Tax trouble. How a restaurant cooks up a storm at tax office

The taxman has been dished a mind-bending problem, thanks to a point on semantics raised by Odisha’s Appellate Authority for Advance Ruling (AAAR). GST law defines ‘restaurant services’, but it does not really spell out what a ‘restaurant’ is and that causes ambiguity, points out the AAAR.

Going by the Cambridge Dictionary, which defines a restaurant as “a place where meals are prepared and served to the customer”, the AAAR held that an outlet cannot be classified as a restaurant, if it is selling eatables prepared somewhere else and sold mainly for takeaway. So what rate should such an outlet attract?

In the case of restaurant services, GST is levied at 5 per cent without any Input Tax Credit (ITC) on the bill amount (excluding beverages). However, if an outlet just sells bakery items and snacks, and does not really have dining-in facilities, then it attracts GST at different slabs – branded snacks at 12 per cent, pastries and cakes at 18 per cent and so on.

Dine-in or takeaway

It all started when Sambalpur-based Pioneer Bakers, which has several outlets in the State, many of them with air-conditioned seating facilities, attracted the eye of the jurisdictional tax officer. The tax officer argued that the bakery was not running a restaurant but it was simply an outlet where already prepared items were available as per order for takeaway. Tax officials contended that food was not served at the customer table and items were sold at the counters.

However, Pioneer Bakers — which appealed with the Authority for Advance Ruling (AAR) — contended that the tax authorities had not inspected the facilities properly. Only one outlet was inspected. It said that at some premises, the manufacturing happened; elsewhere, the goods were baked at a workshop and brought in. Customers could order at the counter and after purchase could either sit at the outlet and eat or take away.

After going through submissions made and facts presented by both the parties, the AAAR noted that notification defined restaurant services as supply of food or drink by restaurants. Then the question was – should the outlets in question be treated as restaurants or not? It then found that the GST law has not defined what a restaurant is at all.

“Examining all the factors, we are of view that the establishments/outlets/premises of the applicant cannot be treated as restaurants,” the AAAR said while adding that activities carried there cannot be considered as restaurant services. It set aside AAR’s order (it had held the bakery outlet could be classified as a restaurant) and said that the items sold by the applicant will attract GST rate applicable on individual items.

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