GST on Hotels and Restaurants - Tax Structure and Provisions.  

The Indian tourism and hospitality sector is crucial to the nation\'s economic development, contributing significantly to both GDP and employment. Before the implementation of the Goods and Services Tax (GST), the sector was subject to a variety of indirect taxes, including VAT, luxury tax, and service tax, resulting in a combined tax burden of approximately 20-27%. These multiple taxes, along with the cascading effect, inflated costs for both businesses and consumers.

The introduction of GST streamlined the taxation process by subsuming these various taxes into one unified system. This eliminated the cascading tax effect, which is the imposition of tax on tax, reducing the overall burden and simplifying compliance.

Key Features of GST in the Hospitality Sector:

1. Simplified Tax Structure:
   • Standalone Restaurants: Subject to 5% GST, but cannot claim Input Tax Credit (ITC).
   • Hotels: GST rates are based on room tariffs:
     • Tariff up to ₹1,000: No GST.
     • Tariff between ₹1,001 and ₹7,500: 12% GST (No ITC).
     • Tariff above ₹7,500: 18% GST with ITC benefits.
2. Composition Scheme:
   • Small restaurants with an annual turnover below ₹1.5 crore can opt for a 5% composition scheme. Under this scheme, these establishments are not eligible for ITC and cannot pass on the tax to customers. This simplified tax scheme is aimed at easing the compliance burden for smaller establishments.
3. Specific GST Provisions:
4. Compliance:
5. Alcohol Exclusion:

• The place of supply and time of supply are crucial in determining when and where GST liability arises. Proper invoicing is mandated under GST, ensuring transparency and accuracy in tax payments.
• Hotels and restaurants are required to maintain comprehensive records, file GST returns regularly, and follow compliance procedures. Large establishments may also need to undergo GST audits.
• Notably, alcohol is not covered under GST and continues to be subject to state VAT. This creates a distinction between the tax treatment of food and non-alcoholic services versus alcohol sales in hotels and restaurants.

The transition to GST has provided much-needed simplification and transparency to the tourism and hospitality sector. By replacing the earlier complex tax structure with a unified system, GST has reduced the tax burden on the industry while streamlining compliance processes. However, businesses in this sector must stay updated with GST rules and ensure proper accounting and timely filing of returns to avoid penalties and maintain tax compliance.

Overview of Hospitality Service Sector in India

The Indian tourism and hospitality industry has become one of the most dynamic sectors within the nation\'s economy. It plays a pivotal role in boosting economic growth and employment opportunities, particularly within the services sector. The growth of this industry is driven by both domestic and international tourism, aided by India\'s rich cultural heritage, diverse landscapes, and growing global connectivity.

Key Highlights:

1. Contribution to GDP and Employment:
2. Growth Projections:
3. Foreign Exchange Earnings:

• According to a study by the World Travel & Tourism Council (WTTC) titled India 2019 Annual Research, the travel and tourism sector in India contributed 9.2% of the GDP.
• The sector was responsible for creating 42.7 million jobs, which represented 8.0% of total employment in the country.
• The tourism and hospitality sector is expected to continue growing, with the total contribution to GDP projected to increase to US$ 275.2 billion by 2025. This expected growth underscores the strategic importance of the sector as a driver of economic development.
• The travel and tourism industry is India\'s third-largest foreign exchange earner. The sector\'s ability to attract international tourists significantly contributes to India\'s foreign exchange reserves.

Factors Driving Growth:

• Government Initiatives: Programs such as the Swadesh Darshan Scheme, PRASAD Scheme, and Incredible India 2.0 Campaign aim to boost domestic and international tourism by improving infrastructure and promoting India\'s diverse cultural heritage.
• Digital Penetration: The rise of online travel booking platforms and mobile applications has made it easier for travelers to access hospitality services.
• Rise of Budget and Luxury Segments: From budget accommodations to luxury stays, India offers a wide range of services, catering to all types of travelers.

Challenges:

• Infrastructure and Connectivity: While the sector has seen improvements, certain regions still face challenges in terms of infrastructure and transportation connectivity, which can hinder the full potential of the industry.
• Sustainability: As tourism grows, there is increasing pressure on the environment and local ecosystems. Sustainable tourism practices are essential to mitigate these impacts.

The Indian hospitality and tourism industry continues to be a significant contributor to the country\'s economic and employment landscape. With the potential for further growth in the coming years, it remains a critical area for investment and development, contributing to both domestic progress and international engagement.

Pre-GST Era: Tax Structure for Hotels and Restaurants

Before the introduction of the Goods and Services Tax (GST), the hotel and restaurant sector in India was subjected to multiple taxes, including Service Tax, Luxury Tax, and VAT (Value Added Tax), creating a complex and burdensome tax system. This regime led to significant cascading effects, where taxes were imposed on taxes, inflating the total tax burden on consumers.

Key Taxes Imposed:

1. Service Tax (15% including cesses):
2. VAT (12-14.5%):
3. Luxury Tax (up to 12%):

• Service tax was levied on various services offered by hotels, such as health clubs, spas, swimming pools, dry cleaning, entertainment, and business support services.
• For hotel rooms with a tariff of more than ₹1,000 per day, service tax was applicable at 60% of the room tariff.
• For restaurants, service tax was applied to 40% of the F&B bill, resulting in an effective rate of 5.8%.
• Non-AC restaurants were exempt from service tax, while air-conditioned restaurants had to pay the tax.
• Additionally, social functions like weddings and seminars attracted a service tax rate of 10.15% after 30% abatement.
• VAT was levied on food and beverages, and the rate varied from state to state, typically ranging between 12% and 14.5%.
• Luxury tax was imposed by state governments and varied based on the room tariff, usually ranging from nil to 12%.

Abatements Allowed:

• Air-conditioned restaurants were liable for service tax, while non-AC restaurants were exempt.

Cascading Effect of Taxes:

The pre-GST tax regime was highly fragmented, with VAT, service tax, and luxury tax being imposed on various services. These taxes often overlapped, leading to a total tax burden of 20-27% on the consumer. Since input credit from central taxes (e.g., service tax) could not be offset against VAT liabilities, businesses faced a cascading tax burden. For example, VAT was levied on the total bill amount, including the portion already subject to service tax.

Hotels and restaurants thus faced difficulties in complying with different tax structures, leading to inefficiencies in tax administration and increased costs for consumers.

The pre-GST era was marked by a high and complicated tax structure that included multiple levies, abatements, and no provision for input credit, resulting in a higher tax burden on the hospitality sector.

Relevant Provisions for the Hospitality Sector - Post-GST Era

The implementation of GST brought significant changes to the Indian hospitality sector, streamlining taxes and creating a more uniform system. Below are key provisions under the GST regime that apply to hotels, restaurants, and other hospitality services:

1. Registration under GST

Businesses in the hospitality sector, including hotels and restaurants, are required to register under GST if their annual aggregate turnover crosses the threshold limit specified in Section 22(1) of the CGST Act, 2017. The threshold limits are:

• ₹20 Lakhs for most states.
• ₹10 Lakhs for special category states, including:
  1. Arunachal Pradesh
  2. Assam
  3. Jammu & Kashmir
  4. Manipur
  5. Meghalaya
  6. Mizoram
  7. Nagaland
  8. Sikkim
  9. Tripura
  10. Himachal Pradesh
  11. Uttarakhand

2. Composition Scheme for Restaurants

Restaurants with an aggregate turnover less than ₹1.5 crore (₹1 crore for special category states) can avail the composition scheme under Section 10 of the CGST Act, 2017. Key features of this scheme include:

• 5% GST (2.5% CGST + 2.5% SGST) is levied on supplies.
• Input Tax Credit (ITC) cannot be claimed on taxes paid for raw materials or other services.
• Restaurants under this scheme cannot charge GST on their bills to customers.
• A quarterly return (GSTR-4) must be filed by restaurants opting for the composition scheme.

3. Invoicing under GST

With the introduction of GST, various indirect taxes like service tax, VAT, and luxury tax were replaced by GST, simplifying invoicing for businesses. Under GST:

• GST is charged as CGST and SGST/UTGST for intra-state supplies.
• IGST is charged for inter-state supplies.
• Invoice generation follows Rule 46 of the CGST Rules, 2017.

4. Time of Supply

Under Section 13 of the CGST Act, 2017, the time of supply for services, including hotel and restaurant services, is determined by the earliest of the following events:

• Invoice Issuance: The date of issue of the invoice if issued within the prescribed period (as per Section 31(2)), or the date of receipt of payment, whichever is earlier.
• Provision of Service: If the invoice is not issued within the prescribed time, the date of provision of service or the date of receipt of payment, whichever is earlier.
• Recording in Books of Account: If neither of the above two apply, then the date on which the recipient of services records the receipt in their books.

Specific Cases:

• If Invoice is Generated:
  • The earliest of the following is considered:
    1. The time of issuance of the invoice.
    2. The time of provision of the service.
  • Alternatively, the time of recording in the recipient’s books of accounts.
• If Invoice is Not Generated:
  • The earliest of the following applies:
    1. The time of receipt of payment.
    2. The time of provision of service.
  • Or, the time of recording in the recipient’s books.

The GST system ensures that taxes are applied uniformly, and compliance is streamlined, especially with respect to registration, invoicing, and time of supply for services rendered by the hospitality sector.

Place of Supply Provisions under GST for the Hospitality Sector

The determination of place of supply is crucial in identifying the applicable tax (CGST, SGST, or IGST) on the supply of goods and services. Below are the key provisions for determining the place of supply for services provided by the hospitality sector, such as hotels and restaurants:

1. Place of Supply of Services where the Supplier or Recipient is in India

2. Place of Supply of Services where the Supplier or Recipient is Outside India

Key Takeaways:

• Accommodation Services: The place of supply is determined based on the location of the immovable property where the accommodation is provided.
• Restaurant and Catering Services: The location where the service is performed is considered the place of supply, ensuring tax jurisdiction is aligned with the location of actual service delivery.
• Cross-Border Services: When services are provided to a recipient outside India, the place of supply remains the location of the immovable property in India.

These provisions ensure that the tax is levied in the correct jurisdiction, based on where the service is delivered or where the immovable property is located.

Input Tax Credit (ITC) under the CGST Act, 2017 for Hotels and Restaurants

Section 16 of the CGST Act, 2017 provides that every registered person is entitled to claim credit for input tax charged on any supply of goods or services received, provided these inputs are used for business purposes. This reduces the overall cost for businesses, and consequently, reduces the tax burden passed on to the consumer.

Eligibility for ITC:

• ITC can be claimed for input tax paid on goods or services used in the course or furtherance of business.
• The credit is available on the supply of goods or services to a registered person for making outward taxable supplies.

Non-Eligibility for ITC under Section 17(5):

Section 17(5) specifies certain conditions where ITC is not allowed, specifically for the hotel and restaurant industry. These restrictions are intended to prevent double benefits, as follows:

1. Food and Beverages:
2. Outdoor Catering:
3. Beauty Treatment, Health Services, and Cosmetic or Plastic Surgery:

• ITC is not available for input tax paid on the supply of food and beverages unless they are used to make an outward taxable supply of the same category.
• For example, if a restaurant buys food and beverages for its own consumption, ITC cannot be claimed. However, if the restaurant is selling food and beverages to customers, ITC is available.
• Similarly, ITC is not allowed for outdoor catering services unless the service is used to provide taxable outward supplies of catering services.
• No ITC is allowed for expenses related to beauty treatment, health services, or cosmetic and plastic surgery. These services are considered personal and non-business related unless they are part of a taxable supply.

Exceptions:

• If food and beverages, or outdoor catering services, are used for making outward taxable supplies of the same kind (i.e., selling food or catering services), the registered person is eligible to claim ITC.
• Composite or Mixed Supplies: If a business offers a combination of services (e.g., banquet and food services), ITC may be claimed on the inputs used in providing these services.

Key Takeaways:

• General Rule: ITC is allowed on inputs used for business purposes.
• Exceptions: ITC on food, beverages, and certain services (e.g., beauty treatment) is restricted unless the inputs are used for making outward taxable supplies of the same category.

This ensures that businesses engaged in selling taxable supplies can reduce their input costs, thereby passing on the tax benefits to the end consumer.

Reverse Charge Applicability in the Hotel and Restaurant Industry:

1. Section 9(4) of the CGST Act, 2017:
2. Exemptions:

• RCM is not applicable to the restaurant industry for most services.
• Therefore, restaurants are not required to pay GST under the reverse charge mechanism for services provided in the ordinary course of their business.
• Services like food and beverages or general restaurant services do not fall under RCM.

Services in the Hotel Industry Under RCM:

While the restaurant industry largely avoids RCM, certain services in the hotel industry do attract reverse charge, including:

1. Security Services:
2. Legal Services:
3. Other Services:

• Security services provided by a non-registered supplier to a registered recipient (such as hotels) are taxable under RCM.
• Hotels must pay GST on such services under RCM if they engage a security agency.
• Legal services provided by an individual advocate or firm of advocates to a hotel are also subject to RCM.
• In this case, the hotel receiving the legal services is responsible for paying the GST under reverse charge.
• Services like transportation of goods, renting of immovable property (in certain cases), and housekeeping services may also fall under RCM, depending on the specific arrangement and registration status of the supplier.

Key Takeaways:

• Restaurant Industry: No RCM applicable under section 9(4) of the CGST Act, 2017.
• Hotel Industry: Certain services like security and legal services are subject to RCM.

Understanding when to apply RCM helps hotels and restaurants ensure compliance with GST regulations and avoid penalties.

Accounts & Records Under GST for the Hotel and Restaurant Industry

Under the Goods and Services Tax (GST) regime, maintaining proper accounts and records is a key compliance requirement for all registered taxable persons, including those in the hotel and restaurant industry. The purpose of these requirements is to ensure transparency and facilitate efficient tax administration.

Here’s an overview of the accounting and record-keeping requirements under GST:

1. Types of Accounts to Maintain:

Under GST, every registered taxable person must maintain detailed records of the following:

1. Production or Manufacture of Goods:
2. Inward and Outward Supply of Goods or Services or Both:
3. Stock of Goods:
4. Input Tax Credit (ITC) Availed:
5. Output Tax Payable and Paid:
6. Other Prescribed Particulars:

• If the business involves manufacturing, hotels (for example, those that produce in-house products) must keep records of goods produced.
• Details of all incoming goods or services (purchases) and outgoing goods or services (sales or services rendered).
• This would include all procurement for hotel or restaurant operations and sales of food, beverages, accommodation, or other services.
• Proper records must be maintained for the stock of goods (inventory), including both opening and closing stock. This is essential for businesses such as hotels and restaurants that manage food, beverages, and other supplies.
• Records of the input tax credit claimed on goods and services purchased for the business. This includes ITC claimed on raw materials, operational supplies, and services used.
• Complete records of GST liabilities and payments made on goods and services supplied to customers.
• Any other records as may be specified by the Central Goods and Services Tax (CGST) Rules. For example, billing and invoicing details under GST.

2. Record Retention Period:

• Registered persons are required to retain accounts and records for five years from the due date of filing the annual return for the year to which such accounts pertain.
• This means that, depending on the filing date of GSTR-9 (annual return), records for that financial year must be preserved for five years after the filing deadline.

3. Requirement for Audit:

• Audit requirements apply if the turnover exceeds certain thresholds:
  • If the annual turnover exceeds ₹2 crore, the business is required to have its accounts audited by a chartered accountant or cost accountant.
  • For businesses with a turnover exceeding ₹5 crore, the audit and a reconciliation statement are to be submitted in Form GSTR-9/GSTR-9C.
  • The audited annual accounts and reconciliation statement ensure that the GST returns match the financial accounts of the business.

Summary of Key Compliance:

• Registered persons in the hotel and restaurant sector must maintain records of production, inward and outward supply, stock, ITC, and tax payments.
• Records must be kept for five years after the relevant financial year’s annual return due date.
• Audits are mandatory for businesses with turnover exceeding ₹2 crore/₹5 crore.

These requirements help ensure compliance with the GST laws, reduce tax discrepancies, and promote effective tax administration.

GST Returns for Hotels and Restaurants

Under the Goods and Services Tax (GST) regime, hotels and restaurants are required to file multiple types of returns to ensure compliance with tax regulations. Below is an overview of the returns applicable to hotels and restaurants, excluding those opting for the composition scheme.

Key GST Returns for Regular Hotels/Restaurants:

1. GSTR-1 (Outward Supply Return):
2. GSTR-2 (Inward Supply Return):
3. GSTR-3 (Monthly Return):
4. GSTR-3B (Summary Return):

• This return includes the details of outward supplies (sales) made by the business.
• Due Date: Filed monthly by the 11th of the following month.
• Involves reporting details like taxable outward supplies, interstate sales, B2B and B2C transactions, and exports.
• Contains details of inward supplies (purchases) made during the month.
• This return was meant to allow businesses to verify purchases, but its filing has been kept in abeyance by the government. Presently, taxpayers need to ensure matching of input tax credit (ITC) through the auto-drafted GSTR-2A and GSTR-2B.
• Due Date: Initially scheduled by the 15th of the following month, but currently not required to be filed.
• GSTR-3 is a monthly return combining details from GSTR-1 and GSTR-2, containing the consolidated summary of outward and inward supplies.
• Due Date: Filed by the 20th of the following month.
• However, similar to GSTR-2, the government has put GSTR-3 on hold.
• This is a monthly summary return that businesses file to report the summary of outward and inward supplies, ITC claimed, and GST liability for the period.
• Due Date: Filed by the 20th of the following month (extended from the initial filing timeline of December 2017).
• Important: GSTR-3B filing is mandatory until further notice and forms the basis for monthly GST payments.

Key Points for Return Filing:

• Hotels and restaurants must file GSTR-1 and GSTR-3B regularly.
• Filing must be completed by the 20th of the following month.
• GSTR-2 and GSTR-3 are presently suspended but may be reintroduced in the future.
• Composition scheme taxpayers file GSTR-4 quarterly.

Maintaining timely and accurate records of sales, purchases, and input tax credits is essential to ensure compliance with the GST filing requirements. Non-compliance may result in penalties and interest liabilities.

Classification & Taxation Pattern on Comestibles Served in Restaurants/Food Suppliers under GST

The Goods and Services Tax (GST) rates applicable to restaurants and food suppliers depend on the nature of the establishment and its relationship with hotels. Below is the breakdown of the applicable GST rates as per CBIC Notification No. 11/2017-Central Tax (Rate) and subsequent amendments.

Key Points:

• Input Tax Credit (ITC) is not available for restaurants and food suppliers charging 5% GST.
• ITC benefits are available to establishments that fall under the 18% GST rate, such as restaurants in hotels with room tariffs of ₹7,500 or more.
• Alcoholic beverages are outside the purview of GST, and State VAT continues to apply to the sale of alcohol.

This structure ensures that tax rates vary based on the type of service, and ITC eligibility depends on the pricing structure of the establishments.

GST on Hotel Accommodations

The Goods and Services Tax (GST) on hotel accommodations depends on the room tariff (per unit per day) and has undergone several revisions over the years. Below is the summary of GST rates applicable to hotels, inns, guest houses, clubs, campsites, and other commercial accommodations:

Effective from 18th July 2022:

Effective from 1st October 2019:

Up to 30th September 2019:

Key Points:

• The GST rate varies depending on the room tariff, with higher rates applicable to more expensive accommodations.
• The significant rate reduction was introduced in October 2019, eliminating GST on rooms priced below ₹1,000 per day.
• Input Tax Credit (ITC) is available for services rendered by hotels, reducing the overall tax burden for the customer.

This tiered structure of GST aims to balance taxation based on the affordability of accommodations, ensuring that luxury accommodations are taxed at a higher rate while providing relief for budget accommodations.

Declared Tariff under GST

Declared Tariff refers to the price set by the hotel or accommodation provider for a unit of accommodation, inclusive of all amenities such as furniture, air-conditioning, refrigerators, or other services. The term is defined in Clause 2(w) of Notification No. 09/2017-Integrated Tax (Rate), which governs how GST is calculated on hotel services.

Key points about Declared Tariff include:

1. Inclusive of Amenities: The declared tariff includes charges for all facilities provided within the unit, such as furniture, air-conditioners, and other amenities, but does not consider any discounts offered on the published rate.
2. Declaration of Tariff:
3. Upgrade of Accommodation: If a customer is upgraded to a better room at a lower rate, the tariff of the upgraded room is to be considered for the purpose of GST.
4. GST Applicability on Declared Tariff (Before 27th July 2018): Before 27th July 2018, the Declared Tariff was used to determine the applicable GST rate for hotel accommodations.

• The tariff can be displayed on websites, tariff cards, or at the hotel reception.
• If different tariffs are shown in different places, the highest tariff will be considered for the purpose of levying GST.
• For varying tariffs across seasons, the tariff applicable during the season when the stay occurs will apply.

Change to "Value of Supply" from 27th July 2018

With Notification No. 13/2018-Central Tax (Rate) dated 26th July 2018 (effective from 27th July 2018), the basis for determining GST shifted from "Declared Tariff" to "Value of Supply."

• Value of Supply: GST is now calculated based on the actual amount charged in the invoice (after discounts), instead of the declared or published rate.

Thus, after this change, hotels are required to apply GST on the final invoice value, ensuring that any discounts or price reductions offered to customers are reflected in the GST calculation.

Summary of the Shift:

• Pre-27th July 2018: GST was based on the Declared Tariff (highest published rate).
• Post-27th July 2018: GST is now calculated based on the Value of Supply (actual invoice amount).

Levy of Service Charge Despite GST is Not Valid

According to a clarification issued by the Ministry of Consumer Affairs, Food & Public Distribution, charging a service charge by hotels and restaurants is not legally enforceable. As per the guidelines issued, service charges are optional and should not be automatically added to the bill.

Key points from the clarification include:

1. Service Charge is Optional: Hotels and restaurants cannot mandatorily add a service charge to the customer\'s bill. Payment of a service charge depends solely on the consumer\'s discretion.
2. Distinction from GST: While GST is a mandatory tax applied on goods and services, the service charge is voluntary and should not be confused with government taxes like GST.
3. Customer Rights: If a service charge is added without the consumer\'s consent, the consumer has the right to dispute it and refuse to pay.

This clarification was reiterated in a press release dated 5th February 2019, highlighting that consumers are not obligated to pay a service charge unless they willingly agree to do so. The Ministry further clarified that automatic or mandatory inclusion of service charges in hotel and restaurant bills is not valid under consumer protection laws.

GST on Rent-a-Cab Services Provided by Hotels

Hotels often offer rent-a-cab services as an additional amenity to their guests. The applicable GST rates and the availability of Input Tax Credit (ITC) for such services depend on whether the fuel cost is borne by the service provider or the service receiver. Here\'s a summary:

Explanation:

• 5% GST Rate with No ITC: When the hotel provides rent-a-cab services, and the fuel cost is included in the service (i.e., borne by the service provider), the applicable GST rate is 5%, but no input tax credit can be availed for such services.
• 12% GST Rate with ITC: If the fuel cost is borne by the customer (service receiver), the GST rate is 12%. In such cases, the hotel can claim ITC (Input Tax Credit) if the cab service is procured through another registered cab operator or supplier.

This GST structure ensures transparency and flexibility depending on how the service is billed and helps streamline the taxation process for hotels offering cab services.

GST on Foreign Currency Exchange Services in the Hospitality Industry

Many hotels, especially those catering to international clients, offer foreign currency exchange services. The GST on these services is 18%, and the value of supply is determined based on Rule 32(b) of the CGST Rules, 2017. Hotels providing foreign exchange services have the option to calculate GST using a specific method, but once the option is selected, it cannot be changed for the remainder of the financial year.

Valuation of Foreign Currency Exchange Services under GST:

Explanation:

• For amounts up to ₹1,00,000, the GST will be 1% of the gross amount exchanged, with a minimum of ₹250.
• For amounts between ₹1,00,001 and ₹10,00,000, the GST payable will be ₹1,000 + 0.5% of the excess amount over ₹1,00,000.
• For amounts exceeding ₹10,00,000, the GST payable will be ₹5,500 + 0.10% of the amount exceeding ₹10,00,000, subject to a maximum of ₹60,000.

This method ensures clarity and consistency in how GST is applied to foreign exchange services in the hotel industry.

GST Rates on Additional Services Provided by Hotels and Restaurants

Key Points:

• All services listed above, except for the sale of gifts/handicrafts, are generally taxed at a standard rate of 18% under GST.
• For the sale of gifts or handicrafts, the applicable GST rate will depend on the specific item and its classification within the GST framework.

Relevant Judicial Pronouncements / Advance Rulings under GST

1. Kundan Mishthan Bhandar (2019)
2. Arihant Enterprises (2019)
3. Coffee Day Global Ltd. (2018)
4. Hatsun Agro Product Ltd. (2019)
5. Safari Retreats (P.) Ltd. v. Chief Commissioner of Central Goods & Service Tax (2019)

• Citation: (AAAR, Uttarakhand) 105 taxmann.com 364
• Summary: The Appellate Authority ruled that the sale of food items from a restaurant is subject to GST rates applicable to restaurant services, with no Input Tax Credit (ITC) allowed. Conversely, if sold from a sweetshop counter, it qualifies as the supply of goods, allowing for the applicable GST rates and ITC.
• Citation: (AAR, Maharashtra) 104 taxmann.com 230
• Summary: The authority determined that the sale of ice-cream from retail outlets constitutes a supply of goods rather than services. The applicant sells ice-cream without additional charges for consumption, resulting in a transfer of title to the customer.
• Citation: (AAR, Karnataka) 97 taxmann.com 426
• Summary: The authority confirmed that Cafe Coffee Day (CCD) must pay GST at a rate of 5% without ITC for non-alcoholic beverages and food items served, as stipulated in Notification 46/2017-Central Tax (Rate).
• Citation: (AAR, Karnataka) 110 taxmann.com 287
• Summary: The authority concluded that serving ice-creams and food items based on customer orders in an outlet is treated as a composite supply of food and beverage services, attracting 5% GST.
• Citation: 105 taxmann.com 324 (Orissa)
• Summary: The Orissa High Court ruled that the input tax credit on GST paid for the construction of a shopping mall, intended for rental purposes, should be allowed. The court found that the input tax credit restriction for immovable property does not apply when the property is constructed for letting out rather than for personal use.

Key Takeaways:

• GST on Restaurant Services: The rulings clarify the distinction between supplies of goods and services, affecting how GST rates and ITC are applied.
• Input Tax Credit: Judicial pronouncements emphasize the conditions under which ITC can be claimed, particularly in cases of property intended for rental.
• Composite Supply: The treatment of combined offerings (e.g., food and beverage services) under GST can significantly influence tax rates and compliance obligations.

These rulings play a critical role in guiding businesses in the hospitality and restaurant sectors on how to navigate GST regulations effectively.

The exclusion of liquor and alcoholic beverages from GST has indeed been a point of contention in achieving a truly unified tax structure in India. By keeping alcohol out of GST, businesses in the hospitality and restaurant sectors must navigate dual tax regimes - one for GST-compliant items like food and services, and another for alcohol which is subject to state-level VAT and other local taxes. This separation undermines the principle of a seamless tax system and creates several challenges:

1. Fragmented Tax Structure: Alcoholic beverages being taxed separately leads to a fragmented billing system where GST applies to food and services, while state taxes apply to alcohol. This complexity creates confusion for both businesses and consumers.
2. Inconsistent Tax Rates: Each state has its own tax rates on alcohol, making it difficult to maintain a uniform pricing model across the country. This lack of standardization affects pricing strategies for hotels and restaurants and contributes to operational inefficiencies.
3. Cost Transparency: A single tax system under GST would have made pricing clearer for consumers. The presence of state-specific taxes on alcohol can obscure the overall cost of goods and services offered, leading to discrepancies in billing and price perception.
4. Efficiency and Compliance Burden: Businesses that serve alcohol must comply with both GST and local tax regulations, adding to the administrative burden. Simplification of this tax regime by including alcohol under GST could significantly reduce compliance costs and improve ease of doing business.
5. Impact on Consumers: A consolidated tax structure would likely reduce the effective tax burden on consumers by eliminating overlapping taxes. The free flow of credit, available under GST but not for state taxes, could further drive cost optimization and potentially lower prices.

Hope for Future Inclusion under GST

Many stakeholders believe that including alcohol under GST would align with the fundamental goals of GST-enhancing transparency, eliminating cascading taxes, and fostering a more streamlined tax system. As GST is a consumption-based tax, it is designed to tax products and services where they are consumed, which would create uniformity across sectors.

While there are political and revenue-related reasons for keeping alcohol out of GST, its inclusion would lead to a more holistic and transparent system, driving benefits for the hospitality industry, the government, and consumers alike.