Discover the complexities surrounding the Goods and Services Tax (GST)https://www.efiletax.in/ and its impact on the restaurant industry in India. Learn about the definition of restaurant services, eligibility for the 5 percent GST rate, and the taxation of pre-cooked food items. Gain insights into the ongoing challenges faced by the sector and the need for clarifications.
- India’s food service market is projected to grow at an impressive CAGR of 11.19 percent, reaching USD 79.65 billion by 2028.
- The impact of tax costs significantly influences investments and the growth of businesses in the restaurant industry.
- Multiple amendments to the GST rate entry have led to challenges and complications for the hospitality sector.
- The reduction of the GST rate from 18 percent to 5 percent has resulted in interpretational issues and limitations for certain types of restaurants.
- Hardcastle Restaurants Private Limited and Inox Leisure Limited have filed writ petitions challenging the restrictions on availing Input Tax Credit (ITC) by non-specified premise restaurants.
- This article aims to provide answers to common GST-related questions faced by the restaurant industry in India.
What qualifies as restaurant services?
- Definition of restaurant services according to Entry 6(b) of Schedule II of the CGST Act, 2017.
- The treatment of food and beverage supply as a composite supply of services.
- Inclusion of supply “by way of service,” “as part of service,” or “in any other manner whatsoever.”
- The definition of “restaurant service” as provided by the Central Board of Indirect Taxes & Customs (CBIC).
Who qualifies to avail the 5 percent GST rate?
- Clarification by the CBIC regarding services related to cooking and supply of food qualifying as restaurant services.
- Inclusion of various entities such as restaurants, cloud kitchens, food courts in malls, snack bars in multiplexes, and roadside food stalls.
- Relevant court rulings and interpretations supporting the eligibility of different establishments.
Does the mere supply of pre-cooked food qualify as restaurant service?
- The essential criterion of food preparation by cooking in a restaurant.
- The distinction between preparing meals and serving pre-cooked food.
- CBIC clarification regarding ice-cream parlours and their classification as goods supply rather than restaurant services.
Taxation of food/pre-cooked edible items by a qualifying restaurant
- Applicability of the 5 percent GST rate to all supplies made by a qualifying restaurant.
- Examples of supplies, including cold drinks and ice cream, falling under the lower GST rate.
- Court rulings supporting the applicability of the lower rate for such supplies.
The debate on the nature of supply
- Proposal from the fitment committee in the 31st GST Council Meeting regarding the determination of supply as goods or services.
- Lack of formal clarification on the matter in the meeting’s minutes.
- Negative rulings on readily available food items not qualifying as restaurant services but as goods supply.
The impact of interpretational issues on the restaurant sector
- Various interpretations