A restaurant in Mumbai operates under a GST rate structure that distinguishes between “restaurant service” and “outdoor catering” on one side and “specified premises” or standalone food sales on the other. The 5% rate without ITC applies to restaurant service; the 18% rate applies to specified-premises restaurants and to certain other formats. The classification is fact-sensitive, and the Bombay High Court has granted interim relief in cases challenging the 18% rate applied to restaurants within high-tariff hotels and to over-the-counter sales.
The Classification Dispute
A quick-service restaurant selling donuts over the counter may be characterised as a restaurant service (5%) or as a sale of goods (18%). The Mad Over Donuts case illustrates the dispute: the department treated the over-the-counter sale as not a restaurant service and applied 18%, while the company had paid 5%. The restaurant should maintain the menu, the seating, the service format and the billing evidence to support its classification.
The Service Charge and GST
The CCPA has penalised a Mumbai restaurant for automatically adding a service charge and levying GST on it. The GST position is that the service charge, if it is part of the consideration for the restaurant service, forms part of the taxable value; the consumer-protection issue is separate from the GST issue, but the two interact in enforcement. The restaurant should disclose the service charge and should not levy GST on a charge that is not part of the consideration.
The ITC Restriction
A restaurant paying 5% without ITC cannot claim credit on inputs. A restaurant paying 18% may claim ITC subject to the Section 17(5) restrictions. The restaurant should model the rate-ITC trade-off rather than assume the lower rate is always better.
What the Consultant Does
The consultant assists with the classification analysis, the service-charge documentation, the ITC modelling and the notice response. The value is in the format-specific classification that determines the rate and the credit.
Call to Action: We advise Mumbai restaurants on rate classification, service-charge GST and notice defence. For a restaurant-specific review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.