Gujarat AAR Ruling. Food-beverages prepared in a restaurant to attract 5% GST, rules Gujarat AAR

Food & beverages prepared in a restaurant will attract GST at the rate of 5 per cent whether consumed inside the restaurant or part of takeaway, Gujarat’s Authority for Advanced Ruling (GAAR) has ruled.

However, if an item or beverage not prepared in restaurant but served over the counter will not be treated as part of restaurant service and attract GST of individual items. For example, ice-cream served will attract a GST rate of 18 per cent.  

AAR rulings are applicable on applicant and jurisdictional tax official concerned, but can be relied upon in similar matters. Also, these rulings become part of policy making. Experts say differentiation between what was cooked inside and what was sourced from outside will add work to retailers.

In the present matter, Ahmedabad-based Ridhi Enterprises runs standalone restaurant. It offers a variety of food items including food and beverages prepared at the restaurant as well as readily purchased food and beverage sold over the counter. It moved to GAAR for ruling on two queries. One, whether the food and beverages by the applicant to its customers — whether consumed in the restaurant or by way of takeaway qualifies — as restaurant services. Second, whether the readily available food (not prepared in the restaurant) sold over the counter whether consumed in the restaurant or by way of takeaway qualifies as ‘restaurant services’ or not.

After going through all the facts presented and arguments made, GAAR observed that the supply of cooked foods and other food items in the restaurant are covered under ‘restaurant service’. The supply of already cooked/prepared food-items purchased from local market is considered as supply 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 supply of goods which is liable to applicable rate of GST Tax,” GAAR said in its ruling pronounced on December 30.

Accordingly, it ruled that the food and beverages prepared and supplied by the Applicant to its customers whether consumed in the restaurant or by way of takeaway will attract GST at the rate of 5 per cent with no Input Tax Credit (ITC).

Commenting on the ruling, Harpreet Singh, Partner with KPMG, says there is a thin line of distinction between pure supply of food and food being processed/cooked and supplied along with services, but as per the AAR, one would need to distinguish the same to arrive at correct 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,” added Singh.

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