GST in respect of Restaurant Services (Standalone)

  • July 31, 2019
  • CA Chandan Agarwal's Office
Chandan Agarwal GSt-1

Chandan Agarwal GSt-1

From the time the GST has been introduced in India, there has been lot of confusion among restaurant owners regarding the GST rates applicable to them. It has been a bumpy road for restaurant owners. In the GST regime, the Service Tax and VAT amount will be subsumed into one single rate, but you may still find service charge doing rounds on your food bill.

Original GST Rules for Restaurants’:

When the GST was first introduced in July, 2017, GST on restaurant services fell into different slab rates on which full input tax credit could be availed. The rates were:-

SI No. Type of Restaurants GST Rate
1 Restaurants with no Air Conditioning 12%
2 Restaurants which had Air Conditioning/Liquor license 18%
3 Five Star Hotels 28%

Updated GST Rules for Restaurants’:-

As per notification published by the Government vide Notification No. 46/2017-Central Tax (Rate) the GST Rates on Restaurant Services has been as follows:

SI No. Type of Restaurants GST Rate 
1 Stand Alone Restaurants (e.g. Eating joints, canteens) 5% no ITC
2 Restaurants forming part of Hotels where the declared tariff of the accommodation does not exceed Rs 7500 5% no ITC
3 Restaurants forming part of Hotels where the declared tariff of the accommodation exceeds Rs 7500 18% with ITC
4 Regular Catering at say Company premises 5% no ITC
5 Event Catering Outdoor catering 18% with ITC
  • Accordingly, in respect of standalone restaurants, the government has notified a concessional rate of 5% without the benefit of Input Tax Credit.
  • Stand Alone restaurants, eating joint including mess, canteen supplying goods, being food or any other article for human consumption or drink, whether for consumption on or away from the premises (takeaway) shall charge GST @ 5% on the total bill value.

No Input credit in respect of taxes paid on input goods or services shall be allowed.

  • The main reason why GST council decided to take away the Input Tax Creditwas that they felt the restaurants were not passing on the benefit to their diners — which would normally be done by lowering prices. Since the goal of the GST regime is to reduce consumer prices, this was a problem for the council. As a result, most restaurants in India enjoy a lower tax rate but no way to reduce their monthly tax liability.
  • Generally high end restaurants (Standalone) undertake supply of food, alcohol, cigarettes, other beverages etc. In addition, these restaurants also collect service charges (tips) as a percentage of the total bill value. Supply of Alcohol has been kept outside the purview of GST and hence, no GST shall apply in respect of the same, but other indirect taxes (VAT) as applicable in the state have to be paid. Supply of food, beverages & cigarettes shall be taxable @ 5% as also the service charges collected by the restaurants.

GST on Sale of Cigarettes by Restaurants:-

  • Another important consideration for restaurant owners is GST on sale of Cigarettes. If a single cigarette is being loosely supplied by the restaurant, then it would not be considered as sale of Cigarettes but will be considered as restaurant supply.
  • Accordingly on such sale, the GST would be levied at 5% the rate applicable for restaurant services and on which input tax credit.
  • Where as if a pack of cigarettes is supplied i.e. on an as is basis, then it would be considered as straight supply of cigarettes and restaurant has to levy GST at 28% on which input tax credit could be availed.

GST Compensation Cess:

  • GST Compensation Cess is an additional cess levied on certain notified goods in addition to GST applicable on it.
  • GST Compensation Cess also known as GST Cess which was introduced to compensate the states.
  • GST Cess would be applicable on both supply of goods or services that have been notified by the Central Government. Also, both intra-state supplies of goods or services and inter-state supplies of goods or services would attract GST cess.
  • All taxable persons under GST, except taxpayers registered under GST composition scheme are expected to collect and remit GST cess.
  • The following goods will attract GST Cess:

1. Pan Masala

2. Tobacco and manufactured tobacco substitutes, including tobacco products

3. Coal, briquettes, ovoids and similar solid fuels manufactured from coal, lignite, whether or not agglomerated, excluding jet, peat (including peat litter), whether or not agglomerated

4. Aerated waters

5. Motor cars and other motor vehicles principally designed for the transport of persons (other than motor vehicles for the transport of ten or more persons, including the driver), including station wagons and racing cars.

6. Any other supplies as notified from time to time.

Compensation Cess Rates on Cigarettes have been notified and amended vide Notification No. 3/2017-Compensation Cess (Rate), which are as follows:-

Tariff Item Particulars Rate
Non – Filter    
2402 20 10 Not Exceeding 65 mm 5% + Rs. 2,076 per thousand sticks
2402 20 20 Exceeding 65 mm but not 70 mm 5% + Rs. 3,668 per thousand sticks
Filter
2402 20 30 Not Exceeding 65 mm 5% + Rs. 2,076 per thousand sticks
2402 20 40 Exceeding 65 mm but not 70 mm 5% + Rs. 2,747 per thousand sticks
2402 20 50 Exceeding 70 mm but not 75 mm 5% + Rs. 3,668 per thousand sticks
2402 20 90 Others 36% + Rs. 4,170 per thousand sticks

Compensation Cess on other tobacco products can be found on the CBIC website.

As per my view:-

Restaurants (standalone) supplying a pack of cigarettes/single cigarette have to collect compensation cess in addition to the GST collected @ 28%/5% respectively.

Input compensation cess paid for procuring the cigarettes can be availed as ITC and the same can be used for discharging the output tax liability towards compensation cess only. No input credit of CGST & SGST can however be claimed where the concessional rate of 5% is applied.

For ex.: – Mr. A ordered Food worth Rs. 5,000, beverages worth Rs. 2,000 & 2 box (20 sticks) of Cigarettes worth Rs. 250 each. The restaurant charges service charge @ 7.5% of the bill value. The bill would be as follows:-

Particulars Amount (Rs.)
Food Value 5,000
Beverages 2,000
Cigarettes    500
SUB – TOTAL 7,500
Add: Service Charges @ 7.5% 563
TOTAL 8,063
Add: CGST @ 2.5% 202
Add: SGST @ 2.5% 202
Add: Compensation Cess on cigarettes (500 x 36% + 20 sticks x 4.17) 203
TOTAL BILL VALUE 8,670

Source: https://taxguru.in/goods-and-service-tax/gst-restaurant-services-standalone.html

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