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Impact of GST on Restaurants and Food Businesses

The new regime of indirect tax in India has brought consolidated Goods and Services Tax that replaced the various indirect taxes levied on sale and purchase of goods and services in India. Many products and services have been affected by the prices of many goods reduced by a large margin and services cheaper than before with multiple indirect taxes imposed.
Written by:
Shivi Gupta
Published on
24-Jul-18

The new regime of indirect tax in India has brought consolidated Goods and Services Tax that replaced the various indirect taxes levied on sale and purchase of goods and services in India. Many products and services have been affected by the prices of many goods reduced by a large margin and services cheaper than before with multiple indirect taxes imposed.

When it comes to the restaurant and hotel business, the GST rate on restaurants has been a subject of perpetual debate and confusion. The pre-GST restaurant bills included Services Tax, VAT and Service Charge. The different components of a restaurant bill before GST regime were as follows: 

  • Price of Item ordered: The standard price mentioned in the Menu of a restaurant is the price on which the different taxes were calculated.

  • VAT: The indirect tax was levied on food items ordered. 

  • Service Tax: The tax levied on services provided by restaurants.

  • Service Charge: The charge is not an indirect tax, but levied by restaurants over and above Service Tax. The amount of Service Charge was not included in tax collected by the government. 

The current GST regime in India has combined different taxes into a single tax, with 18% GST in AC restaurants and 12% GST in non-AC restaurants previously. In November 2017, the GST Council revised the GST rate in restaurants and hotels to 5% in both AC and non-AC restaurants. Around 178 items of daily use were removed from 28% bracket and placed into 18% category. However, the government has also done away with Input Tax Credit (ITC) available for restaurant businesses. 

 

Restaurants with an annual turnover of more than Rs. 1 crore will not get the ITC benefit sets off tax paid on inputs with final tax. Restaurant owners claim that this is bound increase the cost of their goods as they will not be able to claim the benefit of tax paid for raw materials purchased and pass the benefit to customers. Hotels that charge Rs. 7500 or more per day for a room will be charged 18% GST, but ITC is allowed for them. 

The restaurant business to make it to customers’ hit list was McDonald’s when a post on social media went viral about the food chain charging the same amount before and after the GST rate cuts.

Finance Minister Arun Jaitley claimed that the ITC benefit was not passed onto customers and restaurant businesses were pocketing the entire benefit and hence, the government withdrew the entire benefit. The overall cost of raw material has decreased as edible oil, spices, tea, coffee, etc. are charged 5% instead of the previous 3-9%. 

What to do if you’re charged GST rates without the recent cut?

If a restaurant has charged you GST rates on the basis of previous GST tax slab, the first thing you have to do is to keep a copy of your restaurant bill. There are two legal remedies available to report GST fraud by restaurants- the first legal recourse to take is to file a complaint against the restaurant with the Central Board of Excise and Customs (CBEC). 

A taxation and duty lawyer can be consulted to file a complaint with CBEC against a restaurant anywhere in India. The government has enabled online filing of GST fraud complaints as well.  The CBEC will then inform the restaurant about the complaint filed against it and direct it to send submit a reply. 

The other method is to file a consumer complaint in an appropriate consumer forum against the unfair trade practice by the restaurant or hotel. A consumer complaint can be filed in the District Consumer Redressal Forum for claims under Rs. 25 lakhs. A consumer protection lawyer can draft and file a consumer complaint on your behalf against the restaurant. 

Need to take action against GST rates charged by a restaurant or hotel? Hire the best Taxation Lawyer or best Consumer Protection Lawyer from MyAdvo. Email us at info@myadvo.in or call now at 9811782573.