GST Impact of Recent Decision on Hospitality Sector

Goods and Services Tax Council (GSTC, in short) met for its 45th GST Council meeting in physical form on 17th September at Lucknow (UP). This was the first meeting held physically after a gap of seventeen months, thanks to Covid pandemic.

The GSTC considered various issues and concerns confronting GST law, administration, compliance etc and recommendations or decisions inter alia, include :

  • Streamlining GST compliances
  • Relaxations in various filings
  • Clarifications on issues such as ITC, inverted duty structure, exports, intermediary, e-invoices, debit notes and so on.
  • Rationalization of GST rates
  • New exemptions
  • New taxation objects
  • Compensation cess
  • Mandatory aaddhar authentications etc
  • Sector specific recommendation such as education, hospitality (including hotels, restaurants, supply of food etc), textiles, footwear, BPO, automobiles, food processing, health care, inclusion of petroleum products into GST etc.

This piece discusses the impact of GST Council’s recommendation on hospitality sector.

Hospitality Sector

Indian hospitality sector is already passing through a rough weather owing to ongoing pandemic, travel restrictions and economic recession.

This sector broadly covers the following services :

  • Accommodation (hotels, clubs, inns, guest houses etc)
  • Restaurants of all types
  • Supply of food and other food related supplies

Following activities shall be hit by the decision of GST Council GST rates:

  • Supply of food by food supply aggregators like zomato, swiggy, etc
  • E-commerce
  • Alcoholic beverages
  • Cloud kitchens
  • Ice cream parlors
  • Food processing /FMCG

The recommendations of GST Council with specific reference to hospitality sector are briefly discussed hereunder.

GST rates

  • Distinction between fresh and dried fruits and nuts has been clarified for application of GST rate of “nil” and 5%/12% respectively.
  • Scented sweet supari and flavored and coated illachi falling under heading 2106 attract GST will be taxed at the rate of 18%.
  • Carbonated Fruit Beverages of Fruit Drink” and “Carbonated Beverages with Fruit Juice” will attract GST rate of 28% and Compensation Cess of 12%. This has been prescribed specifically in the GST rate Schedule (Code 2202).
  • Ice cream parlor sells already manufactured ice- cream. Such supply of ice cream by parlors would attract GST at the rate of 18%.
  • Alcoholic liquor for human consumption is not ‘food and food products’ for the purpose of the entry prescribing 5% GST rate on job work services in relation to food and food products.
  • Other miscellaneous goods of paper like cards, catalogues, printed material will be taxed @ 18%, up from 12%.
  • Events held in hotels involving right to movies / sound recording etc will be taxed @ 18% instead of 12%.

> Tax on cloud kitchens

  • Services of supply of food by cloud kitchens/central kitchens (such an swiggy / zomato or like) shall be considered under ‘restaurant service’ and attract 5% GST [without input tax credit].

> E-commerce

  • Ecommerce transactions w.e.f. 1.1.2022 will be taxed so much so that E-commerce Operators will be made liable to pay tax on following services provided through them:

(i) transport of passengers, by any type of motor vehicles through it

> Alcoholic liquor

  • Alcoholic liquor meant for human consumption is presently out of GST ambit as it continues to be a state subject and only state excise duty and VAT are levied on such products. It has been clarified that alcoholic beverages are not ‘food’ and ‘food product’ for the purpose of food processing on which 5 percent GST is levied.
  • Thus, processing of alcoholic beverages on job work basis (which is common in this industry) will not attract GST @ 5 percent but applicable  higher rate of 18 percent shall be applicable.

> Restaurants

  • Presently GST is levied on restaurants on supply of foods. Owing the pandemic times, while restaurant sales have been on decline, supply of food through online channels has picked up substantially. It has been decided to tax such e-commerce platforms or aggregators supplying food on online bookings /apps such as zomato, swiggy and the like.
  • In such cases, GST shall be recovered from such e-commerce platforms considering them as restaurant and not from the restaurant delivering food to such supply chain for onward delivery to customer. The charge shifts from restaurant to e-commerce aggregator.
  • However, in ultimate result, it will be the customer who will bear the tax burden. This is not likely to result in double taxation but will increase GST collection to some extent.
  • Similarly, cloud kitchens will now be taxed to GST treating their services as restaurant services and taxed @ 5 percent without benefit of input tax credit. This levy will be prospective only.
  • Restaurants also service fruit beverages and fruit drinks. Carbonated fruit beverages of fruit beverages of fruit drinks as well as carbonated beverages with fruit juice will attract 28% GST alongwith compensation cess of 12% making a total tax of 40%. Necessary changes will be made in rate Schedule.

It may be noted that levy of compensation cess has been extended upto March, 2026.