How does GST impact the food and hospitality sector?

The Goods and Services Tax (GST) has streamlined the taxation system for the food and hospitality sector by replacing multiple indirect taxes like VAT, service tax, and luxury tax. Its implementation has introduced transparency and uniformity, but it also presents unique challenges for businesses in this sector.

Constitutional Framework

1. Article 246A

• Provides concurrent powers to both Parliament and State Legislatures to levy GST on food and hospitality services.

2. Article 265

• Ensures that no tax is levied or collected except by the authority of law, governing the applicability of GST on various transactions in the hospitality sector.

3. Article 366(12A)

• Defines GST as a tax on the supply of goods and services, which encompasses food and hospitality services.

4. Article 286

• Prohibits states from taxing inter-state supplies, ensuring seamless application of GST across state boundaries in the food and hospitality sector.

5. Schedule II of the CGST Act, 2017

• Specifies that restaurants and catering services are treated as a supply of services, while packaged food items are categorized as goods.

Provisions Under GST for the Food and Hospitality Sector

1. GST Rates

• Restaurants:
  • Non-AC restaurants: 5% GST (without Input Tax Credit (ITC)).
  • AC restaurants: 5% GST (without ITC).
• Hotels and Lodging:
  • Room tariff below ₹1,000 per day: Exempt.
  • Room tariff ₹1,001 to ₹7,500 per day: 12% GST.
  • Room tariff above ₹7,500 per day: 18% GST.
• Outdoor Catering:
  • 18% GST with ITC.

2. Input Tax Credit (ITC)

• Available for outdoor catering and hotel services but not for restaurants opting for the 5% GST rate.
• ITC is applicable for banquet services and hotel construction.

3. Reverse Charge Mechanism (RCM)

• GST under RCM applies to certain inputs like unregistered suppliers for raw materials or services.

4. Composite and Mixed Supplies

• Food and beverages supplied as part of a hotel stay are taxed as composite supplies, with the room tariff determining the applicable GST rate.

5. Export of Services

• Hospitality services rendered to foreign tourists in India are subject to GST but may qualify as zero-rated exports under certain conditions.

6. E-Commerce Operators

• Platforms delivering food (e.g., Swiggy, Zomato) collect and remit GST at 5% on behalf of restaurants, simplifying compliance.

Impact of GST on the Food and Hospitality Sector

1. Advantages

• Unified Tax Structure:
  • Replaces VAT, service tax, and luxury tax, simplifying compliance.
• Transparency:
  • Digitized processes and standardized rates reduce tax evasion.
• Ease of Doing Business:
  • Uniform rates enhance business predictability and scalability.

2. Challenges

• Increased Costs for Restaurants:
  • Non-availability of ITC for restaurants operating under the 5% GST rate increases operating costs.
• Compliance Burden:
  • Complex invoicing and reporting requirements for hotel chains and restaurants.
• Tax on Premium Services:
  • Higher GST rates on luxury hotels and premium restaurants can deter customers.

Landmark Cases in GST for Food and Hospitality

1. Union of India v. Mohit Minerals Pvt. Ltd. (2022)

• Issue: Applicability of RCM on import services for the hospitality sector.
• Judgment: Supreme Court ruled on the distinction between domestic and imported services for GST compliance.

2. Hotel East Park v. Commissioner of CGST (2021)

• Issue: GST on food supplied in hotel rooms.
• Judgment: The tribunal held that food supplied in hotel rooms should be taxed as part of composite supply, aligning with the room tariff GST rate.

3. Anjappar Chettinad v. Commissioner of CGST (2020)

• Issue: ITC denial for outdoor catering.
• Judgment: Tribunal upheld the ITC denial for services provided at 5% GST without ITC.

4. OYO Rooms Pvt. Ltd. v. GST Department (2022)

• Issue: GST liability for services offered via an aggregator platform.
• Judgment: GST is to be collected and remitted by the platform under the new aggregator provisions.

5. Swiggy v. GST Council (2021)

• Issue: GST collection at source (TCS) compliance for e-commerce operators.
• Judgment: High Court clarified that e-commerce platforms must remit GST collected from restaurant partners.

Compliance Requirements

1. Mandatory GST Registration:
   • All businesses in the hospitality sector with annual turnover exceeding ₹20 lakh (₹10 lakh in special category states) must register under GST.
2. E-Invoicing and Reporting:
   • Large hospitality businesses must comply with e-invoicing norms for seamless reporting.
3. GST Refunds:
   • Zero-rated exports and excess ITC on construction or capital goods allow refund claims.

Conclusion

The CGST Act, 2017, read with constitutional provisions like Article 246A, has introduced a unified taxation framework for the food and hospitality sector. While simplifying compliance and enhancing transparency, GST poses challenges such as the unavailability of ITC for restaurants and higher costs for premium services. Landmark cases like Hotel East Park and Swiggy v. GST Council have clarified ambiguities, ensuring a more robust interpretation of GST provisions. With proper planning and compliance, the sector can leverage GST to improve operational efficiency and competitiveness.