GST UPDATE NO. 73RD ON FOOD DELIVERY APPS LIABLE TO GST W.E.F. 01.01.2022

The GST Council in its 45th meeting decided on various issues, wherein one of the major decisions was to make numerous food delivery apps liable to 5% GST for providing restaurant services. It was proposed that E Commerce operators are being made liable to pay tax on the restaurant services provided through it with some exceptions w.e.f. 01.01.2021. The exceptions would be known when the notification is released. The present update seeks to discuss ambiguities which may crop up due to the decision of the GST Council. It is proposed that the liability for payment of taxes in case of restaurant services will be shifted to the ecommerce operators providing platform for home delivery services to the customers such as swiggy, zomato, uber-eats etc. This is primarily for the reason that the government apprehends that many restaurants are collecting taxes but are not paying the same to the government and in order to control them, the liability to pay GST should be shifted to the e-commerce operators. It is worth mentioning that there is mechanism of TCS prevailing in case of supplies made through ecommerce operators. However, it is not clarified whether the said mechanism would be applicable in case of food delivery platforms or not. One of the issues that is likely to be disputed will be the cases where the food delivery is being made from restaurant of a five-star hotel wherein value of supply of a unit of accommodation is above seven thousand five hundred rupees per unit per day or equivalent. This is for the reason that the rate of GST applicable on such restaurants is 18% while rate of GST in case of normal restaurants is only 5%. It would be very difficult for the food delivery apps to keep track record of the GST rates applicable for supplies made from various restaurants. The certainty in this regard will arrive only on issuance of notification by the government in this respect. Moreover, the GST rate of 18% on restaurants located in five-star hotels is with the facility of input tax credit which will also be another point of litigation. Whether the five-star hotel will be required to reverse the input tax credit availed on the supply of food through food delivery apps in case the entire GST liability is to be discharged by the food delivery apps? Moreover, another issue that will crop is that whether the food delivery apps would be allowed to maintain separate accounts for food supplied at the rate of 18% so as to avail input tax credit on the same? The repercussions as regards credit availment would be far reaching and needs to be considered by the government before releasing the notification. It is also worth noting that such an amendment will bring all the small restaurants having aggregate turnover below Rs. 20 Lakhs because as per provision contained in section 24(ix) of the CGST Act, 2017, compulsory registration is required to be taken in case of person who supplies 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. Although, there is no clarity as regards applicability of the TCS provision to such food delivery apps but if the said provision is applicable, all restaurants irrespective of their aggregate turnover would be required to get registered and the cost of food delivered would become expensive. This would definitely be the root cause for hike in the food prices in the near future as it is observed that the food delivery apps are popular even for small restaurants operating in cities.

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GST UPDATE NO. 73RD ON FOOD DELIVERY APPS LIABLE TO GST W.E.F. 01.01.2022

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