GST on Restaurant Services
- tax comply
- 4 days ago
- 4 min read
The introduction of the Goods and Services Tax (GST) in India in 2017 marked a significant shift in the country’s indirect tax framework. One of the sectors most affected by this reform is the hospitality industry, especially restaurant services.
This article offers a comprehensive and professionally detailed analysis of how GST applies to restaurant services in India.
It covers statutory provisions, judicial decisions, circulars, and compliance requirements essential for tax professionals, restaurant operators, and legal advisors.
1. Meaning and Scope of Restaurant Services
As per the explanation to Notification No. 11/2017-Central Tax (Rate), restaurant service means:
"Supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises."
Key Clarifications:
Includes takeaway and delivery services (as per CBIC Circular No. 164/20/2021-GST).
Excludes services like ice cream parlours where no preparation or cooking is done.
Applies equally to cloud kitchens and central kitchens engaged in preparation and supply of food.
2. Supply Under GST – Consideration and Beyond
Under Section 7 of the CGST Act, supply must:
Be of goods or services;
Be made for consideration;
Be in the course or furtherance of business.
However, Schedule I treats certain transactions as supply even without consideration, such as:
"Supply between related persons or distinct persons in the course of business."
This is particularly relevant for food supplied within corporate groups or multiple GST registrations under the same PAN.
3. Judicial and Administrative Clarifications
Key Distinctions:
Service Type | GST Position | Legal Basis |
Outdoor Catering | Not restaurant service | Tamil Nadu Kalyana Mandapam Assn. v. Union of India (SC) |
Contract Catering in Factories | Not restaurant | Smt. Natarajan Jothilakshmi, AAR-TN |
Cloud Kitchens | Covered as restaurant | CBIC Circular No. 164/2021 |
Ice Cream Parlours | Not restaurant (no cooking) | CBIC Circular No. 164/2021 |
Cinema Hall Food | Restaurant if sold separately | CBIC Circular No. 201/13/2023 |
Sweetshop + Restaurant | Depends on billing structure | AAAR Uttarakhand, AAR Chhattisgarh |
Canteens by Employers | Not taxable under GST | Cadila Healthcare, AAR-Gujarat; Emcure Pharma, AAR-Maharashtra |
Hospital Food | In-patient food exempt | CBIC Circular No. 32/06/2018-GST |
Railway Catering | Taxed at 5%, not restaurant service | Notification No. 13/2018-Central Tax (Rate) |
4. Composite vs Mixed Supply
As per Section 2(30) of the CGST Act, a composite supply is:
“A supply consisting of two or more goods or services which are naturally bundled and supplied in conjunction, one of which is the principal supply.”
For instance, hotel accommodation with breakfast is a composite supply. The entire supply is taxed as per the rate applicable to the principal component.
As per Schedule II, food and drink supplied for consideration is always treated as a supply of service.
5. Exemptions
Catering to Educational Institutions:
Exempt if provided by the institution itself.
Mid-day meal schemes supported by the government are also exempt.
Legal Basis:
Notification No. 12/2017-Central Tax (Rate), Entry 66.
CBIC Circular No. 85/04/2019.
If supplied by a third-party caterer to an educational institution, the service is taxable.
6. Place of Supply
Under Section 12(4) of the IGST Act:
The place of supply for restaurant and catering services is the location where the services are actually performed.
For cross-border scenarios, under Section 13(3):
The place of supply remains where the food is actually consumed, even if the recipient is located outside India.
7. GST Registration Requirements
Required if annual aggregate turnover exceeds ₹20 lakh (₹10 lakh in special category states).
Voluntary registration is permitted.
Composition Scheme:
Available at 5% GST without ITC.
Ideal for small restaurants with lower compliance capacity.
8. Supply via E-Commerce Operators (ECOs)
From 01.01.2022, as per Notification No. 17/2021-Central Tax (Rate):
GST on restaurant services supplied via ECOs (e.g., Swiggy, Zomato) is payable by the ECO under Section 9(5).
Key Points:
Restaurant does not need to pay GST separately on such orders.
TCS not applicable where ECO discharges GST under Section 9(5).
Restaurant turnover through ECO still counts for registration threshold.
9. Documentation and Invoicing
Tax Invoice for taxable food and services.
Bill of Supply for exempt items like liquor.
Composite supplies involving both taxable and exempt goods require separate invoices.
ECOs must issue invoices for restaurant services, as clarified in CBIC Circular No. 167/23/2021.
10. Time of Supply
Mechanism | Time of Supply |
Forward Charge | Earliest of invoice date, service date, or payment date |
Reverse Charge (e.g., by ECO) | Earliest of payment entry or 60 days from invoice |
For associated enterprises outside India, time of supply is the earlier of payment or book entry.
11. Tax Rates and SAC Codes
Type of Service | GST Rate | ITC Available |
Normal Restaurants | 5% | No |
Specified Premises (Room rate > ₹7,500) | 18% | Yes |
IRCTC & Railways | 5% | No |
Composition Scheme | 5% | No |
SAC Codes:
996331 – Restaurant and similar services
996333 – Canteen services
12. Return Filing
Return | Frequency | Purpose |
GSTR-1 | Monthly/Quarterly | Details of outward supplies |
GSTR-3B | Monthly | Summary and payment |
GSTR-9 | Annually | Annual return |
ECO Reporting:
Table 14/14A in GSTR-1 for suppliers.
Table 15/15A for ECOs.
Note: ECOs must pay GST in cash, ITC cannot be used for Section 9(5) liabilities.
13. Input Tax Credit (ITC)
Not allowed for restaurant services taxed at 5%.
Allowed if taxed at 18% (e.g., specified premises).
Allowed for reverse charge payments if otherwise eligible.
Proportionate ITC reversal is required when both taxable and exempt supplies are made (e.g., food and liquor).
Case Law:
Karnani FNB Specialities LLP, AAAR-WB – Reversal required for ITC on liquor sales.
ECOs need not reverse ITC for services on which they pay tax under Section 9(5).
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