GST on service supplied by restaurants through e-commerce operators

CBIC-190354/207/2021-TRU Section-CBEC
Government of India
Ministry of Finance
Department of Revenue
North Block, New Delhi

Circular No. 167/23/2021- GST | Dated the 17^th December, 2021

To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal
Commissioners/ Commissioner of Central Tax (All) /
The Principal Director Generals/ Director Generals (All)

Madam/Sir,

Sub: GST on service supplied by restaurants through e-commerce operators –reg.

The GST Council in its 45th meeting held on 17th September, 2021 recommended to notify “Restaurant Service” under section 9(5) of the CGST Act, 2017. Accordingly, the tax on supplies of restaurant service supplied through e-commerce operators shall be paid by the e-commerce operator. In this regard notification No. 17/2021 dated 18.11.2021 has been issued.

2. Certain representations have been received requesting for clarification regarding modalities of compliance to the GST laws in respect of supply of restaurant service through e-commerce operators (ECO). Clarifications are as follows:

S1 No	Issue	Clarification
1.	Would ECOs have to still collect TCS in compliance with section 52 of the CGST Act, 2017?	As ‘restaurant service’ has been notified under section 9(5) of the CGST Act, 2017, the ECO shall be liable to pay GST on restaurant services provided, with effect from the 1^st January, 2022, through ECO. Accordingly, the ECOs will no longer be required to collect TCS and file GSTR 8 in respect of restaurant services on which it pays tax in terms of section 9(5).On other goods or services supplied through ECO, which are not notified u/s 9(5), ECOs will continue to pay TCS in terms of section 52 of CGST Act, 2017 in the same manner at present.
2.	Would ECOs have to mandatorily take a separate registration w.r.t supply of restaurant service [notified under 9(5)] through them even though they are registered to pay GST on services on their own account?	As ECOs are already registered in accordance with rule 8(in Form GST-REG 01) of the CGST Rules, 2017 (as a supplier of their own goods or services), there would be no mandatory requirement of taking separate registration by ECOs for payment of tax on restaurant service under section 9(5) of the CGST Act, 2017.
3.	Would the ECOs be liable to pay tax on supply of restaurant service made by unregistered business entities?	Yes. ECOs will be liable to pay GST on any restaurant service supplied through them including by an unregistered person.
4.	What would be the aggregate turnover of person supplying ‘restaurant service’ through ECOs?	It is clarified that the aggregate turnover of person supplying restaurant service through ECOs shall be computed as defined in section 2(6) of the CGST Act, 2017 and shall include the aggregate value of supplies made by the restaurant through ECOs. Accordingly, for threshold consideration or any other purpose in the Act, the person providing restaurant service through ECO shall account such services in his aggregate turnover.
5.	Can the supplies of restaurant service made through ECOs be recorded as inward supply of ECOs (liable to reverse charge) in GSTR 3B?	No. ECOs are not the recipient of restaurant service supplied through them. Since these are not input services to ECO, these are not to be reported as inward supply (liable to reverse charge).
6.	Would ECOs be liable to reverse proportional input tax credit on his input goods and services for the reason that input tax credit is not admissible on ‘restaurant service’?	ECOs provide their own services as an electronic platform and an intermediary for which it would acquire inputs/input service on which ECOs avail input tax credit (ITC). The ECO charges commission/fee etc. for the services it provides. The ITC is utilised by ECO for payment of GST on services provided by ECO on its own account (say, to a restaurant). The situation in this regard remains unchanged even after ECO is made liable to pay tax on restaurant service. ECO would be eligible to ITC as before. Accordingly, it is clarified that ECO shall not be required to reverse ITC on account of restaurant services on which it pays GST in terms of section 9(5) of the Act. 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)
7.	Can ECO utilize its Input Tax Credit to pay tax w.r.t ‘restaurant service’ supplied through the ECO?	No. As stated above, the liability of payment of tax by ECO as per section 9(5) shall be discharged in cash.
8.	Would supply of goods or services other than ‘restaurant service’ through ECOs be taxed at 5% without ITC?	ECO is required to pay GST on services notified under section 9(5), besides the services/other supplies made on his own account. On any supply that is not notified under section 9(5), that is supplied by a person through ECO, the liability to pay GST continues on such supplier and ECO shall continue to pay TCS on such supplies. Thus, present dispensation continues for ECO, on supplies other than restaurant services. On such supplies (other than restaurant services made through ECO) GST will continue to be billed, collected and deposited in the same manner as is being done at present. ECO will deposit TCS on such supplies.
9.	Would ‘restaurant service’ and goods or services other than restaurant service sold by a restaurant to a customer under the same order be billed differently? Who shall be liable for raising invoices in such cases?	Considering that liability to pay GST on supplies other than ‘restaurant service’ through the ECO, and other compliances under the Act, including issuance of invoice to customer, continues to lie with the respective suppliers (and ECOs being liable only to collect tax at source (TCS) on such supplies), it is advisable that ECO raises separate bill on restaurant service in such cases where ECO provides other supplies to a customer under the same order.
10.	Who will issue invoice in respect of restaurant service supplied through ECO – whether by the restaurant or by the ECO?	The invoice in respect of restaurant service supplied through ECO under section 9(5) will be issued by ECO.
11.	Clarification may be issued as regard reporting of restaurant services, value and tax liability etc in the GST return.	A number of other services are already notified under section 9(5). In respect of such services, ECO operators are presently paying GST by furnishing details in GSTR 3B.The ECO may, on services notified under section 9 (5) of the CGST Act, 2017, including on restaurant service provided through ECO, may continue to pay GST by furnishing the details in GSTR 3B, reporting them as outward taxable supplies for the time being. Besides, ECO may also, for the time being, furnish the details of such supplies of restaurant services under section 9(5) in Table 7A(1) or Table 4A of GSTR-1, as the case maybe, for accounting purpose. Registered persons supplying restaurant services through ECOs under section 9(5) will report such supplies of restaurant services made through ECOs in Table of GSTR-1 and Table 3.1 (c) of GSTR-3B, for the time being.

3. Difficulty, if any, in the implementation of this circular may be brought to the notice of the Board.

Yours faithfully,

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CBDT amends Equalisation levy Rules, 2016

Equalisation Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India. It was aimed at taxing business to business transactions and was applicable to consideration received or receivable for specified services provided. The CBDT vide Notification dated 28th October, 2020, introduced the Equalisation levy (Amendment) Rules, 2020, in order to amend the Equalisation levy Rules, 2016.

What do you mean by Equalisation Levy?

Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The following conditions are to be met to be liable to equalisation levy:

The payment should be made to a non-resident service provider
The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

The Equalisation Levy is levied on gross receipts from e-commerce supply. Further, the Equalisation Levy is outside the ambit of income tax as it was introduced through Finance Act, 2016, and is therefore not covered by double taxation avoidance agreements (DTAAs). Consequently, non-residents subjected to Equalisation Levy cannot claim relief under DTAAs and will not be entitled to credit for Equalisation Levy paid in India in their country of residence.

What is the charge of Equalisation Levy?

The charge of equalisation levy shall be at the rate of 6% of the amount of consideration for any specified service received or receivable by a person, being a non-resident from:

a person resident in India and carrying on business or profession; or
a non-resident having a permanent establishment in India

When shall Equalisation Levy not be applicable?

The equalisation levy shall not be charged, when:

the non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment
the aggregate consideration for specified service received/receivable in a previous year by the non-resident from a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed Rs 1 lakh
the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession

What is the applicability of Equalisation Levy on e-commerce operators?

From the 1st of April, 2020, equalisation levy was charged at 2% of the amount of consideration received/receivable by an e-commerce operator from e-commerce supply or services made, provided or facilitated by it:

To a person resident in India
to a non-resident in the specified circumstances
to a person who buys such goods, services or both usinginternet protocol address located in India

Specified circumstances as mentioned in the 2^nd point means:

sale of advertisement, which targets a customer, who is a residentin India or acustomer who accesses the advertisement though internet protocol address located in India; and
sale of data, collected from a person who is resident in India orfrom a person who uses internet protocol address located in India

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When shall Equalisation Levy not be applicable to an e-commerce operator?

The equalisation levy shall not be charged to an e-commerce operator:

where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in Indiaand such e-commerce supply or services is effectively connected with such permanent establishment
where the equalisation levy is leviable under section 165
sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs 2 crores during the previous year

Let us now understand as to what amendments were brought into effect with the introduction of Equalisation levy (Amendment) Rules, 2020

New Rule 2(aa) has been inserted which defines “electronic verification code”

According to Rule 2(aa), electronic verification code means a code generated for the electronic verification of the person furnishing the statement of specified services as per the data structure and standards laid down by the Principal Director- General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be.

Rule 3 has been amended

Rule 3 of Equalisation levy Rules, 2016 pertained to Rounding off of consideration for specified services, equalisation levy, etc. In the old Rule 3 it was stated that, the amount of consideration for specified services and the amount of Equalisation levy, interest and penalty payable, and the amount of refund due, under the provisions of Chapter VIII of the Act shall be rounded off to the nearest multiple of Rs 10 and, for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of 10, then, if the last figure in that amount is 5 or more, the amount shall be increased to the next higher amount which is a multiple of 10 and if the last figure is less than 5, the amount shall be reduced to the next lower amount which is a multiple of 10 In the amended Rule 3, the words “specified services” is removed

Substitution of Rule 4

Rule 4 pertains to payment of equalisation levy. According to the amended Rule 4, the assessee or e-commerce operator, who is required to deduct and pay equalisation levy, shall pay the amount of such levy, by remitting it into the RBI or in any branch of the State Bank of India or of any authorised Bank accompanied by an equalisation levy challan.

Substitution of Rule 5

Rule 5 pertains to Statement of specified services. According to the amended Rule 5, the said statement required to be furnished under section 167(1) or 167(2) shall be in Form No. 1, duly verified in the manner indicated therein, and may be furnished by the assessee or e-commerce operator, as the case may be.

Furnishing Form-No 1 shall be in the following manner:

electronically under digital signature; or
electronically through electronic verification code.

Form No. 1 required to be furnished under section 167(1) shall be furnished on or before the 30^th of June immediately following that financial year.

The Principal Director-General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, for the purpose of ensuring secure capture and transmission of data, shall:

lay down the procedure for electronic filing of Form No.1
lay down the data structure, standards and manner of generation of electronic verification code, for the purpose of verification of the person furnishing the said form
be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished; and
specify the manner of furnishing the revised statement required to be furnished undersection 167(2)

Rule 6 has been amended

Rule 6 of Equalisation levy Rules, 2016 pertained to time limit to be specified in the notice calling for statement of specified services.
According to the old Rule 6,where an assessee fails to furnish the statement within the time specified in rule 5(2), the AO may issue a notice to such person requiring him to furnish, within 30 days from the date of service of the notice, the statement in the Form prescribed in rule 5 and verified in the manner indicated therein.
Rule 6 of Equalisation levy Rules, 2020pertains to time limit to be specified in the notice calling for statement of specified servicesor e-commerce supply or services.
Now according to the amended rule 6, where an assessee or e-commerce operator, as the case may be, failsto furnish the statement within the time specified in rule 5(2), the AO may issue a notice to such person requiring him to furnish, within 30 days from the date of service of the notice, the statement in the Form prescribed in rule 5 and verified in the manner indicated therein.

Proviso to Rule 7 has been amended

Rule 7 of Equalisation levy Rules, 2016 pertained toNotice of demand. Proviso to Rule 7 has now been amended. In the proviso, the words “assessee or e-commerce operator, as the case may be,” shall be substituted, for the word “assessee”.

Rule 8 has been amended

Rule 8 pertains to Form of appeal to Commissioner of Income-tax (Appeals) [CIT(A)].

Rule	As per Equalisation levy Rules, 2016	As per Equalisation levy (Amendment) Rules, 2020
8(1)	An appeal under section 174(1) to the CIT (A) shall be made in Form No. 3 in the following manner: electronically under digital signature; orelectronically through electronic verification code.	An appeal under section 174(1) to the CIT (A) shall be made in Form No. 3 in the following manner: electronically under digital signature; orelectronically through electronic verification code.
8(2)	The form of appeal, shall be verified by the person who is authorised to verify the statement of specified services under rule 5, as applicable to the assessee.	The form of appeal, shall be verified by the person who is authorised to verify the statement under rule 5, as applicable to the assessee or e-commerce operator, as the case may be
8(3)	Any document accompanying Form No.3 shall be furnished in the manner in which the Form No.3 is furnished.	Any document accompanying Form No. 3 shall be furnished in the same manner in which the Form No. 3 is furnished.
8(4)	The Principal Director General of Income-tax (Systems) shall- lay down the procedure for electronic filing of Form No.3;lay down the data structure, standards and manner of generation of electronic verification code, for the purpose of verification of the person furnishing the said form; andbe responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished.	The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, for the purpose of ensuring secure capture and transmission of data, shall: lay down the procedure for electronic filing of Form No.3lay down the data structure, standards and manner of generation of electronic verification code, for the purpose of verification of the person furnishing the said form; andbe responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished.

Rule 9 has been amended

Rule 9 of Equalisation levy Rules, 2016 pertained to Form of appeal to Appellate Tribunal. In the said rule, the words “assessee or e-commerce operator, as the case may be,” shall be substituted, for the word “assessee”.

It is also important to note that the format for Form No 1, Form No 3 and Form No 4 has also been amended by the Equalisation levy (Amendment) Rules, 2020.

The equalisation levy in India from June 1, 2016 is a presumptive tax on some specified services provided by non-residents in the ‘hard to tax’ digital sector. In a market dominated by a few big players, because of the network effect and cost characteristics, it corrects the obviously unfair advantage that some non-resident companies without permanent establishments (PEs) enjoy over domestic players tempting even resident digital companies to become non-residents.

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