5% GST only on food prepared in restaurants, Readily available food do not qualify as restaurant services; Check Details

GST Rate of 5% is applicable on food prepared in Restaurants. However, it does not matter if prepared food is ordered at home or eaten at restaurants itself.

Reetu | Jan 4, 2023 |

5% GST only on food prepared in restaurants, Readily available food do not qualify as restaurant services; Check Details

5% GST only on food prepared in restaurants, Readily available food do not qualify as restaurant services; Check Details

Restaurant owners must now take extra precautions to ensure that they can only take 5% only on cooked food items in the Restaurant. If they serve ice cream, the GST rate is 18%. Similar to how they will apply the current GST rate if they serve chips, chocolate, bottled water, or other beverages.

In fact, the Gujarat Bench of the GST Authority for Advance Rulings (AAR) recently ruled that the benefit of this input tax credit is not applicable to restaurant services because a 5% GST rate is in effect. It doesn’t matter if someone orders the food prepared and brings it home or if they eat at a restaurant. Even the restaurant’s delivery to his home will be considered restaurant service, and everything will be subject to a 5% GST.

food prepared in restaurants

food prepared in restaurants

GST will be applicable on these goods

However, the AAR bench ruled that supply of readily available food and drink over the counter, such as chocolates, chips, or bottled drinks that are not made by the restaurant, would not be regarded as restaurant service, according to a report.

The applicable GST rates will be levied on each such items. The AAR bench referred to the GST Council meeting held in 2017 and a recent circular issued by the Central Board of Indirect Taxes and Customs in October, which clarified that takeaway and doorstep delivery services fall within the ambit of restaurant services.

Challenges will increase for Restaurants

This ruling has clarified the situation. However, this would pose challenges for restaurants who were treating over-the-counter supply of readily available items as ‘restaurant service’.

CBIC clarified in August 2022 following the GST Council meeting that 18% rate would be applicable in the matter of imposing 5% GST on ice-cream parlors. In order to avoid needless litigation, past cases will be treated as fully paid. For restaurants, the GST Council ought to suggest a similar clarification.

The AAR’s ruling in a case only affects the applicant in that instance, but it may be applied to settle disagreements in related situations.

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