GST: REPRESENTATION SEEKING CLARITY ON RATE OF TAX ON SUPPLY OF CAKES AND OTHER BAKERY ITEMS BY A CLOUD KITCHEN

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GST: REPRESENTATION SEEKING CLARITY ON RATE OF TAX ON SUPPLY OF CAKES AND OTHER BAKERY ITEMS BY A CLOUD KITCHEN

Tejasvi

@tejasvi

May 27, 2022

Public Policy

339

The issue is with respect to cloud kitchens that 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, considering changes made as per the decision of GST Council.

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

Bakeries engaged in manufacture and supply of cakes are typically understood to be a bakery item. However, field officers are alleging that supplies being made by cloud kitchen bakeries does not qualify as 'restaurant services' as defined in the Circular. The field formation authorities are viewing such bakeries supplying cake to fall within the HSN category 1905 1000 on which GST @ 18% needs to be levied.

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

a) 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);

b) Whether the circular needs to be seen qua the nature of services or nature of products

There is lack of clarity among departmental officers on the above-mentioned subject and has resulted in the contradictory view.

Recommendation:

In this regard, we have made a submission to GST officials to issue a Circular clarifying that cloud kitchen should not be any different from regular restaurants specifically for cloud kitchens who are not in the business of selling packaged goods.

There are also instances where certain supplies are sold to the customers as off shelf items E.g., ready mixes/instant mixes which are even sold at the premises to the customers for their ready consumption. These products are processed, packed, and sold off shelf and such products require mere heating/ pouring boiling water and would be ready for consumption. In such cases, the same should qualify as sale of products, instead of restaurant services and not ready to eat products.

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Tejasvi

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