GST on Food Delivery Packaging Charges: Composite Supply or Independent Taxable Component?

Backdrop: GST on Food Delivery

Since January 1, 2022, food delivery platforms such as Zomato and Swiggy have been mandated to collect and remit GST on food orders, even though restaurants were previously responsible for this. This shift came through the exercise of powers under Section 9(5) of the CGST Act, 2017, which empowers the government to notify certain services where e-commerce operators (ECOs) are deemed suppliers for tax purposes. As per the current structure, food ordered through online platforms is taxed at 5% GST (without Input Tax Credit), and this tax is collected by the platform from the customer and paid to the government.

The New Question: Packaging Charges

The GST department is now investigating whether separately billed packaging charges on food delivery orders should also attract GST, and if so, at what rate and by whom?

1. Composite Supply Argument: One Tax Rate Applies

Under Section 8 of the CGST Act, when two or more taxable supplies are naturally bundled and supplied in conjunction, and one is the principal supply, the entire transaction is treated as a composite supply.

Example: If food is ordered online and packaged for delivery, the food is the principal supply, and packaging and delivery are ancillary.

In such cases, the tax rate applicable to the principal supply (i.e., food) — which is 5% — applies to the entire bundled value (including packaging and delivery charges). From this perspective, the e-commerce operator (like Swiggy or Zomato) would continue to charge 5% on the total transaction value.

2. Independent Supply View: Higher Tax Rate on Packaging

If packaging charges are listed separately on invoices, they may not be incidental and could instead be seen as a distinct supply.

In such a case:

• Packaging material could attract 18% GST (standard rate for such goods/services).

• This would require separate disclosure and tax collection by either the restaurant or the platform.

• Platforms could be held liable under Section 9(5) if the packaging charge is deemed part of the food delivery service.

This interpretation opens up significant compliance implications and potential tax liabilities, particularly for aggregators who may have undercharged GST on packaging in previous years.

Case Example: GST Differential Impact

Let’s consider an illustrative transaction:

- Food Cost: ₹1,000

- Delivery Fee: ₹100

- Packaging Charge: ₹150

- Total Billed: ₹1,250

Under the composite supply model, GST @5% applies on ₹1,250 → ₹62.5

If packaging is separately taxed:

- GST on Food (₹1,000): 5% → ₹50

- GST on Packaging (₹150): 18% → ₹27

- Total GST = ₹77

This results in an additional ₹14.5 in tax, and platforms or restaurants could be liable to remit this retroactively for past transactions.

Legal Uncertainty Under Section 9(5)

Section 9(5) clearly makes platforms responsible for paying GST on specified services (like restaurant deliveries), but is silent on incidental or add-on charges. This legal grey area has led to confusion over:

• Whether packaging is the restaurant’s responsibility, or

• Whether platforms must treat it as part of their taxable service basket under 9(5).

Tax professionals warn that failure to properly classify packaging charges could lead to penalties and interest on unpaid tax. Summons have already been issued to top aggregators, and the department is collecting data on how packaging fees were billed and taxed over the last three years.

Implications for Industry Stakeholders

This investigation has sparked concern among:

• E-commerce platforms, who fear retrospective tax demands.

• Restaurants, particularly cloud kitchens and small operators who may not understand the tax impact of billing packaging separately.

• Consumers, who may ultimately face higher costs if platforms pass on the tax burden.

A large portion of India’s ₹50,000+ crore online food market may be affected, and many stakeholders are awaiting clarity from the GST Council or tax authorities.

Conclusion: Need for Policy Clarity

The current probe has highlighted the lack of clear guidelines on the treatment of packaging charges under GST. Given the growing role of e-commerce in service delivery, there is an urgent need for:

• Clear classification rules under composite supply provisions

• Updated notifications under Section 9(5) to clarify aggregator liabilities

• Consistent invoicing practices across platforms and restaurants

Until such clarifications are issued, both platforms and food businesses should review their billing practices, consult with tax professionals, and consider revising their GST strategies to stay compliant.