Complete Guide on Applicability of GST on Restaurant Services

Definition: 

“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 such food or any other article for human consumption or drink is supplied.

Circular No. 164/20/2021 – GST dated 06.10.2021 clarified that restaurant service includes services provided by Restaurants, cafes, and similar eating facilities including takeaway services, room services and door delivery of food. Therefore, it is clear that takeaway services and door delivery services for consumption of food are also considered as restaurant services. This would thus cover services provided by cloud kitchens/ central kitchens.

GST RATES ON RESTAURANT SERVICES 

Heading 9963 (Accommodation, food and beverage services)

i) Supply of ‘hotel accommodation’ having value of supply of a unit of accommodation above Rs. 1,000 but less than or equal to Rs. 7,500 per unit per day or equivalent. – Rate of GST is 12% without any condition.

ii) Supply of ‘restaurant services’ other than at specified premises or supply of ‘outdoor catering’, at premises other than specified premises. – Rate of GST is 5% provided no ITC charged on goods & services used in supplying the service has not been taken

iii) Accommodation, food and beverage services other than above. – Rate of GST is 18% without any condition

Note : GST rate of 5% on restaurant service subject to no ITC is a mandatory rate. AAR, Karnataka in Re : Coffee Day Global Limited [2018 (17) G.S.T.L. 121 (A.A.R. – GST)], held that the explanation in the services rate notification removed any kind of ambiguity on issue and thus, restaurant cannot seek to pay GST at 18% (instead of 5% without ITC) and claim ITC. Further, the right to avail ITC is not an absolute right and conditions and restrictions may be prescribed for its availment. 

GST ON SERVICE SUPPLIED BY RESTAURANTS THROUGH E-COMMERCE OPERATORS

The GST council in its 45th meeting recommended to notify ‘Restaurant service’ under Sec 9(5) of the CGST Act. Accordingly, the tax on supplies of restaurant service supplied through e-commerce operators shall be paid by the e-commerce operator. In this regard notification no. 17/2021 – central tax (rate) dated 18.11.2021 has been issued and clarified vide circular no. 167/23/2021 – GST dated 17.12.2021.

FAQS

Q.1 Can a restaurant claims ITC – if restaurant gives franchise service to another restaurant ?

Ans. Franchise fees and royalty payments under a franchise agreement fall under Chapter Heading 9983 as “Other professional, technical and business services” and Service Code (Tariff) – 998396-Trademarks and franchises, attracting GST @ 18%. Accordingly the restriction of ITC is applicable for heading 9963 which attracts 5% GST rate on providing restaurant services. So, When a restaurant provides franchise it covers under heading 9983 which attracts 18% GST rate and restaurant can take input on providing such service. (subject to Rule 42 & 43 Reversal of ITC)

Q.2 Can a restaurant claims ITC – if restaurant supplies Raw material or Semi-finished goods to its branch (Assume branch is located in different state) ?

Ans. This is not considered as restaurant service as mentioned above in the definition of restaurant service. Here, restaurant supplying the raw material or semi finished goods (being food or any other article) to another restaurant (to its branch) which is also registered  under GST for further supplying of goods and accordingly rate of GST will be charged individually (item wise). So, we can claim ITC in this respect subject to Rule 42 & 43 in supply of raw-material & semi-finished goods to the branch for further supply of the goods. 

Note : This is my own opinion as  some things are still not clearly mentioned in the CGST ACT 2017 and rules mentioned there under.