Food delivery apps should pay GST for provisioning for both registered and unregistered restaurants

Ecommerce operators (ECOs) engaged in food delivery, such as Zomato and Swiggy, will be required to pay Goods and Services Tax (GST) not only for catering to registered but also unregistered restaurants. In addition, they will not get an input tax credit (ITC).

This clarification is contained in a circular published by the Ministry of Finance for the new system which will enter into force from 1 January. Under the new system, food delivery ECOs will be responsible for paying the GST. Currently, the restaurant pays. The government has already clarified that this is not a new tax and that there will be no implication for customers. The tax rate will remain at 5 percent.

“CEOs will be required to pay GST on any catering service provided through them, including by an unregistered person,” the circular said. By law, any restaurant or person providing “catering service” will need to register if their annual turnover is 20 lakh (₹ 10 lakh in some Northeastern states and others) or more. This turnover will also include the overall value of supplies made by the restaurant through the ECOs.

5% GST

Since the GST on restaurant services is levied at 5 percent but without ITC, the same principle will apply to ECAs. “It may also be noted that on the catering service, ECO will pay the entire GST in cash (no ITC could be used for the payment of GST on the catering service provided through ECO)” , indicates the circular.

Also Read: Food Delivery Apps Won’t Get Input Tax Credit Under New GST Regime As Of Jan 1

Currently, these applications are registered as withholding tax collectors (TCS). Now, as of January 1, these ECAs will no longer be required to collect TCS and produce GSTR-8 for catering services they pay tax on. For other services, they will continue to pay TCS.

One of the reasons for the change in mechanism, officials said, is an ECO committee’s observation that there is no mandatory GST registration control by food technology companies and restaurants. unregistered sources sourced through them, resulting in a tax loss.

Flourishing business

It can be noted that although the tax rate is low, missed income is significant as food delivery is a thriving and high volume business. The committee estimated the loss of income at around 2,000 crore.

Sunil Kumar, CEO at Taxmann, said CEOs cannot use the ITC available in their credit pool to pay GST on food services. However, the GST law does not prevent the supplier (including ECOs) from using ITC which is otherwise available from the supplier (eg other lines of business) against such an obligation to output tax.

In addition, the circular also provides that restaurants would be required to include the value of the disputed offer in their overall turnover for various purposes under the GST law (such as for registration threshold etc. .). However, the GST law considered the ECO as a service provider.

“The registration provision places the onus on the supplier to register. Therefore, with regard to the supplies made by the restaurants, it can be considered that the ECO would step into the place of the restaurants (i.e. ECO would be treated as the supplier of these supplies). In view of this, it can very well be argued that for the purposes of the GST law, the disputed supply made through ECO would be considered the supply of ECO and not of restaurants, ”Sunil said. Kumar.

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