GST on Restaurant Food and Over-the-Counter Retail Items
The Gujarat Authority for Advance Ruling decided that pre-packaged retail items sold in restaurants do not qualify for the 5% concessional GST rate.
- Ruling
- GUJ/GAAR/R/2022/51, dated 30/12/2022
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Prepared restaurant food qualifies as restaurant services at 5% GST.
- Pre-packaged items sold over the counter are treated as supply of goods.
- Retail items do not qualify for the 5% restaurant service rate.
- Input tax credit is restricted for restaurant services but not for retail goods.
In short
Ridhi Enterprise asked if both freshly prepared meals and pre-packaged snacks like chips or chocolates sold at their restaurant qualify for the 5% Goods and Services Tax (GST) rate. The authority clarified that while prepared food is a restaurant service, selling pre-packaged items is a separate retail sale of goods.
What has changed
How it worked before
Many restaurant owners assumed that all food and drink sold on their premises, including pre-packaged items, fell under the same 5% GST category as their prepared meals.
What has changed
The authority ruled that pre-packaged items are not part of restaurant services. This means you must charge the specific GST rate applicable to those individual retail goods rather than the 5% restaurant rate, and you may be eligible to claim input tax credit on those specific retail items.
Who this affects
Owners of restaurants, cafes, or eateries that sell both prepared meals and pre-packaged retail items like bottled drinks, chocolates, or snacks.
An example
A cafe owner sells freshly made sandwiches and also keeps a shelf of branded potato chips. Under this ruling, the sandwiches are taxed at 5% as restaurant services. The chips are taxed at their specific retail GST rate, and the owner should track these sales separately in their books.
What you should do
Review your sales and accounting to separate prepared food from pre-packaged retail items. Remember that an Advance Ruling only binds the business that asked and its local tax office; it is not a universal law for all restaurants in India.
If you do nothing
If you apply the 5% rate to retail goods incorrectly, a tax officer may view this as underpayment of tax. You could face demands for the difference in tax, along with interest and potential penalties for misclassification.
The terms explained
- Restaurant services
- Services provided by a restaurant involving the supply of prepared food or drinks for consumption, which currently attracts a 5% GST rate without input tax credit.
- Input tax credit
- The tax a business pays on its own purchases that it can use to reduce the tax it owes on its sales.
- Advance ruling
- A formal decision by tax authorities on a specific question asked by a business, which clarifies how tax rules apply to that specific situation.
The ruling in detail
Authority for Advance Ruling
M/s. Ridhi Enterprise
GUJ/GAAR/R/2022/51, dated 30/12/2022 · Gujarat
Questions before the authority
- Whether the food and beverages prepared and supplied by the Applicant to its customers whether consumed in the restaurant or by way of takeaway qualifies as 'restaurant services' and is classifiable under SAC 996331 leviable to GST @ 5% with no input tax credit as per Sr. No. 7(ii) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, read with Sr. No. 7(ii) of Notification No. 11/2017-State Tax (Rate) dated June 30, 2017?
- Whether the readily available food and beverages (not prepared in the restaurant) sold over the counter by the Applicant to the customer whether consumed in the restaurant or by way of takeaway qualifies as 'restaurant services' classifiable under SAC 996331 leviable to GST @ 5% with no input tax credit as per Sr. No. 7(ii) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, read with Sr. No. 7(ii) of Notification No. 11/2017-State Tax (Rate) dated June 30, 2017?
Facts
The applicant operates a standalone restaurant that serves prepared food and beverages for consumption on-premises or as takeaway. Additionally, the applicant sells readily available, non-prepared food items (such as chocolates, chips, and bottled beverages) over the counter. The applicant sought a ruling on whether both categories of supply qualify as 'restaurant services' subject to 5% GST without input tax credit.
Ruling
| Question | What the authority ruled |
|---|---|
| Prepared food and beverages | Qualifies as 'restaurant services' under SAC 996331, liable to 5% GST without ITC. As per Sr. No. 7(ii) of Notification No. 11/2017-Central Tax (Rate) and State Tax (Rate). |
| Readily available, non-prepared food items | Does not qualify as 'restaurant services'; constitutes a supply of goods. Liable to the applicable GST rate for the specific goods sold. |
The authority ruled that food and beverages prepared in the restaurant qualify as 'restaurant services' subject to 5% GST without input tax credit. However, it held that the sale of readily available, non-prepared food items sold over the counter does not qualify as 'restaurant services' and constitutes a supply of goods liable to the applicable GST rate.
Reasoning
The authority relied on the definition of 'restaurant service' in Explanation (xxxii) of paragraph 4 of Notification No. 11/2017-CT (Rate), which requires the supply to be provided by a restaurant. It determined that while prepared food is naturally bundled with restaurant service, the sale of pre-packaged, non-prepared items is a distinct supply of goods. The authority distinguished this from the applicant's reliance on the Kundan Mishthan Bhandar ruling, clarifying that the latter supports the view that non-prepared items sold over the counter are treated as a supply of goods.
Provisions relied on
- Section 97(2) of CGST/GGST Act, 2017
- Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017
- Notification No. 11/2017-State Tax (Rate) dated June 30, 2017
- Circular No. 164/20/2021-GST dated October 6, 2021
For the practitioner
This ruling clarifies that standalone restaurants cannot apply the **5% concessional GST rate** to the sale of pre-packaged or non-prepared items sold over the counter. Practitioners should advise clients to bifurcate their accounting for prepared restaurant food and over-the-counter retail goods. It does not decide the specific tax rate applicable to the retail goods, only that they are **not restaurant services**.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/gujarat_aar_order_no.51-2022_ridhi_enterprise.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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