Takeaway food from restaurants not to attract service tax, rules tribunal

Takeaway food will not to attract service tax, CESTAT (Customs, Excise & Service Tax Appellate Tribunal) has ruled in the matter of Haldiram. Though this ruling relates to a pre-GST regime issue, experts are divided over its implication in GST regime

At present, GST is applicable at the rate of 5 per cent on restaurant services, both in the case of dine-in in the premises or takeaway. GST on dining in a restaurant within hotels, where the daily room tariff is Rs 7,500 or more, is 18 per cent. While 5 per cent rate is without input tax credit, 18 per cent rate is with input tax credit.

CESTAT in its ruling delivered last week said: “It has to be held that no service tax can be levied on the activity of takeaway of food items as it would amount to sale and would not involve any element of service.”

Delhi-based Haldiram Marketing is engaged in running food outlets where customers can either purchase packaged foods such as sweets or namkeen, or avail of restaurant dining facilities. Additionally, the appellant also provides the facility of ‘takeaway’ of food items.

The bench took the reference from an order passed by the Commissioner (Appeals) in the matter of Anjappar Chettinad (2019) and noted that it was accepted by the tax department. That order had said: “In the appellant’s case the activity neither falls under restaurant service as the food is not consumed in the restaurant/ any part of the restaurant, nor under outdoor catering as the food/ beverages are served in the customer’s premises. Under the circumstances, I am of the opinion the appellant is not liable to pay service tax on such take[1]away/ parcel/ home delivery sales.”

The bench said when the department has accepted the decision of the Commissioner (Appeals) that no service tax is leviable on takeaway food items, it is not open to the department to take a contrary stand in this appeal.

Talking about impact of this ruling under GST regime, Harpreet Singh, Partner at KPMG says according to GST notification Restaurant service” means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied. Hence, “it will be difficult to contend that take away supply does not qualify as restaurant services,” he said. Furthermore, the categorization of take away supplies as ‘services’ is beneficial for restaurants in general as it provided single HSN & Rate for all supplies in restaurant..

B. Lakshmi Narasimhan, Principal Partner, Lakshmikumaran & Sridharan Attorney agrees that under the GST law, ‘restaurant service’ which is taxable at 5% intends to cover takeaway transactions as well.  “With this decision of the Tribunal, the taxability of takeaway transaction as a supply of restaurant service may become contentious,” he said.

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