GST AAR Applies 5% Tax on Food & Beverages Items Prepared in Restaurants

Gujarat’s Authority for Advanced Ruling (GAAR) has decided that food and drinks made in a restaurant would be subject to GST at the rate of 5% whether eaten there or as part of takeout.

However, if an item or beverage is provided over the counter but not produced in a restaurant, it is not considered to be part of the restaurant service and is subject to the individual item tax. For instance, there will be an 18% GST tax rate applied to served ice cream.

AAR rulings are relevant to the applicant and the concerned jurisdictional tax official, but they can also be cited in situations that are comparable. Furthermore, these judgments influence how policies are made. According to experts, it will be more effort for stores to distinguish between food that was prepared on-site and food that was purchased elsewhere.

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In this case, a stand-alone restaurant is operated by Ridhi Enterprises in Ahmedabad. It provides a selection of food products, comprising foods and beverages produced inside the restaurant and items that can be easily purchased and sold at the counter. GAAR was consulted to rule on the two queries. One is whether the applicant’s customers’ food and drinks, whether they are eaten there or ordered to go, qualify as restaurant services. Second, determine whether or not the easily accessible food (not made in the restaurant) sold over the counter, whether it is consumed there or is taken out, is considered “restaurant services.”

The provision of prepared meals and other food products in the restaurant are included under “restaurant service,” according to GAAR, which examined all the information provided and the arguments put out. The availability of previously cooked or prepared food products bought in a local market is seen as the availability of goods.

“We hold that the readily available food items (not prepared/cooked in the restaurant) sold over the counter by the Applicant to the customer whether consumed in the restaurant or by way of takeaway does not qualify as ‘restaurant services’ instead of falls under the supply of the goods which is liable to the applicable rate of GST Tax,” GAAR articulated in its ruling pronounced on December 30.

In light of this, it was decided that the food and drinks the applicant made and provided to clients, whether they ate there or took it to go, would be subject to GST at a rate of 5% with no Input Tax Credit (ITC).

Tax experts mentioned that there is a difference between a pure supply of food and food that is processed/cooked and supplied including services, however, according to AAR an individual is required to make a difference among that to reach the true GST rate classification. “Restaurant would generally have some food items that are used in cooking as well as sold as it is. It appears that one would now need to keep track/ log of all items that are simply bought and sold as it is, to apply the correct GST rate,” said a tax expert.