E-commerce operators (ECOs) such as Zomato and Swiggy, which will be liable to pay the 5% goods and service tax on restaurant services supplied through them from January 1, are staring at an onerous task of changing their software in less than two weeks as the invoicing responsibility has also shifted from restaurants to them.
In September 2021 it was announced that tax liability will be on ECOs for restaurant services provided through them. However, procedural aspects like invoicing and other compliances were only clarified by a circular issued by the revenue department on December 17. According to this circular, invoicing of the above service has been made the responsibility of ECOs.
Since this gives ECOs only two weeks to implement the same from January 1, 2022, an extension of time should be given to them for implementing suitable changes in their invoicing software, said Anita Rastogi, Partner, Price Waterhouse & Co. Classification of each restaurant item and making the necessary changes in software is a humongous task, she said.
There are other complexities in compliance as well. Restaurants through these apps not only provide restaurant services but also supply goods. For example, people buy Pizza and Coke in their combo orders. Pizza is a restaurant service on which these apps will pay 5% GST and comply with 1% tax collected at source (TCS) norm on Coke. Coke attracts 28% GST and is paid by the restaurant. These two items in the same order will require two invoices—one by the app on Pizza and on Coke by the restaurant, which could have been avoided by hiking TCS rate to 5%.
“Considering the above, if the government could clarify that ECO is only responsible for paying the tax and restaurants can continue to do the invoicing the way they are doing currently, it would make compliance of the above smoother. It would also fulfil the objective of the government which is that ECOs discharge the above tax liability,” said Rastogi.
The GST Council’s decision to bring food delivery apps within the ambit of restaurant services and make them liable to pay the tax is aimed at shifting the responsibility from restaurants to apps to make compliance wider and easier even though the move will likely marginally increase the tax incidence on small restaurants otherwise exempt from GST (annual turnover less than Rs 20 lakh).
According to the frequently asked questions (FAQs) issued by the Central Board of Indirect Taxes and Customs (CBIC), ECO would pay the entire GST liability for restaurant service in cash without any input tax credit (ITC).
In what could give some relief, the CBIC has clarified that the online food delivery apps would continue to claim ITC as before for taxes paid on expenses such as advertisement and rents.