Taxman opens the parcel: GST sleuths probe restaurant packaging charges
Mumbai: After stepping in to recover tax on 'food and delivery' charges, the tax office is probing whether restaurants have escaped tax on the 'packaging charge'. Some of the eateries listed with food aggregator platforms like Zomato have received summons from the goods and services tax (GST) department, asking them to share details of GST paid on packaging charges since January 1, 2022.GST, which came into effect from July 1, 2017, is paid by the provider of service who recover it from the party receiving the service. Customers ordering food on an online platform which connects them to the restaurants, pay for the food, delivery, and packaging.The government has no qualms over GST on food while an ongoing dispute is on about the recovery of delivery charges. The current set of summons relate to GST on packaging charges which, though collected from customers, have left tax authorities doubting whether (and when) the amounts have reached the state coffers, persons aware of the development told ET. Tax practitioners shared their views with ET.
Ashish Karundia, founder of the CA firm, Ashish Karundia & Co, said "Under the GST law, when two or more goods or services are supplied together in the ordinary course of business, it's treated as one combined supply. The law gives an example: if goods are packed and shipped, everything involved, like the goods, packaging, and transport, is considered one package, and the main item (the goods) decides the classification of supply and tax rate applicable to such supply. So, from this point of view, GST on packaging charges might be the responsibility of ecommerce platforms (like food delivery apps), similar to restaurant services, since packaging is incidental to the food supply." However, there is also a view that if packaging charges are listed separately on the bill, then such packaging charges are towards an independent supply and should be taxed in the hands of the restaurants, said Karundia. The summons were served in the past few months.Dinesh Agrawal, who co-heads the indirect tax practice at the law firm Khaitan & Co, said supply of food by restaurants or cloud kitchens through food delivery apps like Zomato or Swiggy is taxed in the hands of such apps. "Now, there appears to be dispute as to whether tax has been paid on packaging charge, and if so, who is liable to pay such tax. The department is of the view that packaging is part of the composite supply where food is the main supply. But, apps believe packaging is a distinct supply and restaurants alone are liable to pay tax. The department has initiated investigations on the possible short payment of tax and to ascertain the practice followed by different restaurants, summons have been issued."For instance, on an order if the food charge is ₹1,000 while delivery and packaging charges are ₹100 each, the customer pays a total of ₹1,260 (which includes GST of ₹60 that is calculated at 5% of ₹1,200). The food apps deduct ₹50 (the GST on food charge) and its commission (or charge) from the balance ₹1,210 to pay the remaining amount to the restaurant. The questions are: Is it the platform's responsibility to pay the GST on packaging (as paid on food)? Did the restaurant pay the GST and if so, whether the 5% rate (applicable on the app for restaurant services) is applicable on the packaging charge? Under Section 9 (5) of the Central GST Act platforms aggregating businesses in multiple sectors, including food delivery, ride-hailing, and accommodations are responsible for collecting and paying indirect tax on behalf of their service providers.
Ashish Karundia, founder of the CA firm, Ashish Karundia & Co, said "Under the GST law, when two or more goods or services are supplied together in the ordinary course of business, it's treated as one combined supply. The law gives an example: if goods are packed and shipped, everything involved, like the goods, packaging, and transport, is considered one package, and the main item (the goods) decides the classification of supply and tax rate applicable to such supply. So, from this point of view, GST on packaging charges might be the responsibility of ecommerce platforms (like food delivery apps), similar to restaurant services, since packaging is incidental to the food supply." However, there is also a view that if packaging charges are listed separately on the bill, then such packaging charges are towards an independent supply and should be taxed in the hands of the restaurants, said Karundia. The summons were served in the past few months.Dinesh Agrawal, who co-heads the indirect tax practice at the law firm Khaitan & Co, said supply of food by restaurants or cloud kitchens through food delivery apps like Zomato or Swiggy is taxed in the hands of such apps. "Now, there appears to be dispute as to whether tax has been paid on packaging charge, and if so, who is liable to pay such tax. The department is of the view that packaging is part of the composite supply where food is the main supply. But, apps believe packaging is a distinct supply and restaurants alone are liable to pay tax. The department has initiated investigations on the possible short payment of tax and to ascertain the practice followed by different restaurants, summons have been issued."For instance, on an order if the food charge is ₹1,000 while delivery and packaging charges are ₹100 each, the customer pays a total of ₹1,260 (which includes GST of ₹60 that is calculated at 5% of ₹1,200). The food apps deduct ₹50 (the GST on food charge) and its commission (or charge) from the balance ₹1,210 to pay the remaining amount to the restaurant. The questions are: Is it the platform's responsibility to pay the GST on packaging (as paid on food)? Did the restaurant pay the GST and if so, whether the 5% rate (applicable on the app for restaurant services) is applicable on the packaging charge? Under Section 9 (5) of the Central GST Act platforms aggregating businesses in multiple sectors, including food delivery, ride-hailing, and accommodations are responsible for collecting and paying indirect tax on behalf of their service providers.
economictimes
