GST: Submission requesting for clarification on the rate of tax on supply of cakes and other bakery items by Cloud Kitchen

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GST: Submission requesting for clarification on the rate of tax on supply of cakes and other bakery items by Cloud Kitchen

Tejasvi

@tejasvi

April 4, 2022

Public Policy

356

BACKGROUND:
The issue is with respect to a cloud kitchen which cooks and prepares 'Cakes'. A noteworthy fact about the business model is that unlike regular bakeries and other similar institutions which sells pre-packaged cakes, some large bakeries engage in manufacturing cakes purely based on orders received from the customers and delivers the same through e-commerce platforms like Swiggy, Zomato, Curefoods etc. In fact, from January 1, 2022, the "food aggregator" is discharging full GST on these supplies, in light of the changes made as per the decision of the GST Council.

However, despite issue of Circular 164/20/2021-GST dated October 06, 2021 (Circular) clarifying the classification and GST rate applicable on cloud kitchens, questions are being raised by the Authorities challenging the tax rate of 5% charged by home delivery kitchens and are instead, seeking to levy 18% GST rate.

ISSUE:
In many cases, the field officers are alleging that supplies made by cloud kitchen bakeries does not qualify to be a 'restaurant services' as defined in the Circular. Accordingly, the authorities are viewing that the bakeries supplying cakes falls within the HSN code 1905 1000 on which GST @ 18% needs to be levied.

We understand that the reason for these investigations is due to certain unaddressed issues which the Circular or other discussions around this matter have not been able to clarify, viz:

Whether the actual preparation of food has to be done at the same premises from where the food is being served (dine-in/ take-away/ delivery); and
Whether the Circular needs to be seen qua the nature of services or nature of products.

At present there is lack of clarity among the departmental officers on the above-mentioned subject and has resulted in contradictory view. The Circular does not categorically provide that classification and rate of supplies need to be considered qua the nature of supplies when it comes to cloud kitchens, irrespective of the products being supplied.

OUR REQUEST:
To resolve the above issues, we have made a submission to GST officials on April 4 requesting them to issue a Circular clarifying that cloud kitchens are no different from regular restaurants, specifically cloud kitchens who are not in the business of selling packaged goods.

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Tejasvi