Restaurant Services through E-Commerce under GST: Are Composition Dealers Allowed?

Background

GST requires heavy compliance cost due to detailed accounting and paper work involved. Small taxable persons do not have sufficient knowledge and expertise to comply with the requirements relating to records and accounts. Hence, a simplified ‘composition scheme’ has been designed for them, where they pay tax at a lower flat rate, without availing any input tax credit. A GST Taxpayer can opt Composition Scheme which is prescribed in Section 10 of CGST Act. Restaurant service is covered in Section 10(1)(b) of CGST and SGST Act. Section 10 is amended several times. Total 15 Amendments are done time to time in Section 10 CGST and SGST Act,2017. Schedule II of Paragraph 6 of Composite Supply in clause (b) talks about supply of food and any article for human consumption or any drink other than alcoholic liquor for human consumption it will amount to composite supply and it will be treated as supply of service. On the turnover tax of 2.5 % CGST and 2.5% SGST of turnover in State or Union territory shall be leviable from such a unit which provides food or drinks under the Restaurant Service as per Section 10 (1)(b) of CGST and SGST Act,2017.

Supply of Restaurant service Under Composition Scheme

First of all, Lets understand the Levy of Composition for the Restaurant service offered under CGST Act, 2017. Let’s understand it by analysing GST law which is amended time to time. Section 10(1)(b) provides for levy of tax of 2.5% on turnover of CGST and same for SGST. Let’s go through once for better understanding to relevant text of Section 10(1) of CGST Act, 2017.

Section 10 Composition Levy

1. Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, [in lieu of the tax payable by him under sub-section (1) of section 9,an amount of tax calculated at such rate] as may be prescribed, but not exceeding,—

(b) two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

Details of the Amendment

Substituted for “in lieu of the tax payable by him, an amount calculated at such rate” by the Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 1-2-2019.

SCHEDULE II

Activities or transactions to be treated as supply of goods or supply of services

6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:—

(b) 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.

Supply of Restaurant service via E Commerce Platform under Composition 

Here, the Moot question of supply of service of a Restaurant service via various Ecommerce platforms. Question is pertaining to eligibility of Composition scheme offered under section 10 when supply of service of a Restaurant service via various Ecommerce platforms.

But can they provide this composite supply which is treated as service via Ecommerce Operator e.g. Swiggy, Zomato, Blinkit Etc. Let’s understand it by analysing GST law which is amended time to time. Section 10(2) talks about Person who are eligible to opt for Section 10(1) of CGST Act, 2017. Let’s go through once Section 10(2) for better understanding.

2. The registered person shall be eligible to opt under sub-section (1), if—

(a) save as provided in sub-section (1), he is not engaged in the supply of services;

(b) he is not engaged in making any supply of goods or services which are not leviable to tax under this Act;

(c) he is not engaged in making any inter-State outward supplies of goods or services;

(d) he is not engaged in making any supply of Goods or services through an electronic commerce operator who is required to collect tax at source under section 52;

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council; and

(f) he is neither a casual taxable person nor a non-resident taxable person:

Amendment of Section 10(2) of CGST and SGST Act

1. In Clause (a) has been substituted by the Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 1-2-2019. Prior to its substitution, clause (a) read as under :”(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;”

2. In Clause (b) “or services” Inserted by the Finance Act, 2020, w.e.f. 01-1-2021.

3. In Clause (c) “or services” Inserted by the Finance Act, 2020, w.e.f. 01-1-2021.

4. In Clause(d) the words “goods or” omitted by the Finance Act, 2023, w.e.f. 01-10-2023 by Notification No 28/2023-Central Tax dated 31.07.2023. Word “Services” Inserted by the Finance Act,2020, w.e.f. 01-01-2021.

5. In clause (e) Substituted for “Council:” by the Finance (No. 2) Act, 2019, w.e.f. 01-1-2020.

6. The clause (f) Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-1-2020

Analysis of Amendment effects of Section 10(2)(d)

First of all, the word “Services” has been inserted w.e.f. 01-01-2021 and later on “Goods or” has been deleted w.e.f. 01-10-2023.

Section 10(2)(d) permits only supply of service through E-Commerce operator only if TCS would not be liable to be deducted under section 52 of CGST and SGST Act, 2017 w.e.f. 01-01-2021. So, only Services which are not liable to deduct TCS under section 52 can be supplied through Ecommerce operator e.g. Swiggy, Zomato, Blinkit etc. and supply of goods not permissible w.e.f. 01-10-2023. Here, Section 10(2)(d) talks about Section 52 so relevant text is produced below for understanding.

Other Relevant Statutory Provisions

 Section – 52 Collection of tax at source

1. Notwithstanding anything to the contrary contained in this Act, every electronic commerce operator (hereafter in this section referred to as the “operator”), not being an agent, shall collect an amount calculated at such rate not exceeding one per cent, as may be notified by the Government on the recommendations of the Council, of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.

Explanation. — For the purposes of this sub-section, the expression “net value of taxable supplies” shall mean the aggregate value of taxable supplies of goods or services or both, other than services notified under sub-section (5) of section 9, made during any month by all registered persons through the operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month.

Let’s go through once, Section 9(5) reason being Explanation to Section 52 (1) provides relevance of Section 9(5) of CGST Act,2017 for better understanding.

Section 9 Levy and Collection

 (5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.

Relevant Notification and Circular issued

Notification No. 17/2021- Central Tax (Rate), Dated 18-11-2021 issued to which puts levy on Ecommerce Operator of Reverse Charge Mechanism on supply of restaurant services other than at specified premises from 01-01-2022. Relevant text reproduced of Notification No. 17/2021- Central Tax (Rate), Dated 18-11-2021 which casts levy of RCM under Section 9(5) of CGST Act, 2017. Later on, Circular No. 167/23/2021 Dated 17-12-2021 has been issued on this issue for clarity.

Notification No. 17/2021- Central Tax (Rate), Dated 18-11-2021

In exercise of the powers conferred by sub-section (5) of section 9 of the Central Goods and Services Tax Act, 2017(12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following amendments further to amend the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 17/2017- Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 696(E) dated the 28th June, 2017, namely:—

1. In the notification,-

i. in clause (i), for the words “and motor cycle;”, the words “, motor cycle, omnibus or any other motor vehicle;” shall be substituted;

(ii)  after clause (iii), the following clause shall be inserted, namely:—

“(iv) supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at specified premises.”

2. This notification shall come into force with effect from the 1st day of January, 2022.

Circular No. 167/23/2021 Dated 17-12-2021

 Sub: GST on service supplied by restaurants through e-commerce operators –reg.

 The GST Council in its 45th meeting held on 17th September, 2021 recommended to notify “Restaurant Service” under section 9(5) of the CGST Act, 2017. Accordingly, the tax on supplies of restaurant service supplied through ecommerce operators shall be paid by the e-commerce operator. In this regard notification No. 17/2021 (S.No.700), dated 18.11.2021 has been issued.

1. Certain representations have been received requesting for clarification regarding modalities of compliance to the GST laws in respect of supply of restaurant service through E-commerce operators (ECO). Clarifications are as follows:

 Author’s Personal View

Section 10 Requires tax payment in lieu of Section 9(1) of CGST Act, 2017. The moment tax is paid under Section 9(5), TCS no longer will be applicable. Section 9(5) and TCS is mutually exclusive.  For the restaurant services supplied through E Commerce Operator, the E Commerce Operator liability where applicable is under Section (5) and not under Section 9(1). Section 10 (2)(d) disqualifies only where the supply is through an ECO who is required to collect tax at source under Section 52 and Explanations to Section 52(1) itself expressly excludes, from net value of tax supplies TCS Base service notified under Section 9(5). Where the supply is the notified restaurant service other than at specified premises covered by Section 9(5). Section 52 itself excludes Section 9(5) services from TCS computation. Therefore, Composition scheme disqualification stands nullified. In this situation ECO is deemed supplier.

Concluding Remarks  

 Section 10(2)(d) creates a condition of disqualification of supply of service only if supply made through E- Commerce Operator and such E- Commerce Operator is liable to deduct for compliance of TCS under Section 52. Notification No. 17/2021 (S.No.700), dated 18.11.2021 issued puts Levy of RCM u/S 9(5). As result, E-Commerce Operator has to pay RCM from 01.01.2022. Hence, Ecommerce operator No longer has to deduct TCS under section 52 but they now have to pay Tax under Reverse Charge Mechanism. So, from 01.01.2022 Service of Restaurant Service can be provided by E-Commerce Operator and they are eligible to opt Composition Scheme as restriction prescribed in Section 10(2)(d) does not prohibits a Composition dealer to supply their Restaurant service through E-commerce Operator. In nutshell, Restaurant service can be supplied via Ecommerce Operator by a Composition Dealer w.e.f. 01.01.2022.

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Author: Miss Zalak Sohil Dalal – Advocate| B.com, LL.B., LL.M. | Advocate & Tax Consultant, Surat.

Miss Zalak Sohilkumar Dalal is a 28-year-old practising advocate and tax consultant based in Surat, specialising in GST and Income Tax, with over seven years of experience. Enrolled with the Bar Council of Gujarat and the Bar Council of India since 2020, she holds an LL.M. in Human Rights from VNSGU, Surat, and certifications in cyber law. She serves as a Managing Committee Member (Western Zone) of AIFTP for 2024–25, delivers lectures on GST, and has authored articles in reputed tax journals. She actively participates in legal study circles and refresher courses and has also represented VNSGU in university-level basketball.