GST on Standalone restaraunt

[Vigneshvishwanathan Chandran]

Hi Members!!! One of my client is going to start standalone Restaraunt service. Kindly guide me for the below queries. Thanks in Advance.

1.GST Rate is 5% without ITC.Initially his sale would not be much higher. But he is liable to pay RCM on Rent is considerably higher amount. Is it possible to opt 18% with ITC on sales if so kindly share me the Notification.

2. In Restaraunt he is going to sale water bottles & Beverages, for that is he required to charge 18% on such sale. If so can he avail ITC for that, even though he is in 5% without ITC. Also is he eligible to avail proportionate ITC on RCM paid on Rent.

[Sadanand Bulbule]

The dealer engaged in the supply of restaurant services and opting to pay tax under the segment of 5% is not entitled to claim ITC on any goods/services. Further such dealers are also liable pay tax under RCM on rent.

As regards to the rate of tax @ 18% with ITC including tax paid under RCM on rent, refer Notification No.11/2017-Central Tax (Rate) New Delhi, the 28^th June, 2017.

[YAGAY andSUN]

1. Applicability of GST Rate – 5% Without ITC vs. 18% With ITC

As per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017, standalone restaurants (i.e., not located within hotels having room tariff exceeding ₹7,500 per unit per day) are liable to discharge GST at the rate of 5% (2.5% CGST + 2.5% SGST)without the benefit of Input Tax Credit (ITC), under Sl. No. 7(i) of the said notification.

Relevant extract from Notification No. 11/2017-CT(R):

“Supply of food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen – 5% without ITC.”

However, the option to levy 18% GST with ITC is permissible only in the following scenarios:

• Supply of food or beverages in restaurants located within hotels having a room tariff of ₹7,500 or more per unit per day, or
• Outdoor catering services or composite supply of food/drink in functions, events, etc., other than restaurant services.

Accordingly, a standalone restaurant is not permitted to voluntarily opt for the 18% rate with ITC unless it falls within the specific criteria mentioned above.

2. Taxability of Packaged Drinking Water and Beverages & ITC Implications

(a) Packaged Drinking Water:

• Packaged drinking water (excluding aerated, mineral, or medicated water) is classified under HSN 2201 and attracts GST @ 18%.
• Sale of such bottled water in a restaurant is not covered under the composite supply of restaurant service, and hence is liable to 18% GST separately.
• If the restaurant is operating under the 5% scheme (without ITC), then ITC on inward supplies used for such sales is not admissible.

(b) Beverages (Aerated Drinks, Soft Drinks, etc.):

• Beverages such as aerated waters and soft drinks fall under HSN 2202 and attract GST @ 18% or higher.
• These are excluded from the scope of “restaurant service” as clarified in various Advance Rulings (e.g., AAR Maharashtra - [Jahangir B. Ghadiali, 2020]).
• Therefore, such supplies must be charged at their applicable GST rate, and no ITC can be availed under the 5% composition scheme, even though the output is taxed at 18%.

Note: If your client intends to claim ITC on inputs related to these taxable supplies (like beverages), they would need to segregate such supplies from restaurant services, and opt for regular taxation on those items only.

[Sadanand Bulbule]

GST paid in cash under RCM on rent will be eligible for ITC as it is not covered in the list of blocked credit under Section 17(5). This benefit is available to the taxpayers who are under the regular tax scheme only [other than 5% tax category without ITC].

[Shilpi Jain]

In my view anything given to the customers in the restaurant is service when they are at the table. So even the water and beverages served to them will be liable @ 5% without GST ITC.

If its a mere over the counter sales then applicable rate of tax can be charged and ITC be availed. Also the common ITC (like rent) will be eligible in proportion of the taxable turonver (i.e. non 5% T/o)

AI Summary

GST rate choice for standalone restaurants: reduced-rate without ITC versus standard-rate with ITC subject to eligibility. Standalone restaurants required to tax under the reduced-rate restaurant-service notification must apply the reduced rate without Input Tax Credit; opting for the standard rate with ITC is permissible only where supplies meet specified exceptions such as services linked to certain hotels or distinct catering/composite supplies. Packaged drinking water and aerated/soft drinks are treated as separately classifiable supplies taxed at the standard rate-when supplied outside the restaurant composite service they require separate accounting and permit ITC only if the taxpayer is on the regular ITC-entitled scheme; reverse-charge taxes like rent are not blocked by section exclusions but are recoverable only by regular-scheme taxpayers and common inputs must be apportioned.