GST ARTICLE

 

RATES OF TAX UNDER CGST & SGST ACTS ON HOTELS & RESTAURANTS

 

By CA M. Ramachandra Murthy

 

According to Section 9 (1) of the CGST Act, 2017 and Section 9 (1) of the SGST Act, 2017 (for short Act); Central Tax and State Tax shall be levied on all intra-state supplies of goods or services or both except on the supply of alcoholic liquor on the value at such rates notified by the Government.

 

The activities which are to be treated as supply of goods or supply of services are mentioned in Schedule II to the Act. According para 6 (b) of Schedule II to the Act “supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for, deferred payment or other valuable consideration” shall be treated as supply of service. Hence in case of supply of food and beverages by way of or as part of any service, in any Hotel, Restaurant, etc., the Rules relating to supply of services have to be followed.

 

The Government of India, Ministry of Finance, Department of Revenue vide Notification No.11/2017 – Central Tax (rate) dated 28th June, 2017 has notified the applicable rates of taxes for various supply of services. Under this Notification, Chapter 99, Section 6 and Heading 9963, the rates of taxes relating to accommodation services and supply of food services provided by Hotels and Restaurants etc. are notified.

 

According to sub-entry (i) of Heading 9963, supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, neither having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year nor having licence or permit or by whatever name called to serve alcoholic liquor for human consumption is liable to tax @ 6% under the CGST Act and 6% under SGST Act.

 

According to sub-entry (iii) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, having licence or permit or by whatever name called to serve alcoholic liquor for human consumption is liable to tax @ 9% under the CGST Act and 9% under SGST Act.

 

According to sub-entry (iv) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year is liable to tax 9% under the CGST Act and 9% under SGST Act.

 

In respect of all the above categories of suppliers of services, GST is required to be paid at total GST rates of 12% or 18%, as the case may be, on the value of supply of services provided by them. However if any supplier whose aggregate turnover in the preceding financial year did not exceed Rs.75 lakhs and who is eligible to opt for composition scheme of tax provided under Section10 (1) (b) of the C/SGST Act is liable to pay total GST @ 5% (2.5% + 2.5%) on the value of supplies. Apart from this category of supplier of services, no other service provider is eligible for composition under the C/SGST Act.

 

Thus broadly there are four categories of suppliers of services under the GST Act, attracting different rates of taxes, summary of which is as under.

 

 

The above rates of taxes are applicable to supplier of services who are running restaurants, eating joints including mess and canteens relating to supply by way of part of any service or in any other manner whatsoever relating to food and drinks for human consumption. No definition is provided for the words “eating Joint” either in GST Act or Rules. Generally, we find eating joints in big shopping malls, super markets etc. where different suppliers of food are supplying different varieties of food in their counters and the facilities such as tables and chairs are provided by some other persons such as persons running the shopping malls or super markets. As the above referred notification covers only restaurants, eating joints, mess and canteens, no other food suppliers such as Bakeries, sweet stalls which sell food over the counters may not be liable as per this notification and they are liable to tax as supplier of goods at respective rates. If they have eating joints, it would be a different case. However, if any sweet stall or bakery is operating any eating joint then they may be covered under this notification and they are liable to tax according to the category under which they fall.

 

In respect of all the above categories of suppliers liable to tax as per the above sub-entries under Heading 9963 of the above referred Notification, they are liable to pay tax at flat rates of 5%, 12% or 18% irrespective of the nature of food or beverage supplied by them. For example, cool drinks are liable to tax @ 28% under the GST Act. However, if the cool drink is served to the customer in the restaurants, eating joints, mess and canteens for human consumption, they are liable to tax at the respective rates of 5%, 12% or 18% depending on their category but not @ 28%. The take away supplies or parcel services or over-the-counter supplies are also liable to tax at the respective rates irrespective of the nature of food supplied, as the notification covered services ‘in any other manner’ also. Further in the present VAT Act, charging section relating to hotels and restaurants ie., Section 4 (9) specifies ‘served in restaurants etc.’ In the GST notification issued, there is no specification that the food and drinks must be served on the premises. It simply says ‘supply provided’. I am therefore of the opinion that even in respect of parcel services, tax has to be paid as supply of service only at the above rates, applicable to the relevant category.

 

Input Tax Credit:-

 

Except the taxable person, opting for composition scheme, all other taxable persons are eligible to claim ITC as per Rules on the goods and services received by them, subject to conditions and restrictions if any in the statute. Any tax paid on reverse charge basis can also be claimed as ITC. If any exempt supplies are made by a Hotel, then the eligible input tax credit is to be claimed as per Rule 42 of CGST/SGST Rules, 2017.

 

Hotels or Bars and Restaurants, where liquor is served, the input tax credit relating to liquor business is required to be restricted as provided in the above rule as the supply of liquor is not liable to tax under the Act. As supply of liquor is not liable to tax it falls under the definition of non-taxable supply as defined under Section 2 (78) of the Act and thereby forms part of exempted supply as defined under Section 2 (47) of the Act.

 

INPUT TAX CREDIT CLAIM BY RECEIVERS OF THE SUPPLY FROM RESTAURANTS ETC.:

 

Section 17 (5) of GST Act mandates that input tax credit shall not be available in respect of the following among others:-

 

“Section 17 (5) (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;”

 

For example if a Company (taxable person) hosts a dinner to its guests and employees and receives a tax invoice along with GST from the hotel or restaurant, such Company is not eligible to claim ITC because there is no outward taxable supply of food and beverages, due to consumption.

 

LAIABILITY OF OUTDOOR CATERERS:

 

Sub entry (v) under Sl. No.7 and Heading 9963 reads as follows:-

 

“(v) Supply, by way of or as part of any service or in any other manner whatsoever in outdoor catering wherein goods, being food or any other article for human consumption or any drink (whether or not alcoholic liquor for human consumption), as a part of such outdoor catering and such supply or service is for cash, deferred payment or other valuable consideration.” (Total GST 18%)

                                               

This is applicable to outdoor catering. This sub entry mentions ‘alcoholic liquor for human consumption’. This sub entry gives an impression that even the value of alcoholic liquor supplied by the outdoor caterer as part of any service shall be liable to tax. This needs clarity, because Section 9 (1) excludes levy of tax on the supply of alcoholic liquor for human consumption.

 

Similarly sub entry (vii), thereunder reads as follows:-

 

“(vii) Supply, by way of or as part of any service or in any other manner whatsoever, of goods, including but not limited to food or any other article for human consumption or any drink (whether or not alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organising a function) together with renting of such premises.” (Total GST 18%).

 

This would be applicable to a supplier, who supplies food and drinks together with renting of such premises, in contrast to a restaurant. In this sub entry also, the words ‘alcoholic liquor’ are used. This needs clarity.

 

Composition dealer:-

 

The threshold limit is aggregate turnover of Rupees seventy five lakhs in the preceding financial year. ‘Aggregate turnover’ is defined in Section 2 (6) of the Act as follows:-

 

“(6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;”

 

‘Exempt supply’ is defined in Section 2 (47) as follows:-

 

“(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;”

 

‘non-taxable supply’ is defined in Section 2 (78) as follows:-

 

“(78) “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act”.

 

A cumulative reading of the above definitions would show that the value of supply of goods or services or both, which is not leviable to tax under GST Act also must be considered for computing aggregate turnover. Alcoholic liquor is not liable to tax under the GST Act. But its turnover has to be considered for the purposes of ‘aggregate turnover’ and accordingly the threshold limit of Rupees seventy five lakhs has to be understood.

 

[Views expressed are strictly personal]