Tri-city Restaurants leaving Hole in your pocket by charging higher GST

Tri-city Restaurants leaving Hole in your pocket by charging higher GST

By: Keshav R Garg

Since the day GST has been enforced in India, most of the business had remained in dilemma about the rate of tax applicable on the goods/services supplied by them. One such industry is the restaurant industry where food is served to consumers either on the table or packed for takeaway. There had been multiple rates and issues relating to non-passing of tax benefits to consumers was widely witnessed. GST ranges from 5% to 18% in this industry, but unfortunately most of the restaurants are intermingling the rate of tax applicable on wide range of food items being sold by them.

There had been misconception between food and snacks supplied by the eateries. Most of them believe that snacks like tikki, samosa etc are the one pre-packaged items which are chargeable at 12%. Instead these over the counter dishes are prepared and served as per the order of the customer. There is an element of customization involved such as use of chutneys, deep fry, toppings and all that. The very nature of these snacks evidences the fact that these are prepared only when the customer makes an order. They do not come in pre-packaged forms like namkeens and biscuits which are ready to eat with no discretion left with the customers. These pre-packaged items are chargeable at 12% whereas the food which is prepared upon the order of consumer squarely comes under restaurant services chargeable at 5% without Input Tax Credit.

The government has vide notification No 46/2017 dated 14.11.2017 had clarified 5% GST in cases :

“(i) 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 drink, where such supply or service is for cash, deferred payment or other valuable consideration, 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, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent.”

From the notification it is open and shut case that whatever food is being served by restaurants whether for takeaway or immediate consumption, GST would be charged at 5% without ITC. Many restaurants who are claiming the rate of tax to be 12% would also be taking benefit of Input Tax Credit. They are not only cheating the customers but are also leaving a dent on revenue collections by GST Department. It is a serious issue, for instance a restaurant makes the sale of Rs. 5 Lakhs daily, he is charging Rs. 35,000 as excess tax from consumers which he should not have. Also under these circumstances, it is most likely that restaurant would also be claiming Input Tax credit resulting into huge surplus remaining in their hands on account of illegal tax collected from customers. This is a clear case of tax evasion resulting into huge loss to each one of us other than the restaurant itself.

Also in an advance ruling by Authority for advance ruling it has been vitally made clear that foods served at the food joints/mess/food courts are chargeable at 5% without ITC.

Despite repetitive clarification and instructions from the department, the food outlets in Tri-City of Chandigarh-Panchkula-Mohali continue to charge 12% on the food supplied by them. If you are also being cheated, do raise your voice and report the matter to the GST authorities for strict action. Because if the cheating continues, not only yours but these restaurants will make huge hole in pockets of our country.  

Regards

CA. Keshav R Garg

3328, F Floor, Sector 27 D, Chandigarh, India 160 0019

+91-98880-90008