GST UPDATE ON ELIGIBILITY OF ITC ON SUPPLY OF FOOD & BEVERAGES

According to section 17(5)(b)(i) of the CGST Act, 2017, input tax credit (ITC) shall not be available in respect of the supply of 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. The present update seeks to analyse the admissibility of ITC on supply of food and beverages under different situations.
it is clear that supply of services in restaurant, eating joint is liable to GST at the rate of 5% with the condition that the provider of output service cannot avail the input tax credit used in providing such services. Moreover, the receiver is also debarred from claiming input tax credit of restaurant services under section 17(5)(b)(i) of the CGST Act, 2017. Now, we discuss the eligibility of credit of GST paid on supply of food and beverages in following situations:-
Situation 1:- A restaurant procures food from another restaurant for further supplying it to its customer. In this case, since there is clear cut restriction of availing input tax credit by the service provider of restaurant services in the rate notification, no input tax credit can be availed.
Situation 2:- A hotel having declared tariff of any unit of accommodation of less than Rs. 7,500 per unit per day or equivalent and also having restaurant. The restaurant charges GST rate of 5%. In such case, the restaurant is not eligible to avail input tax credit of any food procured by it and used for providing restaurant services by it.
Situation 3:- A hotel having declared tariff of any unit of accommodation of more than Rs. 7,500 per unit per day or equivalent and also having restaurant. The restaurant charges GST rate of 18%. In such case, the restaurant is eligible to avail input tax credit of any food procured by it and used for providing restaurant services by it. Now, the question arises is that whether the said hotel organising a marriage party is eligible for availing the credit of GST paid on the outdoor catering services procured by it? If we minutely observe the restriction contained in section 17(5)(b)(i), it is found that the input tax credit on supply of food and beverages will be available only if it is used in 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. In the present example, the hotel is providing mandap keeper services while the input services procured are that of outdoor catering and so the input services of supply of food and beverages is not used being used in providing same category of services. Now, the next question that arises is that whether provision of mandap keeper service by the hotel can be considered as composite supply of renting of premises along with supply of food and beverages? If we look at the entry no. 3(vii), it is found that the supply of food and beverages along with renting of premises is considered as service attracting 18% GST. Now, whether we can consider this entry as making reference to composite supply of two taxable services, one being supply of food and beverages and the other being renting of hall is the question to ponder upon. If the provision of mandap keeper service is considered as composite supply, then the hotel will be able to claim input tax credit of the GST paid on outdoor catering services. However, if the provision of mandap keeper service is considered as provision of single service, then the admissibility of input tax credit is certainly doubtful as in that case it will neither be supply of same category of service nor will be composite supply.

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GST UPDATE ON ELIGIBILITY OF ITC ON SUPPLY OF FOOD & BEVERAGES

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