GST update No 110 on clarification on services supplied by restaurants through ECO

The GST council in is 45th meeting held on 17.09.2021 shifted the liability to pay tax on e-commerce operator (ECO) with respect to restaurant services provided by it. Notification No. 17/2021 dated 18.11.2021 has been issued to make the provision applicable with effect from 01.01.2022. However, a lot of confusion is prevailing in the minds of assessees as regards various issues with respect to implementation of this provision shifting the liability of payment of tax from restaurants to ECO. Recently, clarification was released by the CBIC vide Circular No. 167/23/2021-GST dated 17.12.2021 in this respect which is the subject matter of discussion of our present update. The issues touched upon by the circular are discussed as follows:- 1. Deduction of TCS by ECO :- Presently, ECOs are required to collect TCS @1% on the net value of taxable supplies made through it by other suppliers. The restaurant service providers were doubtful as to whether the ECO would continue to collect TCS on supplies made through them. It is clarified that there is no need to deduct TCS on the supplies for which GST is to be paid by the ECO. 2. Separate registration by ECO:- ECOs are already registered for collecting TCS and are filing GSTR8. Doubts were raised as to whether separate registration is required to be taken by ECO for concluding transactions through restaurants on which liability to pay tax is on the ECO. It is clarified that there is no need to take separate registration by the ECO and the existing registration would suffice. 3. Liability to pay tax for unregistered restaurants:- It is clarified that even for restaurants having aggregate turnover less than Rs. 20 Lakhs, if supplies have been made through ECO, GST would be payable by the ECOs. 4. Computation of aggregate turnover for restaurants:- There was confusion as regards inclusion of such turnover in the aggregate turnover of restaurant service provider or the ECO. It is clarified that the supplies made through ECO would be considered as supplies made by restaurant service provider and will be included in the aggregate turnover of restaurants. 5. Whether restaurant supplies through ECO considered as inward supplies liable to RCM for ECO? :- It is submitted that as per section 2(93)(a) of CGST Act, 2017, recipient of service means person who is liable to pay consideration. As in the present case, the customer ordering food through ECO is the recipient, ECO cannot be considered as recipient of the restaurant service and so the transaction cannot be considered as inward supplies for ECO. Similar view has been taken by CBIC and it is clarified that ECO are not recipient of restaurant service. 6. Requirement of proportionate reversal by ECO:- Representations have been raised seeking clarification on whether the ECO is liable to reverse proportionate ITC as per Rule 42 and 43 of CGST Act, 2017 since input credit is not admissible on restaurant services. To this, it is clarified that ECO charges commission and fee etc. for the services which it provides to restaurants. Hence, it is clarified that ECO need not to reverse ITC on account of restaurant services provided as it is merely appointed by government to discharge GST on restaurant services provided through it. Further, it is clarified that ECO shall pay entire amount in cash on such restaurant services. As the output tax is being paid in cash by ECO and actually it is engaged in facilitating restaurant service provider to supply food to customers, there is no requirement to reverse proportionate ITC. 7. Compliance for other than restaurant services by ECO:- It is clarified that the requirement to collect TCS would continue for services other than restaurant services provided through ECO. Moreover, the liability to issue invoices in case of services other than restaurant services provided through ECO would continue to be issued by the service providers. In case of composite supplies made by ECO, separate invoice is to be issued by ECO for restaurant services provided through it. ECO is liable to issue invoices for restaurant services provided through it. 8. Reporting in GST returns:- Transaction of supply of restaurant services through ECO would be reflected as B2B (in case of registered restaurants)/B2C (in case of unregistered restaurants) supplies in table 4A or table 7A(1) of GSTR-1 of ECO and as outward taxable supplies in GSTR-3B filed by them. However, restaurants would report such supplies as Nil rated/exempt supplies under table 8 of GSTR-1 and serial no. 3.1(c) of GSTR-3B. The government shifts liability to pay tax in specific sectors in order to check revenue leakage. One of the reasons for the change in tax mechanism for services provided by restaurants through ECO is to generate revenue on the supplies being made from unregistered restaurants. It is worth mentioning that Uber has also filed writ petition before the Delhi High Court against the move of the government to levy tax on auto-rickshaw services provided through ECO w.e.f. 01.01.2022 which are otherwise exempt on the grounds of discrimination. We can expect similar petitions being filed with respect to restaurant services provided through ECO.

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GST update No 110 on clarification on services supplied by restaurants through ECO

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