The Goods and Services Tax (GST) department has demanded 18% GST rather than 5%. As currently, 5 per cent tax is imposed on bakeries and outlets without the benefit of the ITC. Many bakeries and other outlets that serve food have come under the GST department’s lens for availing lower GST rates applicable to a restaurant.
Tax department claims these outlets are not restaurants as food is prepared at a centralised kitchen and sent to shops and outlets that merely heat it up before serving clients. And merely warming or heating food cannot be considered cooking.
According to a person whose company is facing the differential GST rates over the food products said they prepare food in centralised kitchens in every city. Then it’s transported to the outlets, who heat up the food before serving them to the customers. “We charge 18% GST on momos that are manufactured centrally, while 5% GST on the products that are made within the outlets,” he added.
Regarding this, in many cases, the tax department has asked companies to cough up additional GST retrospectively from 2017. However, legal experts’ views are that the scrutiny will lead to additional litigation going ahead.
“When supply is the same, food in this case, it shouldn’t matter whether it is sold at a place where it is cooked or not, for prescribed GST rates to apply. Companies and entities getting such notices must approach courts on the basis of lack of intelligible differentia and address these highs-takes disputes,” said Abhishek A Rastogi, partner at Khaitan & Co.