GST on Restaurant Food & Services -

GST on Restaurant Food & Services

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April 14, 2023

GST

Takeaways and Quick Service Restaurants (QSR) are one of the fastest-growing industries in India. These establishments offer convenient and affordable options to consumers who are constantly on the move or do not have the necessary time, interest, or help to cook. They have become an essential part of the urban lifestyle with many people opting for quick-order meals instead of cooking at home.

Now let us understand how government implies GST on restaurant food and services.

Understanding GST on Restaurant Food & Services

Like all other industries, GST has a big impact on the food industry. The GST rates for food products depend on factors like their nature, packaging, and mode of supply. For example, packaged foods like chips and biscuits are taxed at a higher rate than unbranded or homemade products.

As a part of the food industry, the Takeaway and Quick Service Restaurant (QSR) businesses are also affected by GST. They need to register under GST and comply with various rules like filing monthly or quarterly returns, maintaining proper records, etc. In the same way, GST on rent is applied as well.

GST Rules for Takeaway and QSR

In India’s GST system, takeaway and Quick Service Restaurant (QSR) businesses must adhere to specific regulations. Here are some important GST rules that apply to takeaway and QSR businesses:

Registration: Businesses that generate an annual turnover of Rs. 20 lakhs or more must register under GST. However, businesses with a turnover below this threshold may choose to register voluntarily.

GST Output Tax Rate & Input Tax Credit: As per Sr. No. 7(ii) of Notification No.11/2017 – Central Tax (Rate) dated June 28, 2017, and Sr. No. 7(ii) of Notification No. 11/2017 – State Tax (Rate) dated June 30, 2017, services provided by restaurants, cafes, and similar eateries, including takeaway services, room services, and door delivery of food, are subject to a GST rate of 5% without input tax credit.

Chapter, Section, or Heading	Description of Service	ROT	Condition
Heading 9963 (Accommodation, food and beverage services)	(ii) Provision of “restaurant services” at locations other than “specified premises.”	5%	It is required that the credit for the input tax charged on the goods and services used in providing the service has not been claimed.
Heading 9963 (Accommodation, food and beverage services)	(vi) Services related to lodging, meals, and drinks excluding those mentioned in (i) to (v) above. Explanation: (a) To avoid confusion, it is clarified that services specified in items (ii), (iii), (iv), and (v) in column (3) will be charged the central tax rate prescribed in column (4) with conditions mentioned in column (5), which is a compulsory rate and cannot be levied at a rate specified under this entry. (b) This entry pertains to the provision of “restaurant services” at “specified premises.” (c) This entry applies to the supply of “hotel accommodation” with a unit value of over seven thousand five hundred rupees per day or equivalent. (d) This entry pertains to the supply of “outdoor catering” provided by suppliers providing “hotel accommodation” at “specified premises” or suppliers located in “specified premises.” (e) This entry covers the combined supply of “outdoor catering” and renting of premises (such as hotels, convention centers, clubs, pandals, shamianas, or other places specially arranged for hosting events) provided by suppliers offering “hotel accommodation” at “specified premises” or suppliers located in “specified premises.”	18%

Invoicing: Takeaway and QSR businesses should provide tax invoices to customers for all taxable supplies. The invoice must contain specific information, such as the GST identification number (GSTIN) of the business, the name and address of the customer, a description and quantity of goods or services provided, and the amount of GST charged.

Returns: These businesses must file regular GST returns, such as GSTR-1, GSTR-3B, and GSTR-9, which include information on the business’s sales, purchases, and tax liabilities.

Challenges faced by takeaway and QSR businesses under GST

The application of Goods and Services Tax (GST) rules to takeaway and Quick Service Restaurants (QSRs) can significantly impact their compliance and operations. These are the key challenges that businesses in this sector face under the GST regime:

1. Compliance burden: GST mandates businesses to maintain detailed records of their sales and purchases and regularly file returns. This results in increased paperwork and compliance obligations, which can be both time-consuming and expensive.
2. Complex tax structure: GST has a multi-tier tax structure, with different rates applicable for different products and services, making it difficult to navigate.
3. Input tax credit (ITC) restrictions: Businesses can claim ITC for taxes paid on inputs used in the production of goods or services. However, certain restrictions on ITC claims, such as on inputs like rent, food, and beverages used for employee consumption, can increase their tax liability.
4. Impact on pricing: GST has caused changes in the prices of goods and services, affecting takeaway and QSR businesses as well. Some food items that were taxed at a lower rate, such as sweets and savories, are now taxed at a higher rate, affecting the pricing strategy of these businesses.
5. Technology challenges: GST has introduced new changes in the way businesses operate, such as e-invoicing and e-way bills. SMEs may encounter difficulties adapting to these technological changes.

Legal Aspects

However, the taxability of QSR under GST is not well established. There are contrary judgments and advance rulings pertaining to the Service Tax regime and GST regime which are elaborated below:

1. Anjappar Chettinad A/C Restaurant Vs Joint Commissioner (Madras High Court;

Date of Judgement/Order: 20/05/2021):

According to this ruling, no service tax can be imposed on the takeaway of food items since it would be considered as a sale and would not entail any service element.

Likewise, a similar decision was reached by CESTAT, New Delhi in the case of Haldiram Marketing Pvt. Ltd. versus Commissioner, Central Goods and Service Tax, GST Delhi East Commissionerate (Service Tax Appeal No. 51555 of 2022 dated 13.02.2023).

“22. In view of the aforesaid discussion, it can be concluded that the takeaway of food items cannot be subjected to service tax since it falls under the category of sale and does not involve any service element.

GST Advance Ruling of M/S Ridhi Enterprise (GUJ/GAAR/R/2022/51 dated 30.12.2022

According to this ruling, the decision was passed that,

The food and beverages that the Applicant prepares and supplies to its customers, whether for dine-in or takeaway, are considered “restaurant services” and are classified under SAC ‘996331. Services provided by restaurants, cafes, and similar eating facilities including takeaway services, room services, and door delivery of food’. These services are subject to GST at a rate of 5% without the input tax credit, as specified in Sr. No. 7(ii) of Notification No.11/2017 – Central Tax (Rate) dated June 28, 2017, in conjunction with Sr. No. 7(ii) of Notification No. 11/2017 – State Tax (Rate) dated June 30. 2017.

The readily available food and beverages (that are not prepared in the restaurant) sold over the counter by the Applicant are classified as the supply of goods, which are subject to the applicable GST tax rate. These items do not qualify as “restaurant services.

Conclusion

Hence, how the QSR’s represent themselves in front of the GST department is crucial to the levy of this significant tax and proper planning and documentation is needed to ensure smooth running of business.

To talk to a subject matter expert, you may call at 9899020497.

Important FAQs

Is there any GST on takeaway food?

Yes, there is GST (Goods and Services Tax) applicable to takeaway food in India. The GST rate varies from 5% to 18% depending on factors like the location of the takeaway place, the type of food ordered, etc.

Which restaurants can charge 18% GST?

If you make use of restaurant amenities in a commercial establishment, like a hotel, guest house, or any lodging-based facility, which levies a daily tariff of Rs 7,500 or higher per unit (room), you will be obligated to pay 18% GST. This applies regardless of whether you have checked into the hotel or not.

Is GST required for fast food?

What food is exempt from GST?

Some examples of food items that are exempt from GST in India are:

Fresh fruits and vegetables (excluding processed or packaged variants), unprocessed cereals like wheat, rice, maize, etc., milk (fresh, pasteurized, or sterilized), eggs, curd, and lassi, fresh meat, fish, and poultry products, natural honey, fresh ginger, garlic, and turmeric, among others.

What is the HSN code for takeaway food?

The Harmonised System of Nomenclature (HSN) code for takeaway food depends on the type of food item being sold. For example, the HSN code for cooked or prepared food, such as meals or snacks, is 9963. The HSN code for non-alcoholic beverages, including packaged drinking water, fruit juices, and soft drinks, is 2202. The HSN code for alcoholic beverages, including beer, wine, and spirits, is 2203.

Is GST required for small restaurants?

Restaurants located in special category states (Jammu & Kashmir, Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim, and Uttarakhand) must register for GST if their yearly aggregate revenue exceeds ₹10 lakhs. However, even restaurants with an annual revenue lower than this threshold can voluntarily opt for GST registration.

Do you charge GST on food delivery?