Restaurant Services through E-com from 01.01.2022
CHALLENGES FOR FOOD AGGREGATORS AND RESTAURANTS.
VARIOUS SCENARIOS THAT MAY BE DISRUPTED WITH THE PROPOSED CHANGES WITH EFFECT FROM 01.01.2022 ON E-COM OPERATERS WHO SUPPLY FOOD FROM RESTAURANTS
We are delighted to share as part of our endeavour, note setting out the impact of Notification 17/2021 Central Tax (Rate) dated 18.11.2021 amending notification 17/2017 Central Tax (Rate) dated 28.06.2017 with effect from 01.01.2022 from the perspective of restaurant services provided through E-com operators. This note also sets out the clarifications that have been set out in terms of the Circular dated 17.12.2021 for the scenarios per se and with the GST applicability on an as it ought to be basis.
This note also sets out the various scenarios that may operate on the food supply ecosystem form the supply of food from Cloud kitchen to restaurant and from restaurant to the end customer either directly or through an e-com operator and supplies food from the restaurant to the end customer. The taxes payable on as it ought to be basis is also broadly covered.
RELEVANT EXTRACTS
Section Sec. 9(5) of CGST Act, 2017 reads as below:
“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:”
[Equivalent section in 5(5) of IGST Act, 2017]
Relevant extract of Notification 17/2017 (supra) as amended by Notification 17/2021 (supra) is provided below (w.e.f. 01.01.2022):
“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 notifies that in case of the following categories of services, the tax on intra-State supplies shall be paid by the electronic commerce operator- …
(iv) supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at specified premises.”
[Equivalent notification 14/2017 Integrated Tax (Rate) dated 28.06.2017 amended by 17/2021 Integrated Tax (Rate) 18.11.2021]
Restaurant Service
The meaning of ‘restaurant service’ is set out in Notification 11/2017 Central Tax (Rate) [as amended]
“(xxxii) “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,”
Entry 6(b) of Schedule II of CGST Act, 2017 deems the following as a composite supply of service
“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.”
Specified Premises
Explanation to Notification 17/2021 Central Tax (Rate) provides the meaning of ‘specified premises’ as below:
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.”
(emphasis supplied)
Identical meaning is given to ‘specified premises’ in explanation to Notification 11/2017 (CGST Rate), the same is extracted below:
“(xxxvi) ‘Specified premises’ means premises providing ‘hotel accommodation’ services having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.”
Electronic commerce operator (E-com)
As per section 2(45) of CGST Act, ‘electronic commerce operator’ means any person who owns, operates, or manages digital or electronic facility or platform for electronic commerce
Electronic commerce
As per section 2(44) of CGST Act, ― ‘electronic commerce’ means the supply of goods or services or both, including digital products over digital or electronic network;
Explicit Exclusion in Notification 17/2021 (supra)
In respect to restaurant services provided through e-com operator, the GST liability on such service is placed on E-com operator only in cases where ‘restaurant service’ is provided from location other than specified premises.
The specified premises as mentioned above relates to premises providing hotel accommodation having declared tariff of any accommodation unit having declared tariff in excess of INR 7500.
It may be noted that presently, Supply of ‘restaurant service’ other than at ‘specified premises’ is taxed at 5% (with ITC restriction), whereas the same service from specified premises are taxed at 18%.
Synopsis of the Circular 167/23/2021-GST dated 17 December 2021 on GST on services supplied by restaurant through E-commerce operators
An e-commerce operator shall be liable to pay GST on the restaurant service notified under Sec 9(5) with effect from January 1, 2022. Therefore, such E-com operator shall not be required to collect TCS or file GSTR 8 in terms of Sec 52 for such restaurant services so rendered by them.
However, for any other goods or services supplied through the E-com operator, not notified under Sec 9(5), the E-com operator shall continue to pay TCS in term of Sec 52 of the CGST Act, 2017.
E-com operator is not required to obtain a separate registration for payment of tax on restaurant service under Sec 9(5) of the CSGT Act, 2017.
E-com operator shall be liable to pay GST on restaurant service supplied through them even if the restaurant is an unregistered person.
The circular clarifies that the aggregate turnover of person supplying restaurant service through E-com operator shall be computed as per Sec 2(6) of the CGST Act, 2017 and will include aggregate value of supplies made by restaurant through E-com operator for threshold consideration.
E-commerce operator shall not be allowed to avail credit on the restaurant services supplies through them as the E-com operator is not the recipient of such supply.
As e-commerce is liable to pay on the restaurant services supplied through them as notified under Sec 9(5), the E-com operator is not required to reverse credit on account of such supplies. However, it may be noted that such liability is to be discharged in “cash”.
For any other supply that is not notified under Sec 9(5) of the CGST Act, 2017, the liability to pay tax lies with the supplier.
The liability for raising invoices on supply of restaurant services through E-com operator lies in the hands of the E-com operator.
Tax to be paid by furnishing details in GSTR 3B.
INTRODUCTION
Tax on supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at specified premises shall be paid by the e-commerce operator if such supplies are made 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 as per Notification 17/2017 (supra) r/w 17/2021 (supra) w.e.f. 01.01.2022.
Few points regarding this needs to be noted
TCS applicability
As per Section 52 of CGST Act, TCS is payable by an electronic commerce operator on 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.
From 01.01.2022, the restaurant services provided through E-com operator would be liable to tax in the hands of the E-com operator by virtue of section 9(5) of CGST Act, 2017. When such transaction is liable to be taxed in the hands E-com operator, the E-com operator would no longer be required to collect TCS on such supplies.
In case, the same restaurant supplies ‘restaurant service’ along with another supply, from 01.01.2022, TCS would be required to be collected on the supplies other than ‘restaurant services’ while tax needs to be discharged by the E-com operator in respect of ‘restaurant services. As regards the tax is concerned, it will continue to be discharged by the Restaurant as it is being done presently.
Since there is no distinct taxpayer for TCS to be allocated to, TCS collection on supplies taxed in the hands of E-com would be redundant. Further, it is pertinent to mention that since TCS collection per se is not a tax but more of a methodology to ensure that the underlying supplier in fact pays the tax upon which the TCS so collected is to be restored to his Electronic Cash ledger. In the case of E-com operators who are liable to pay the GST on his own accord without the liability on the restaurant, there is no TCS liability in this context. This position has been confirmed in the Circular No. 167/23/2021-GST dated 17.12.2021.
Registration of E-com operator
As per section 24(iv) of CGST Act, 2017 – person who are required to pay tax under sub-section (5) of section 9 needs to compulsorily obtain GST Registration.
However, if the E-com operators who are falling within section 9(5) in respect of restaurant services provided through it, having a normal GST registration (as per Rule 8[1]) already, they would not need to obtain an additional GST Registration. It is also pertinent to note that the supply of intra state basis of food from restaurant has been subjected to his methodology. Whether the same would apply for cities bordering states needs to be clarified per se.
[1] Every person, other than a non-resident taxable person, a person required to deduct tax at source under section 51, a person required to collect tax at source under section 52 and a person supplying online information and database access or retrieval services from a place outside India to a non-taxable online recipient
Registration of Restaurant under GST
As per section 24(ix), persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52 is mandated to obtain registration under GST.
For restaurants, who were registered purely for the above reason may evaluate whether they want to continue retaining their GST Registration, if they fall under the minimum threshold for obtaining GST Registration.
As per the Circular mentioned (supra), it is clearly laid down that irrespective of whether the restaurant, eating joint, etc. is registered under GST or not, the E-com operator would be liable to pay tax on restaurant services provided through it. However, for the reasons mentioned below as to the aggregate turnover, Restaurants who are below the threshold needs to add the turnover of such supplies through e-com operator to their aggregate turnover.
Aggregate Turnover for the purpose of GST
In case of the restaurant, the supply of restaurant services liable to tax under 9(5) needs to be included in their aggregate turnover. Thus, the turnover of restaurant services to the dine in customers, to the takeaway customers as well as supplied through the e-com operators needs to be the sum total of their turnover.
Treatment of supplies covered u/s 9(5) in the hands of E-com Operator
The ‘restaurant services’ is in fact provided by the restaurant to the customers. This supply is merely supplied through the E-com operator.
The ‘restaurant service’ based on the above does not qualify as ‘inward supplies’ in the hands of the E-com operator, thus it cannot be treated as an ‘inward supplies liable to reverse charge’.
On similar lines, though the liability to pay GST on ‘restaurant services’ is passed to the E-com operator as if he is the supplier of service, he does not become the actual supplier for the purpose of GST. As a result, the condition of non-availment of ITC in respect of ‘restaurant service’ would not be applicable to E-com operator. For the E-com operator, his service would be the those of that of ‘intermediary’ or ‘electronic platform’ etc. for which he would be eligible to avail ITC on.
GST payment under 9(5) for Restaurant Services
The GST liability @ 5% on restaurant services provided through E-com operator needs to be discharged in Cash only. The tax liability under 9(5) on the E-com operator is merely a pass through as it is neither the operators input or output.
Assumptions made as a standardised aspect for ease of convenience of various scenarios being discussed.
- Cost of Food- INR 200
- Delivery Charges- INR 50
Terminologies used:
Restaurants to include both dine in and as well as take-away. Take away includes both take away by the individuals or app based for delivery purpose.
Food aggregator is assumed to be app based where any person using the platform can order for food from an app. For the purpose of convenience, we are using example of ZS as a food aggregator.
As part of the food delivery ecosystem, there are also suppliers who may be an E=commerce Operator based service providers for effecting supplies of goods and commute customers from one place to another place and as part of their ecosystem also support ZS in effecting supplies of food on behalf of ZS. Let us for the purpose of this note call them RD.
Tax rates-
GST @5% on Food as part of dine-in in a restaurant. At this point of time, the same rate would be applicable be it dine in or take away or supplied through an app by a food aggregator.
5% on Transportation of Passengers
18% on Convenience charges or Booking fees or Platform usage charges or by whatever terminology it is called. To be payable by ZS or RD as well. For the purpose of this note setting out the scenarios, the same is called as platform usage charges.
- Customers order on restaurant’s website/app and the restaurant delivers to customers directly to the customers using their own logistics.
- Customer pays the restaurant directly using the website link or COD when the foods is delivered directly to them.
Transaction
Taxability
Food- 200
Delivery-50
Tax @ 5% on 250 – 12.5
Restaurant to discharge the tax liability
At times there might be no delivery charge itself. At times even if there is a delivery charge, it may be claimed internally by the Restaurant staff as a reimbursement.
Comments
Applicability of Notification 17/2021 if the Restaurant is making supplies through its website or Software applications.
There cannot be a contention that a restaurant having a website, or a software application would qualify as an E-com operator. However, the restaurant services provided by the restaurant itself will be taxed as a restaurant service and even if the website of the restaurant is used for effecting supply of food, since the same is being provided by the restaurant itself, the concept of E-com operator in this content will not arise.
Scenario 2.1
- Customers order on restaurant’s website/app and the restaurant delivers to customers directly to the customers using third party logistics (RD)
- Customers pays the restaurant
Transaction
Taxability
1) On Food
Food- 200
Delivery-50
Tax @ 5% on food – 12.5
Restaurant to discharge the tax liability
2) On Delivery
Delivery Charges- 50
Assuming the ratio between the driver and the transport service provider is 80:20 respectively
Tax at 5% on 40 – 2
Tax at 18% on 10- 1.8
Comments
The above case, the supply of ‘restaurant service’ occurs between the restaurant and the customer. The Restaurant procures purely delivery service from that the E-com operator.
E-com operator is not involved in the order and billing of the ‘restaurant services’ since the same is concluded between the restaurant and customer without the intervention of the E-com operator. Hence, it can be concluded that this transaction cannot be said to satisfy the requirement of ‘supplied through E-com operator’. It may be pertinent to note that there are two limbs to the transaction namely one where the customer places an order for supply of food. The second limb of the transaction would be where the Restaurant uses a delivery logistics (be it app based, or contract based) to deliver the food. The second limb of the transaction alone will not render the third party logistics supplier (even an app based one such as RD to become a Ecom operator as envisaged under the new contours.
Scenario 2.2
- Customers order on restaurant’s website/app and the customer reaches out to an E-com operator to undertake the delivery of the food directly.
- Customers pays the online payment to the restaurant directly for the supply of food; Customer pays the E-com operator directly towards pick up and delivery of the same.
Comments
The above case, the supply of ‘restaurant service’ occurs between the restaurant and the customer. The customer procures purely delivery service from that the E-com operator.
E-com operator is not involved in the order and billing of the ‘restaurant services’ since the same is concluded between the restaurant and customer without the intervention of the E-com operator. Hence, it can be concluded that this transaction cannot be said to satisfy the requirement of ‘supplied through E-com operator’.
Scenario 3
Customer uses Online Food Applications such as ZS to order food from various restaurants and ZS have their own logistics that pickup food from the restaurant and deliver it to customer
- Customers pay ZS
Transaction
Taxability
1) On Food Delivery/Aggregation
Food- 200
Delivery-50
Tax @ 5% on food – 12.5
Food Aggregator to discharge the tax liability
2) Towards restaurant
Food Bill – 200
3) Towards Driver
Assuming the ratio between the driver and food aggregator is 80:20 respectively
4) Towards platform usage
(Fixed ratio to be decided between restaurant and the food aggregator and tax to be discharged at the rate of 18% on such platform usage fee)
Comments
The E-com operator who takes the order from the customer would be liable to pay tax on ‘restaurant service’ supplied through it under section 9(5)
Restaurant is not liable to pay GST on these supplies.
No TCS needs to be collected by the E-com operator
Scenario 4
- Customer uses Online Food Applications such as ZS to order food from various restaurants and ZS may use delivery partners such as RD to pick up food from the restaurant and deliver it to customer
- Customers pay ZS
Transaction
Taxability
1) On Food Delivery/Aggregation
Food- 200
Delivery-50
Tax @ 5% on food – 12.5
Food Aggregator to discharge the tax liability
2) Towards restaurant
Food Bill – 200
3) Towards Driver
Assuming the ratio between the driver and food aggregator is 80:20 respectively
4) Towards platform usage
(Fixed ratio to be decided between restaurant and the food aggregator and tax to be discharged at the rate of 18% on such platform usage fee)
Comments
The E-com operator who takes the order from the customer would be liable to pay tax on ‘restaurant service’ supplied through it under section 9(5)
Restaurant is not liable to pay GST on these supplies.
No TCS needs to be collected by the E-com operator.
The E-com operator (Third Party Logistics) who is providing delivery services to the E-com operator (Food Aggregator) is not involved in the ‘restaurant services. He is merely involved in delivery.
Scenario 5
Order on Delivery partners (RD)
- Customer uses delivery partners to order food from various restaurants that probably don’t delivery to their area wherein such delivery partners like RD pickup food from the restaurant and deliver it to customer
- Customers pay such delivery partners including the food bill. This transaction envisages where the delivery partners are expected to pay directly to the restaurant irrespective of whether they have a tie up with the said restaurant or otherwise.
Transaction
Taxability
1) On Food Delivery
Food- 200
Delivery-50
Tax @ 5% on food
RD collects and transfers the same to restaurant, the same is a separate transaction. Restaurant to discharge the tax liability
2) Towards pickup and delivery services
Towards Driver
Assuming the ratio between the driver and food aggregator is 80:20 respectively
RD collects discharges the tax liability
Comments
The E-com operator would be liable to pay GST under 9(5) since the ‘restaurant services’ are supplied through it. It would not matter whether the E-com operator is providing his services purely to the Customer or if he provides service to the restaurant, as long as the ‘restaurant service’ is supplied through it.
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