GST Implications for Cloud Kitchens & E-Commerce: A Technical Analysis

India’s food delivery economy has flourished through platforms like Zomato and Swiggy, enabling restaurant chains and cloud kitchens to expand rapidly. However, such digital operations come with distinct GST implications, especially post-01 January 2022, when the liability to pay tax for certain services shifted to E-Commerce Operators (ECOs) under Section 9(5) of the CGST Act.

2. Legal Framework – Section 9(5) of CGST Act

Section 9(5) empowers the Government to notify services where the ECO, not the supplier, is liable to pay GST. Notification No. 17/2021-Central Tax (Rate) dated 18.11.2021 (effective 01.01.2022) includes ‘restaurant services’ (excluding those by unregistered persons) under this framework.

3. Definitions & Scope

Restaurant Service: Defined in Notification No. 11/2017-CT (Rate): ‘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.

Included: Dine-in restaurants, Takeaway counters, Canteens, Cloud kitchens (Circular No. 164/20/2021-GST)

E-Commerce Operator (ECO): As per Section 2(45) of CGST Act: ‘A person who owns, operates, or manages a digital or electronic platform for e-commerce.’

Examples: Zomato, Swiggy, DotPe, Magicpin

GST Analysis: Cloud Kitchens & E-Commerce Operators

4. GST Applicability Based on Transaction Type

5. Input Tax Credit (ITC) Implications

• ITC is not available if the cloud kitchen opts for the 5% GST rate, as per Section 17(5) of the CGST Act.
• ITC is available if the cloud kitchen provides catering services and charges 18% GST, subject to eligibility conditions.

6. GST Compliance for Cloud Kitchens

• E-Invoicing: Applicable if turnover exceeds ₹5 crore.
• TCS Deduction by E-Commerce Operators: ECOs do not deduct TCS for restaurant services under Section 9(5), but do so for other services under Section 52.
• GSTR Filings:
  • GSTR-1 (Monthly/Quarterly) for outward supplies.
  • GSTR-3B (Monthly/Quarterly) for GST payment.
  • GSTR-9 (Annual Return) if turnover exceeds ₹2 crore.

7. Reporting in GSTR-1 & GSTR-3B

Report ECO sales as exempt in GSTR-1 under Table 8 and in GSTR-3B under exempt outward supplies.

GSTR-1 Reporting

GSTR-3B Reporting

 8. Clarifications on TCS, Exempt Supplies, and ITC

• Cloud kitchens are considered providers of restaurant services.
• ECOs are not required to deduct TCS for restaurant services under Section 9(5).
• ECO-routed sales are treated as exempt from the supplier’s perspective.
• ITC eligibility depends on the nature of inputs and GST rate applied.

9. Impact of Notifications

GST Council Notifications are crucial in shaping the GST landscape. Notification No. 17/2021 introduced significant changes to GST compliance for cloud kitchens. These notifications guide GST rates, compliance procedures, and changes in tax responsibilities.

10. Conclusion

Cloud kitchens operating through ECOs must navigate a unique GST framework shaped by Section 9(5) of the CGST Act. Key compliance points include:

• Do not charge GST on ECO orders.
• Treat ECO sales as exempt and report accordingly.
• Claim ITC proportionately based on input usage.
• Avoid TCS obligations, as ECOs are deemed suppliers.

11. GST FAQs for Cloud Kitchens Operating via ECOs

1.Are Cloud Kitchens Considered as Providing Restaurant Services?

Yes.

Cloud kitchens are legally recognized as providers of restaurant services.

Legal Basis:

• Notification No. 11/2017-CT (Rate) defines restaurant service to include:

“…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, cloud kitchen, whether for consumption on or away from the premises.”

• Circular No. 164/20/2021-GST further clarifies that services by cloud kitchens are covered under restaurant services and attract 5% GST without ITC

2. Is the ECO Required to Deduct TCS on Cloud Kitchen Transactions?

No.

TCS provisions under Section 52 do not apply to restaurant services supplied via ECOs.

Legal Basis:

• Under Section 9(5) of the CGST Act, the ECO is deemed to be the supplier and is directly liable to pay GST.
• Since the ECO is not acting as a facilitator but as the supplier, TCS under Section 52 is not applicable

3. Can Cloud Kitchens Treat ECO Sales as Exempt Supplies?

Yes.

From the cloud kitchen’s perspective, sales routed through ECOs are treated as exempt.

Legal Basis:

• GST is paid by the ECO under Section 9(5), not by the cloud kitchen.
• As the cloud kitchen does not charge GST on these supplies, they are treated as exempt, and ITC is disallowed on inputs used exclusively for such supplies

4. Can Cloud Kitchens Claim Input Tax Credit (ITC)?

Partially.

ITC eligibility depends on the nature of services and GST rate chosen.

Legal Basis:

• If opting for 5% GST rate (restaurant service), ITC is not available as per Section 17(5) of the CGST Act.
• If providing catering services and charging 18% GST, ITC may be claimed subject to eligibility

5. Where Should Cloud Kitchens Report These Sales in GSTR-1?

Report ECO sales as exempt in GSTR-1 and GSTR-3B.

Legal Basis:

• As of January 2024, the GST portal introduced Table 14 in GSTR-1 for suppliers to report sales made through ECOs.
• These sales should be reported as exempt supplies since the ECO pays the GST.
• In GSTR-3B, such supplies are reflected in Table 3.1.1(ii) for suppliers

12. Case Studies: GST Reporting for Cloud Kitchens via ECO

Case Study 1: Cloud Kitchen Opting for 5% GST (Restaurant Services)

ABC Cloud Kitchen sells ₹10 lakh worth of food via Swiggy in a month.

GST Treatment:

• As per Section 9(5), Swiggy (ECO) is liable to pay GST.
• ABC Cloud Kitchen does not charge GST on these supplies.
• Supplies are treated as exempt from ABC’s perspective.

GSTR-1 Reporting:

• Report ₹10 lakh under Table 8 (Exempt Supplies).
• Alternatively, use Table 14 if available for ECO sales.

GSTR-3B Reporting:

• Report ₹10 lakh under Table 3.1.1(ii) as exempt outward supplies.
• ITC Implications:
• ITC on inputs used exclusively for these supplies is not allowed (Section 17(5)).
• ABC must reverse any ITC claimed on such inputs.
• Summary:
  ABC Cloud Kitchen treats all ECO sales as exempt and does not claim ITC.
• Case Study 2: Cloud Kitchen Opting for 18% GST (Catering Services)XYZ Cloud Kitchen provides catering services and sells ₹10 lakh via Swiggy.GST Treatment:
  • If services qualify as catering (not restaurant), XYZ charges 18% GST.
  • Swiggy may still be liable under Section 9(5) depending on service classification.

GSTR-1 Reporting:

• Report ₹10 lakh under Table 14 (if ECO sales) or Table 11 (Taxable Supplies).
• Mention applicable GST rate and taxable value.GSTR-3B Reporting:
• Report ₹10 lakh under Table 3.1(a) as taxable outward supplies.
• Pay GST accordingly.
• ITC Implications:
  • ITC is allowed on inputs used for catering services.
  • XYZ can claim proportionate ITC based on usage.
• Summary:

XYZ Cloud Kitchen treats ECO sales as taxable and claims eligible ITC.