Shocking! Cake shops find a plan to bolt GST? Your neighbourhood pastry shop may turn into a restaurant soon; Know how and why

The Good and Services Tax (GST) since inception from July 01, 2017, has caused some shocks to various shopkeepers. In fact many exporters, manufacturer and small shop owners had knocked the door of government to provide some relief in GST, as they felt that their profit was taken a massive hit.

It would not be wrong to say that the GST council has taken various measures in providing relief to industries by bringing removing some items from the highest GST tax bracket of 28% and also in filing GST returns. However, looks like the trouble that GST has caused is far from over, as many reports are suggesting that cake shop owners are now planning to save the GST amount by adding the shop into the restaurant. Shocking but quite true! It is being known that, profitability of the companies has been hit due to GST, which is why they plan to retain some profit by turning the same premises of shop into Restaurant. 

According to the revenue department if the shopkeeper starts the restaurant in the same premises then they will get 7-13% of tax arbitrage. Currently, the shopkeepers pay 12% and pastries/cakes are taxed at 18%.  Whereas the GST rate for restaurants is 5%. 

Also, the Authority of Advance Ruling (AAR) said the same thing that if a restaurant is run in the same premises of a sweet shop, GST should be levied at 5%, reported in Economic Times.  

Restaurant does not only means to add the chairs and table on the premises it also means that the shopkeeper should provide all the facilities for the customers.

So lets suppose,  if you visit the cake shop and purchase a pastry or some sweets, then the shopkeepers is eligible for 18% GST. But the same situation would be different, if  for example you visit cake shop where there are chairs and table, then on your purchase the shopkeeper can claim that the customer has consumed the said item in the premises and can save the GST amount by 13% on pastries/cakes. Hence, the shopkeeper will only pay 5%. 

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Normally when two products with different tax rates are bundled together. The GST charged are different. In that case whichever product has the highest tax rate shall be applied to the product.

However, this move will typically benefit the big players who run the shop, as well as a restaurant run in the same premises.