UPDATE ON RATE STRUCTURE IN RESTAURANTS AND AVAILABILITY OF CREDIT AGAINST THE DIFFERENT RATES

This update intends to discuss the rate structure in restaurants and availability of credit against the different rates. The GST rates of restaurants have undergone various changes since the inception of GST and after all the mind bending exercises, finally two rates prevail in this sector. Notification no. 46/2017 dated 14/11/2017 had amended the original notification 11/2017 dated 29.06.17 thereby stating new rates for restaurant services. The new prescribed rates along with conditions are as follows:
Description Rate Condition

“(i) 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, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent. Explanation.- “declared tariff” includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.
Provided that credit of input tax charged on goods and services used in supplying the service has not been taken- 2.5%

“(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, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent. Explanation.- “declared tariff” includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit. - 9 %

Thus the conditions attached with the 5% slab, is that the credit of the goods and service was not allowed. One interpretation of such condition is that any such credit which is used in the provision of restaurant services is not allowed and in extreme instances, it will lead to disallowance of common credit also because there is no mechanism proposed for distributing credit in taxable supplies and such supplies for which no credit is allowed. It is to be noted that there is a difference between exempt supplies and such supplies for which no credit is allowed.

But consideration should be given to the original notification, wherein explanation 4(iv)a states the following:
(iv) Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that,-
(a) credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and
(b) credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made there under.
The above explanation makes it pretty clear that all such services on which credit is not allowed shall be deemed as exempt supplies and thus proportionate reversal under rule 42 and 43 will be applicable on that. It will be also applicable on all such other services on which credit is not allowed. Hence, the hotel industry can take credit on common input and input services for restaurants and other taxable services and reverse the proportionate credit for restaurant services.

The content of this GST update is for educational purpose only and not intended for solicitation.

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UPDATE ON RATE STRUCTURE IN RESTAURANTS AND AVAILABILITY OF CREDIT AGAINST THE DIFFERENT RATES

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