Supply of Restaurant Services through E-Commerce Operator

Introduction

Earlier, when restaurant supplied food through E – Commerce Operator, restaurant was liable to pay GST on supply of food. But, now w.e.f. 01^st January 2022 E – Commerce Operator is liable to pay GST.

Let us discuss in detail.

Section 9(5)

Specified Categories of services, the tax of which shall be paid by ECO if such services are supplied through it and all provisions of this Act shall apply to such ECO as if he is the supplier liable for paying the tax in relation to the supply of such services.

Clause (iv) of Section 9(5) is notified vide Notification No. 17/2021 CT (Rate) dated 18th November 2021.

Section 9(5)(iv)

Supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at specified premises.

What is Restaurant Service?

The term “Restaurant Service” is defined vide Notification No. 20/2019 CT (Rate) dated 30th September 2019 w.e.f. 01^st January 2022.

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

What is specified premises?

Specified premises means premises providing hotel accommodation service having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.

Example

Hotel Taj Coromandel is providing hotel accommodation service. It has various rooms having declared tariff of Rs. 4,000/-, Rs. 5,000/-, Rs. 7,000/-, Rs. 10,000 per unit per day.

A restaurant in Hotel Taj Coromondel is supplying restaurant services through Swiggy.

Whether Hotel Taj Coromandel is termed as “Specified Premises” under GST?

Answer is yes. As the definition reads as hotel accommodation service having declared tariff of any unit of accommodation above Rs. 7,500/- per unit per day and Hotel Taj Coromandel has a room which has a declared tariff of above Rs. 7,500/- per unit per day, Hotel Taj Coromandel is termed as specified premises.

Whether Swiggy is liable to pay GST on restaurant service supplied by a restaurant in Hotel Taj Coromandel?

The Answer is no.

As Section 9(5)(iv) reads as “Supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at specified premises”.

As we saw earlier, Hotel Taj Coromandel comes under the definition of specified premises and the restaurant supplying the restaurant service is located at the specified premises, Swiggy is not liable to pay GST. Whereas the restaurant is liable to pay on supply of restaurant service through swiggy.

CBIC issued various clarifications vide Circular No. 167/23/2021 – GST on 17th December 2021. Let us discuss each one in detail.

1. Whether ECOs paying GST for restaurant service supplied through them by restaurants is liable to collect TCS under section 52 of CGST Act, 2017?

The Answer is no.

As Section 52(1) explanation clearly says “Net Value of Taxable Supplies” shall mean the aggregate value of taxable supplies of goods or services or both, other than services notified under section 9(5), 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.

Since the restaurant service is notified under section 9(5), ECOs paying GST for restaurant service supplied through them by restaurants is not liable to collect TCS under section 52 of CGST Act w.e.f. 1^st January 2022.

2. Whether ECOs is liable to collect TCS under section 52 of CGST Act on other goods and services supplied through them? 

The Answer is yes. As only restaurant services are covered under section 9(5), ECOs are liable to collect TCS under section 52 of CGST Act on other goods and services supplied through them. 

3. Would ECOs have to mandatorily take a separate registration w.r.t. supply of restaurant service notified under section 9(5) through them even if they are registered to pay GST on services on their own account?

As they are already registered under GST as per section 24(x) – Compulsory registration for all E – Commerce Operator, they are not required to mandatorily take separate registration w.r.t. supply of restaurant service notified under section 9(5). 

4. Would the ECOs be liable to pay tax on supply of restaurant service made by unregistered business entities?

Yes. The ECOs will be liable to pay GST on any restaurant service supplied through them including by an unregistered person as there is no exemption for supply of restaurant service made by unregistered business entities.

5. Whether Aggregate Turnover of person supplying ‘restaurant service’ through ECOs would include the aggregate value of supplies made by restaurants through ECOs?

Yes. The Aggregate Turnover of person supplying ‘restaurant service’ through ECOs would include the aggregate value of supplies made by restaurants through ECOs. This would even be considered for threshold purpose.

6. Can the supplies of restaurant service made through ECOs be recorded as inward supply of ECOs (liable to reverse charge) in GSTR 3B? 

No. ECOs are not the recipient of restaurant service supplied through them. As they are only acting as Aggregator connecting supplier and Customer, these are not input services to ECOs and hence these are not to be reported as inward supply (liable to reverse charge).

7. Would ECOs be liable to reverse proportional input tax credit on his input goods and services for the reason that input tax credit is not admissible on ‘restaurant service’?

ECOs provide their own services as an electronic platform and an intermediary for which it would acquire inputs/input service on which ECOs avail input tax credit (ITC). The ECO charges commission/fee etc. for the services it provides. The ITC is utilised by ECO for payment of GST on services provided by ECO on its own account (say, to a restaurant). The situation in this regard remains unchanged even after ECO is made liable to pay tax on restaurant service. ECO would be eligible to ITC as before. Accordingly, it is clarified that ECO shall not be required to reverse ITC on account of restaurant services on which it pays GST in terms of section 9(5) of the Act.

It may also be noted that on restaurant service, ECO shall pay the entire GST liability in cash (No ITC could be utilised for payment of GST on restaurant service supplied through ECO)

8. Can ECO utilize its Input Tax Credit to pay tax w.r.t. ‘restaurant service’ supplied through the ECO?

No. As stated above, the liability of payment of tax by ECO as per section 9(5) shall be discharged in cash.

9. Would supply of goods or services other than ‘restaurant service’ through ECOs be taxed at 5% without ITC?

ECO is required to pay GST on services notified under section 9(5), besides the services / other supplies made on his own account.

On any supply that is not notified under section 9(5), that is supplied by a person through ECO, the liability to pay GST continues on such supplier and ECO shall continue to pay TCS on such supplies.

Classic Example will be Swiggy Instamart. Various goods are supplied through Swiggy Instamart for Swiggy will be liable to collect TCS and liability to pay GST continues on such supplier.

Thus, present dispensation continues for ECO, on supplies other than restaurant services. On such supplies (other than restaurant services made through ECO) GST will continue to be billed, collected and deposited in the same manner as is being done at present. ECO will deposit TCS on such supplies.

10. Would ‘restaurant service’ and goods or services other than restaurant service sold by a restaurant to a customer under the same order be billed differently? Who shall be liable for raising invoices in such cases?

Considering that liability to pay GST on supplies other than ‘restaurant service’ through the ECO, and other compliances under the Act, including issuance of invoice to customer, continues to lie with the respective suppliers (and ECOs being liable only to collect tax at source (TCS) on such supplies), it is advisable that ECO raises separate bill on restaurant service in such cases where ECO provides other supplies to a customer under the same order.

11. Who will issue invoice in respect of restaurant service supplied through ECO – whether by the restaurant or by the ECO?

The invoice in respect of restaurant service supplied through ECO under section 9(5) will be issued by ECO. 

12. How do the Supplier supplying restaurant service through E – Commerce Operator report the transaction in GSTR 1?

Registered persons supplying restaurant services through ECOs under section 9(5) will report such supplies of restaurant services made through ECOs in Table 8 of GSTR-1 and Table 3.1 (c) of GSTR-3B, for the time being.

13. How does the E – Commerce Operator report the transaction in GST Return?

A number of other services are already notified under section 9(5). In respect of such services, ECO operators are presently paying GST by furnishing details in GSTR 3B. The ECO may, on services notified under section 9 (5) of the CGST Act,2017, including on restaurant service provided through ECO, may continue to pay GST by furnishing the details in GSTR 3B, reporting them as outward taxable supplies for the time being.

Besides, ECO may also, for the time being, furnish the details of such supplies of restaurant services under section 9(5) in Table 7A(1) or Table 4A of GSTR-1, as the case maybe, for accounting purpose.

Impact of this notification on Consumers 

1. Restaurant which are not registered under GST

Earlier no GST was applicable on restaurant service supplied through E – Commerce Operator when the restaurant was unregistered under GST. But now GST is applicable on restaurant service supplied through E – Commerce Operator even if the restaurant is unregistered under GST. This would increase the price for customers.

2. Restaurants which opted for Composition Levy under GST

Earlier no GST was applicable on restaurant service supplied through E – Commerce Operator when the restaurant opted for Composition Levy under GST. But now GST is applicable on restaurant service supplied through E – Commerce Operator even if the restaurant has opted for Composition Levy under GST. This would increase the price for customers.

Impact of this notification on E – Commerce Operator 

Earlier Supplier was required to raise invoice in case restaurant service supplied through E – Commerce Operator. But now E – Commerce Operator is required to raise invoice on supplier for restaurant service supplied through E – Commerce Operator.

This will increase the compliance burden for E – Commerce Operator. 

Impact of this notification on Restaurants 

Restaurants has to bifurcate the restaurant services supplied through E – Commerce Operator and restaurant services supplied by them directly for billing purposes.

For example, Dominos supplies restaurant services through other E – Commerce Operators and well as its own app.

For restaurant services supplied through other E – Commerce Operators, invoice has to be issued by E – Commerce Operator.

For restaurant services supplied through its own app, Dominos has to issue invoice.

There is also compliance burden on restaurants as they have to bifurcate the restaurant services supplied through E – Commerce Operators and restaurant service supplied by them directly as they have to report separately in GSTR 1

Conclusion 

1. Increase in Price for Customers

Insertion of clause (iv) under section 9(5) would increase the price for customers in case the restaurant is unregistered or restaurants opted for Composition Levy.

Even if the restaurant is registered restaurants may continue to supply without reducing the GST component which would increase the price for customers.

2. Increase in Compliance for E – Commerce Operator and restaurants

E – Commerce Operator will have to issue invoice for restaurant services supplied through them and report them in Return which increases the compliance burden.

Restaurants have to bifurcate the bifurcate the restaurant services supplied through E – Commerce Operators and restaurant service supplied by them directly as they have to report separately in GSTR 1. This increases the compliance burden.

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The author ‘Deepika Ganesan’ can be reached at deepikaaganesan@gmail.com