E-Commerce (ECOs) operators like Zomato and Swiggy will be responsible for paying the 5% Goods and Service Tax(GST) on supplied Restaurant Services from January 1. They are staring at the troublesome task of changing their software in less than two weeks as the invoicing responsibility shifts from restaurants to them.
Tax Liability
The tax liability will be on E-Commerce for restaurant services (Zomato, Swiggy, etc) announced in September 2021. Procedural aspects like invoicing were only clarified by a circular issued by the revenue department on December 17. According to this circular, invoicing of the above service has been made the responsibility of ECOs.
From January 1, 2022, E-Commerce implements the same. For implementing suitable changes in the invoicing software, an extension of time should be given for each restaurant item and making the necessary changes in software which is a humongous task.
Restaurant Providing Services
There are other complexities in compliance as well. Restaurants, through these apps, not only provide restaurant services (Zomato, Swiggy, etc) but also supply goods. For example, people buy Pizza and Coke in their combo orders. Pizza is a restaurant service on which these apps will pay 5% GST and comply with 1% tax collected at source (TCS) norm on Coke. Coke attracts 28% GST and is produced by the restaurant.
These two items in the same order will require two invoices- one by the restaurant’s app on Pizza and Coke, which could have been avoided by hiking the TCS rate to 5%. If the government could clarify that ECO is only responsible for paying the tax and restaurants can continue to do the invoicing the way they are doing currently, it would make compliance with the above smoother. The government’s objective, the ECOs discharge the above tax liability, will also be fulfilled.
The GST Council‘s decision to bring food delivery apps within the ambit of restaurant services and make them liable to pay the tax is aimed at shifting the responsibility from restaurants to apps to make compliance broader and more manageable even though the move will likely marginally increase the tax incidence on small restaurants otherwise exempt from GST.
The frequently asked question issued by the Central Board, the Central Board of Indirect Taxes and Customs (CBIC), ECO would pay the entire GST liability for restaurant service in cash without any Input Tax Credit (ITC).
To give some relief, the CBIC has clarified that the online food delivery apps would continue to claim ITC as before for taxes paid on expenses such as advertisement and rents.
