They need to pay the entire tax liability in cash and will not get input tax credit, clarifies a Finance Ministry circular

E-commerce operators (ECOs) engaged in food delivery, such as Zomato and Swiggy, will be required to pay Goods and Services Tax (GST) not just for supply from registered but also unregistered restaurants. Also, they will not get input tax credit (ITC). 

This clarification comes in a circular issued by the Finance Ministry for the new system that will kick in from January 1. Under the new system , food-delivery ECOs will be responsible for paying GST. At present, it is the restaurant that is paying. The government has already clarified that this is no new tax and there will be no implication for customers. The rate of tax will continue to be 5 per cent.

“ECOs will be liable to pay GST on any restaurant service supplied through them including by an unregistered person,” the circular said. By law, any restaurant or any individual supplying ‘restaurant service’ will need to register if its annual turnover is ₹20 lakh (₹10 lakh in some States of North-East and others) or more. This turnover will also include the aggregate value of supplies made by the restaurant through ECOs. 

5% GST

Since the GST on restaurant services is levied at 5 per cent but without ITC, the same principle will be applicable for ECOs. “It may also be noted that on restaurant service, ECO shall pay the entire GST liability in cash (no ITC could be utilised for payment of GST on restaurant service supplied through ECO),” the circular said. 

Also read: Food delivery apps not to get input tax credit under new GST regime from January 1

At this moment, these apps are registered as Tax Collectors at Source (TCS). Now, from January 1, these ECOs will no longer be required to collect TCS and file GSTR-8 in respect of restaurant services on which they pay tax. For other services, they will continue to pay TCS. 

According to the officials, one of the reasons for the change in mechanism is observation by a committee on ECOs that there is no mandatory GST registration check by the food-tech companies and there were unregistered restaurants supplying through them leading to tax loss. 

Flourishing business

It may be noted that though the rate of tax is low, the revenue missed is significant as food delivery is a flourishing, high-volume business. The committee estimated the revenue loss at around ₹2,000 crore. 

Sunil Kumar, DGM at Taxmann, said that ECOs cannot utilise the ITC available in their credit pool for discharging the GST liability on restaurant services. However, the GST law does not restrict the supplier (including ECOs) from utilising the ITC which is otherwise available with the supplier (say, from other business lines) against such output tax liability.

Further, the circular also provides that restaurants would be required to include the impugned supply value in their aggregate turnover for various purposes under the GST law (such as for registration threshold, etc.). However, the GST law has deemed the ECO as a supplier of services. 

“The registration provision casts liability on the supplier to get registered. Therefore, in respect of the supplies made by the restaurants, a view can be taken that the ECO would step into the shoes of the restaurants (that is, ECO would be treated as the supplier for such supplies). Given this, it can well be argued that for the purposes of the GST law the impugned supply made through ECOs would be considered as the supply of ECOs and not of restaurants,” Sunil Kumar said.