GST on food items in cinema halls reduced to 5%

The food served in restaurants inside a cinema complex will attract 5% GST against the 18% levied earlier. The Finance Ministry clarified that “supply of food and beverages in cinema halls is taxable as restaurant service as long as these are supplied by way of, or as part of, a service, and are supplied independently of the cinema exhibition service”. It stated that when eatables, such as popcorn or cold drinks, are clubbed and sold together with a movie ticket, the entire supply should be treated as a composite supply and taxed as per the applicable rate of the principal supply, which, in this case, is the ticket.

“The clarification that food and beverages supplied in cinema halls should be taxed at 5% is a welcome step and provides relief to the industry, avoiding prolonged disputes,” says Pratik Jain, Partner, Price Waterhouse & Co LLP.

“In the past two years, various state governments or local bodies have been lobbying to apply different GST rates on different food items in cinema halls (different for popcorn, ice cream, etc.). This move will eliminate disparities and provide clarity by ensuring that all food products are subject to a 5% GST rate,” said Karan Taurani, Senior Vice-President, Research Analyst (Media, Consumer Discretionary & Internet), Elara Securities.

However, not everyone is convinced that consumers will pay less. “Packaged drinks and foods are already being sold at inflated rates in cinema halls. We will have to see how much customers will save with this concession,” said Ankur Gupta, Practice Leader, Indirect Tax at SW India.

Buying utility vehicles is also going to become a tad more expensive as the GST Council increased the cess on these from the current 20% to 22%. This is over and above the 28% GST already levied on such MUVs. This decision came after the Council decided to amend Entry 52B in the compensation cess notification to include all utility vehicles, provided they meet the following parameters: length exceeding 4 m; engine capacity over 1,500 cc; and ground clearance of 170 mm and above.