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Applicability of GST on Restaurants Service
Applicability of GST on supply of foods/drinks in a restaurant:
As per clause (b) of para 6 of the Schedule II to the CGST Act, 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 is treated as a composite supply and it is chargeable to GST.
As per clause (a) of section 8, a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.
An important question arises as to the rate of tax.
Accommodation, food and beverage services are classifiable under Heading No. 9963. For rate of tax applicable to these services, refer to S. No. 7 of the Table appended to the Chapter Rate of Tax on Services supra.
Effect when Supply of food and alcohol in restaurant is also there?
Where in a restaurant both alcohol and food are served, such restaurant is providing both taxable and non-taxable supply. Such person will charge VAT on the non-taxable supply (which is alcohol for human consumption) and GST on all other taxable supplies.Vide answer to question no. 45 of Tweet FAQs III.
Most important part is that Sale of goods across the counter is not a service.
In terms of CBEC Circular No. 173/8/2013-ST, dt. 7-10-2013, if goods are sold on MRP basis (fixed under the Legal Metrology Act) they have to be excluded from the purview of restaurants services. This would be regarded supply of goods.
What will be the implication on GST in case of revenue-sharing arrangement for food and services?
In the context of service tax, the CBEC vide DOF No. 334/3/2011-TRU, dt. 28-2-2011 had considered an issue that in certain restaurants the owners get into revenue-sharing arrangements with another person, who takes the responsibility of preparation of food, with his own materials and ingredients, while the owner takes responsibility for making the space available, its decoration, furniture, cutlery, crockery and music, etc. The total bill, which is composite, is shared between the two parties in terms of the contract. Here, the consideration for services provided by the restaurants is more clearly demarcated. The same shall be chargeable to tax.
Services provided at other parts of a restaurant are also taxable.?
In terms of Circular No. 139/8/2011-TRU, dt. 10-5-2011, the taxable services provided by a restaurant in other parts of the hotel, e.g., swimming pool, or an open area attached to the restaurant, are also liable to tax as these areas become extensions of the restaurant.
Whether Service charges are exempt or taxable
As per answer to question no. 42 of Tweet FAQs III, there is no distinction between goods or services under GST. Service charge like any other supply will be leviable to GST. Service charge is not levied by the Government, hence is not a statutory levy.
- Composition scheme for restaurants
(i) Supplier of reataurant service can opt for composition levy
As regards services, the option to pay tax under composition scheme is available only in respect of supplies referred to in clause (b) of paragraph 6 of Schedule II, i.e., 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).
(ii) Rate of tax under composition levy
A registered taxable person engaged in providing such services whose aggregate turnover did not exceed Rs. 1.5 crore in the preceding financial year, can opt to pay tax under composition levy at rate of 5% (2.5% CGST and 2.5% SGST) of the turnover in State or turnover in Union territory.
(iii) Taxpayers running both hotel and restaurant are not eligible
As per clause (a) of sub-section (2) of section 10 of the CGST Act, 2017, a registered person shall be eligible to opt for composition scheme only when he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II. Hence, where any person engaged in supplying restaurant service is also engaged in supply hotel accomodation service, he shall not be eligible to opt for composition levy.
(iv) Supply of bakery items from a place attached to rastaurant
As per Circular No. 27/01/2018-GST, dt. 4-1-2018, any service by way of serving of food or drinks including by a bakery qualifies for composition levy under section 10(1)(b) of CGST Act and hence GST rate of composition levy for the same would be 5%.
(v) Rate of tax on food provided by educational institutions at their canteens
Educational institutions have mess facility for providing food to their students and staff. Such facility is either run by the institution/students themselves or is outsourced to a third person. Supply of food or drink provided by a mess or canteen is taxable at 5% without Input Tax Credit in terms of S.No. 7(i) of Notification No. 11/2017-Central Tax (Rate) as amended vide Notification No. 46/2017-Centra Tax (Rate) dated 14-11-2017.Vide Circular No. 28/02/2018-GST, dt. 18-1-2018.
What is Place of supply in restaurant business?
As per sub-section (4) of section 12 of the IGST Act, the place of supply of restaurant service shall be the location where such service is actually performed.
- Input tax credit in respect of supply of food and beverages
(i) Position effective upto 31-1-2019
As per section 17(5)(b)(i) of the CGST Act, as it existed upto 31-1-2019, input tax credit in respect of supply of food and beverages is allowable only where inward supply of food and beverages is used by a registered person for making an outward taxable supply of food and beverages or both or as an element of a taxable composite or mixed supply.
(ii) Position effective from 1-2-2019
With effective from 1-2-2019, section 17(5)(i) provides that the input tax credit in respect of supply of food and beverages is available only in the following cases:
(a) where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; or
(b) where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
one crore upto 31-1-2019 and Rs. 75 lakh upto 12-10-2017.