Changes made in 23rd GST Council Meeting

23rd GST Council Meeting was held on 10.11.2017 at Guwahati, Assam. Following changes related to hotel industry are decided in this meeting:-

1. All stand-alone restaurants irrespective of air conditioned or otherwise, will attract 5% GST without ITC. Food parcels (or takeaways) will also attract 5% GST without ITC.
2. Restaurants in hotel premises having room tariff of less than Rs 7500 per unit per day will attract GST of 5% without ITC.
3. Restaurants in hotel premises having room tariff of Rs 7500 and above per unit per day (even for a single room) will attract GST of 18% with full ITC.

The above changes will be notified soon and as from the date of notification, the restaurants in hotels with room tariff of less than Rs. 7500/- per unit per day will attract GST @ 5% without ITC. Thus, the credit shall not be admissible on the inputs, capital goods or input services used for providing the restaurant services.

However, besides restaurant services, a hotel provides a number of services like accommodation services, beauty parlour, health and fitness services, etc. on which credit is admissible. After implementation of this change, ITC shall not be admissible to restaurants services but on all the other services, ITC shall continue to be admissible.
A restaurant is indispensible part of a hotel and under the present scenario, majority of ITC availed by hotels comprise of inputs and input services consumed at restaurant. If the proposal under consideration is implemented, the hotels may face the following consequences:-
• The ITC in respect of inputs and input services exclusively consumed in restaurants will be denied.
• In GST regime, ITC on capital goods have also been allowed to the hoteliers. Now, it will be restricted if the capital goods are commonly used in restaurants and other parts of the hotel.
• The amount of proportionate reversal will also increase as the entire proceeds from restaurant services will come in the purview of “exempt supply”. However, in service tax regime, the services which were used exclusively in services on which credit was not allowed was termed as “exempted services” and proportionate credit was allowed on the same. But definition of “exempt supply” given under Section 2(47) of CGST Act is not on the same lines. Hence, the department will not ask for the proportionate credit but they will say that the credit completely on common input, input services and capital goods will not be allowed.
• Further, the credit on input, input services and capital goods used exclusively used in taxable supply will be allowed. But it will be very difficult to prove that these are used in exclusively in taxable supplies particularly in case of input services. Input services like telephone, mobile, security, audit, accounting, consultancy, recruitment, manpower repair and maintenance and almost all input services cannot be said to be exclusively used in taxable services. Moreover, if the department contention of non allowance of any credit of restaurant is accepted then all credit will be disallowed to hotels.
• There are certain inward supplies the end use of which is not determinable at the time of procurement. For eg. food and beverages and other ready to eat products (which may be consumed at restaurant as well as while providing mandap keeper or accommodation services). It will be very difficult to keep a track of all of these products in order to determine the admissibility of ITC.
• Further, there are commonly used items like cutlery, crockery, linen, etc. which can also be used in restaurant as well as while providing the Mandap keeper services. Also, there are certain contractors which supply the man power which is used commonly in restaurant, accommodation, mandap keeper and other services provided by hotel. As of now, hotels are eligible to avail full ITC on these goods and services. But the implementation of above stated proposal may restrict the quantum of ITC.
• The rate of GST in the given case is proposed to be reduced to 5%. There will be direct benefit in form of reduction of tax rate. However, the medium sized hotels having the declared tariff of less than Rs. 7500/- per unit per day shall have to forgo a significant amount of ITC for availing this benefit. Further, it will create a lot of ambiguities regarding admissibility of ITC as discussed above. This will add to the complications inherited by GST regime. Moreover, the objective of GST council to ensure the cheaper food for general public will not be achieved. On the contrary, it will increase the cost of food to them.
Due to above mentioned reasons, there will be additions to the ambiguities created by GST in hotel industry. Further, since significant amount of ITC will be at stake, most likely, there will be nominal change in the present rates prevalent at restaurants even after the implementation of decision taken by GST Council.

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Changes made in 23rd GST Council Meeting

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