GST Applicability on Cloud Kitchen Services
Introduction
Cloud kitchens, also called ghost kitchens or virtual kitchens, are restaurants that operate without a dining space. They prepare food only for delivery through online platforms like Swiggy and Zomato.
When it comes to GST (Goods and Services Tax), cloud kitchens must follow certain tax rules based on the type of service they provide. The GST rate and other tax requirements depend on whether they are selling food directly, offering catering services, or working through e-commerce platforms.
1. GST Rate on Cloud Kitchen Services
- As per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, the supply of food and beverages by a cloud kitchen is taxed at 5% GST (2.5% CGST + 2.5% SGST) without ITC.
- If the cloud kitchen opts for the composition scheme, the GST rate remains 5% on turnover (without ITC benefit).
- If the cloud kitchen provides catering services for events, an 18% GST rate (9% CGST + 9% SGST) applies, provided the catering services are delivered at a premises owned or arranged by the customer.
2. HSN Code for Cloud Kitchen Services
- HSN Code: 9963 – For restaurant and catering services, including cloud kitchen operations.
- HSN Code: 996337 – Services provided by hotels, inns, guest houses, restaurants, and other food establishments (applicable for cloud kitchens).
3. Input Tax Credit (ITC) on Cloud Kitchen Services
- ITC is not available if the cloud kitchen opts for the 5% GST rate, as per Section 17(5) of the CGST Act.
- ITC is available if the cloud kitchen provides catering services and charges 18% GST, subject to eligibility conditions.
4. GST Registration Requirement
- Mandatory GST registration if turnover exceeds ₹20 lakhs (for service providers) or ₹40 lakhs (for suppliers of goods in some states).
- Registration is required even if turnover is below the threshold if the business supplies food through e-commerce platforms like Swiggy, Zomato, or Uber Eats.
5. GST Compliance for Cloud Kitchens
- E-Invoicing: Applicable if turnover exceeds ₹5 crore.
- TCS Deduction by E-Commerce Operators: Platforms like Swiggy and Zomato deduct 1% TCS on gross sales before remitting payments to the cloud kitchen.
- GSTR Filings:
- GSTR-1 (Monthly/Quarterly) for outward supplies.
- GSTR-3B (Monthly/Quarterly) for GST payment.
- GSTR-9 (Annual Return) if turnover exceeds ₹2 crore.
6. Special Considerations
- Delivery & Packaging Charges: If charged separately, they attract 18% GST under HSN 996813.
- Combo Offers & Discounts: If a discount is offered after invoicing, it must be documented to avoid GST liability on the discount portion.
GST Applicability on Cloud Kitchens Operating Through E-commerce
Cloud kitchens operating via e-commerce platforms are subject to 5% GST on food and beverage sales.
1. GST Council Notification and Relevance
GST Council notifications provide updates and clarity on GST regulations. Cloud kitchens must stay updated with these notifications to ensure compliance.
2. Inclusion Under Section 9(5) of CGST Act, 2017
Since January 2022, cloud kitchens fall under Section 9(5) of the CGST Act, meaning GST is applied when operating through e-commerce platforms.
3. Responsibility Shift for GST Payment to E-Commerce Operators
E-commerce operators (Swiggy, Zomato) are responsible for collecting and remitting GST on behalf of cloud kitchens. This simplifies compliance but places additional responsibilities on the platforms.
4. Changes in GST Compliance Post-January 1, 2022
- Impact of Notification No. 17/2021: Introduced new GST procedures affecting invoicing, tax collection, and compliance.
- GST Rate Reduction: Reduced to 5% under certain conditions, impacting tax liabilities and pricing strategies.
- Removal of TCS Collection Requirement for Restaurants: Simplifying tax compliance.
5. Compliance Requirements for E-Commerce Operators (ECOs)
- Aggregate Turnover Calculation: ECOs must accurately calculate cloud kitchens’ aggregate turnover to determine GST liability.
- No Separate Registration Needed: If already registered under GST, separate registration is unnecessary.
- Tax Payment for Unregistered Suppliers: GST must be paid under Reverse Charge Mechanism (RCM).
- Intermediary Services & ITC Reversal: ITC must be reversed for intermediary services.
6. Invoicing and Reporting Procedures
- Separate Invoicing by E-Commerce Operators to ensure accurate tax reporting.
- GST Return Filing Requirements:
Impact of GST Rate Reduction and ITC Withdrawal
- GST Rate Reduction from 18% to 5% lowered food prices but increased cost burdens.
- Implications of ITC Withdrawal: Cloud kitchens cannot claim credit on GST paid for purchases, increasing operational costs.
- Changes in Pricing & Cost Structures: Pricing strategies may need adjustment to maintain profitability.
Operational Challenges for E-commerce Platforms
- Increased Compliance Burden: Platforms must ensure accurate GST collection and remittance.
- Cash Payment Requirement for Tax Liability: Platforms must remit GST before receiving payments from cloud kitchens.
- Separate Account Records: Compliance complexity increases as platforms must maintain detailed records.
Impact on Cloud Kitchens
- Scalability & Expansion Issues: ITC withdrawal increases costs, affecting small businesses.
- Compliance Obligations: Cloud kitchens must file GST returns on time and manage tax records.
- Potential Price Increase: Lack of ITC benefits may lead to higher consumer prices.
GST on Notified Services by E-Commerce Operators Under Section 9(5)
1. Applicability of Section 9(5) of CGST Act
- Services Covered:
- Passenger transport services
- Housekeeping services
- Restaurant services (includes cloud kitchens)
- Accommodation services
- E-Commerce Operators’ Liability: Tax is levied and paid by the operator, even if the supplier is unregistered.
Reverse Charge Mechanism (RCM): GST is paid via the electronic cash ledger at a 5% rate.
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