New Role of E-commerce Operators in Restaurant Services

Notification No 17/2021 - Central Tax (Rate) dated 18.11.2021 has created a widespread confusion among e-commerce operators (ECO's) providing restaurant services. Food lovers enjoying services of ECO's like Zomato, Swiggy are worried if their favourite Biryani would cost them an extra amount from 01.01.2022.

Vide this Notification effective from 01.01.2022, even the 'restaurant services' have been dragged under the provisions of Section 9(5) of the CGST Act (which deals with E-commerce operators). Now, the entire responsibility of payment of GST lies with the E-commerce operator where the services are provided through them. ECO's have to enter into the shoes of suppliers (restaurants) and discharge all the responsibilities as applicable to the suppliers.

Let us analyse the repercussions of such an amendment briefly-

1. Shifting of Tax liability

Post this change, only the liability to collect tax from customers has been shifted from suppliers i.e. restaurants to ECO's and there has been no change in the rate of Tax. Hence, the basic question arising in the minds of customers is cleared that the food costing Rs. 100 earlier will still cost the same after the change. There will be pricing differences in some cases though and will be discussed in the next point.

2. Unregistered Suppliers

In cases where the suppliers i.e. restaurants were not registered under GST owing to their threshold limit, there will be cost differences as ECO will levy GST although the restaurant is not registered. The Government has thus regulated the collection of GST by handing it over to a notified entity and thereby restaurants cannot enjoy any manipulation in such cases.

(In case of unregistered restaurant)

3. Non Levy of TCS

As per section 52 of the CGST Act, every ECO was liable to collect TCS at the rate of 1% on the net value of taxable supplies made through it by the other suppliers. However, the net value of such supplies excludes supplies made under Section 9(5) hence from 01.01.2022, ECO's wont levy TCS on such restaurant services and file GSTR-8. Accordingly they have to update their systems. Goods and services supplied through ECO which are not notified u/s 9(5) will continue to pay TCS in terms of Section 52. The changed scenario in case of restaurants in showcased as below

ECO

• Charging GST on food Customers
• Charging GST on support Services  Restaurants

(In case of Registered Restaurant)

4. Claim of Input Tax Credit

As per CBIC Circular No 167/2021 dated 17.01.2021, ECO's provide their own services as an electronic platform and an intermediary for which it would acquire inputs/input service on which ECOs avail input tax credit (ITC). The ECO charges commission/fee etc. for the services it provides. The ITC is utilised by ECO for payment of GST on services provided by ECO on its own account (say, to a restaurant). The situation in this regard remains unchanged even after ECO is made liable to pay tax on restaurant service. ECO would be eligible to ITC as before. Accordingly, it is clarified that ECO shall not be required to reverse ITC on account of restaurant services on which it pays GST in terms of section 9(5) of the Act.

5. Payment of Tax

The circular mentioned above disentitles ECO from paying the outward liability using Input Tax credit. On restaurant services, ECO Should pay the entire GST liability in cash and no ITC can be utilised for such payment.

6. Other services by ECO

There are number of other services provided by ECO not covered under the provisions of 9(5). On such supplies, suppliers are still liable to pay tax if their outward supply crosses the threshold limit and ECO will continue to collect only TCS as earlier.

7. Billing and Invoicing

As per the provisions of the CGST Act, issuance of invoice to customer still lies with the person liable to collect tax, hence ECO will be liable to raise invoices in respect of restaurant services supplied under 9(5).

8. Exclusions

The relevant notification excludes restaurant services supplied by restaurant or eating joints located at 'Specified Premises' from provisions of 9(5). Specified premises is explained as premises providing hotel accommodation service having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.

Likewise for instance Radisson blue has per night stay costing Rs. 10,000/- then it will be the hotel who will charge the GST and not the ECO though the food from the Radisson is delivered online.

9. Impact on restaurants

Restaurants have to maintain separate set of books for supplies made through them and made through ECO's. This will increase burden of compliance on them. For calculating the threshold limit for total turnover both the categories of supplies has to be included.

Impact on E-commerce operators

ECO's have to raise invoices in cases of supplies made through it and it is followed by increased reporting requirements for them. Also, ECO's will have to invest a lot of time in categorising the restaurants as per the exclusions. The room rent charged for accommodation varies upon the demand and is not the same throughout the year. As the rate keeps on changing ECO's have to keep the constant check which will unnecessary add to their burden.

This change in law has brought a tough deal to suppliers who are supplying majorly through ECO's. The chain of Input Tax credit takes a back seat where the ITC is accumulated with the supplier but there is no outward tax liability against which it can be set off. The very basic motive of GST aiming for seamless flow of credit has been violated. In case of ECO's having to pay outward tax, no or very less amount of input tax credit is available for their utilisation.

Thus such a huge change in law has brought various issues open for litigation including the categorisation of restaurants, onus of non-compliance, utilisation of accumulated credits and so on. These changes are expected to come with increased collection of taxes to government even if the TCS provisions are suspended. The reasons may ultra vires include collection of taxes on services by unregistered restaurants, non-utilisation of input tax credit for payment of taxes etc.

ECO's and restaurants have great deal of changes to make in their regular functioning and their I.T systems.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The author can also be reached at reema.mehta@umca.in.