GST 18% on food parcels from AC hotels: Why govt directive is a pain for both customers, businesses

Old habits die hard. Central Board of Excise and Customs (CBEC) continues to persist with its nitpicking and harboring suspicion towards businesses even in its new avatar as the administrator of the newly minted tax GST. The government ought to have rechristened it if only to morph it into a pragmatic and less hostile entity.

In its latest clarification vide an answer to a FAQ it has said a restaurant serving from its non-AC area to a takeaway customer will have to pay a GST of 18 percent which the restaurant would faithfully pass on to the diner. The normal rate of tax on non-AC restaurants is 12 percent but the ones with AC have to pay 18 percent.

The CBEC has a bee in the bonnet in so far as AC establishments are concerned. It says if you take away food from the non-AC section of a restaurant which has both AC and non-AC sections, you have to pay the luxury rate of 18 percent. There are several restaurants in Chennai for example which have both AC and non-AC halls to cater to different sections of custom.  Those sauntering into the AC rooms know full well that they are going to be fleeced both by the restaurant and by the tax authorities. Restaurants have a premium rate for the same dish of the same quality served in the cooler precincts and the tax authorities jump into the fray by demanding their pound of flesh with a heightened GST. Nothing wrong in this because the customer had after all the choice of avoiding the AC room and thus pay a softer tax of 12 percent.

Reuters

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But what is the fault of the customer who wants to eat in the comfort of his house, AC or non-AC, after buying the food from a restaurant? The CBEC says he would have to pay an additional tax of 6 percent even if he takes away the food and not dine in the AC restaurant if any part of the restaurant’s establishment is air-conditioned.

Now restaurants that do a large bit of takeaway business including Saravana Bhavan, McDonalds and KFC will have to look for new restaurant spaces to house their completely non-air-conditioned units. Not only would their takeaway customers have to sweat it out while buying but also the hapless staff condemned to working in such units.

Of course building a Chinese wall between the AC and non-AC sections is an option but CBEC hounds have the knack of smelling fish in such arrangements---in the past they viewed adjacent units as one thus refusing to give tax relief that was due to a smaller unit housed inside the same complex. If you want to try your luck with such Chinese walls between adjacent units, better name them separately. McDonalds may have to float a new venture McDonald non-AC or McDonald hoi polloi. Saravana Bhawan may have to float a new entity called Makkal Saravana Bhavan (Makkal or common folks) for its non-AC restaurants wherefrom it can sell to its takeaway customers. But you never know. CBEC may still smell fish and call adjacent units existing cheek by jowl as one and the same and thus impose an 18 percent tax.

Locate AC and non-AC units at a decent distance from each other is going to be the new trend sooner than later. Snobbish and comfort-loving buyers may consider it infradig to be rubbing shoulders with the lesser customers in the non-AC takeaway counters. For them, restaurants may have to take the trouble of having takeaway facilities in both AC and non-AC establishments.

If restaurants live in denial and do not take the above precautions that meet the litmus test of separate establishment set out by the CBEC then they risk losing lion’s share of their takeaway business.