” was not in law. These definitions are brought up in law just in October 2019.
Tax rates applicable w.e.f. 1st October 2019
It is a major flaw of our administrative system that the notifications for application of provisions in amendments are issued just a day before the date of its applicability. Same in this case, Notification CGST-R-20/2019 was issued on 30th September 2019 with date of applicability just 1st October 2019.
Following is the epigrammatic presentation of provisions of said notification..
Definitions:-
“Restaurant service” means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied.
In this definition, it is clearly provided that there should be supply of goods “by way of service or a part of any service” for human consumption. If this is the case, it will be a Restaurant service.
In case, the supplier is supplying packaged goods, then, it will be treated as supply of goods only. Tax rate applicable for Restaurant service would not be leviable. Hence, tax to be charged on such goods according to its own tax slab.
Further, any supply of food, in regular, under contractual arrangements, would be covered under Restaurant service.
“Outdoor catering” means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, at Exhibition Halls, Events, Conferences, Marriage Halls and other outdoor or indoor functions that are event based and occasional in nature.
In this definition, nowhere it is mentioned that the supplier must move out of his premises to provide the catering services. For example, if a banquet hall owner provides catering service in addition to renting of such premises, then too, it would be treated as Outdoor Catering service.
“Declared tariff” means charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.
“Specified premises” means premises providing “hotel accommodation” services having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.
“Hotel accommodation” means supply, by way of accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes including the supply of time share usage rights by way of accommodation.
Where a commercial place has primary objective to provide the particular space for residential or lodging purposes, then it would be treated as Hotel accommodation. For example, lodging facility provided in dormitory would be covered under Hotel accommodation.
However, in case, where a marriage hall provide rooms as part of renting services of such marriage hall, then the additional rent charged for such rooms would not be covered in Hotel Accommodation service.
In the another example, a hotel is providing two independent services, i.e. renting of rooms for accommodation and another is renting of banquet halls for function, etc. In this case, service charges charged for rooms would be treated as Hotel Accommodation service.
Tax Rates for Restaurant Service (w.e.f. 1st October 2019)
Supply of “restaurant service” other than at “specified premises” is chargeable at 5%.
Provided that credit of input tax charged on goods and services used (i.e. inputs/input services) in supplying the service has not been taken.
Supply of “restaurant service” at “specified premises” is chargeable at 18%.
Tax Rates for Outdoor Catering Service (w.e.f. 1st October 2019)
(1) Supply of “Outdoor catering”, at premises other than “specified premises” provided by any person other than-
(a) suppliers providing “hotel accommodation” at “specified premises”, or
(b) suppliers located in “specified premises”.
are chargeable at 5%…Provided that credit of input tax charged on goods and services used (i.e. inputs/input services) in supplying the service has not been taken.
(2) Supply of “Outdoor catering”, at premises other than “specified premises” provided by–
(a) suppliers providing “hotel accommodation” at “specified premises”, or
(b) suppliers located in “specified premises”.
are chargeable at 18%…
(3) Supply of “Outdoor catering”, at “specified premises”
are chargeable at 18%…
Tax Rates for Supply of Food or any drink in Trains or at platforms (w.e.f. 1st October 2019)
(1) Supply of goods, being food or any other article for human consumption or any drink, whether in trains or at platforms, by:-
- the Indian Railways or
- Indian Railways Catering and Tourism Corporation Ltd. or
- their licensees,
are chargeable at 5%…Provided that credit of input tax charged on goods and services used (i.e. inputs/input services) in supplying the service has not been taken.
(2) Supply of goods, being food or any other article for human consumption or any drink, whether in trains or at platforms, by any person other than:-
- the Indian Railways or
- Indian Railways Catering and Tourism Corporation Ltd. or
- their licensees,
are chargeable at 18%…
Tax Rates for Composite Supply of Food or any drink along with Renting of Premises (w.e.f. 1st October 2019)
In this case, supply includes Composite supply of “Outdoor catering” together with renting of premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function).
Followings would be different tax slabs :-
(1) Composite Supply of “Outdoor catering” along with renting of Premises, at premises other than “specified premises” provided by any person other than-
(a) suppliers providing “hotel accommodation” at “specified premises”, or
(b) suppliers located in “specified premises”.
are chargeable at 5%…Provided that credit of input tax charged on goods and services used (i.e. inputs/input services) in supplying the service has not been taken.
(2)Composite Supply of “Outdoor catering” along with renting of Premises, at premises other than “specified premises” provided by–
(a) suppliers providing “hotel accommodation” at “specified premises”, or
(b) suppliers located in “specified premises”.
are chargeable at 18%…
(3) Composite Supply of “Outdoor catering” along with renting of Premises, at “specified premises”
are chargeable at 18%..
Thanks for providing the valuable information..
Where is it mentioned that packaged items – biscuits, cold drinks are not covered under restuarant services?
Can you please tell whether a restaurant can claim itc on beverage supplied to customer, as itc on food and beverage if supplied in same category can be taken.