Restaurant services rationalized

[CA Akash Phophalia]

Introduction

Supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply is for cash, deferred payment or other valuable consideration has been classified as “supply of services” in entry 6(b) of Schedule II to the CGST Act 2017. The said service is further elaborated along with accommodation services in Notification No 11/2017-Central Tax (Rate) dated 28^th June 2017 for proper classification and assignment of HSN/SAC codes to it. In the recent notification 13/2018-Central Tax (Rate) as issued on 26^th July 2018 the said classification particularly in relation to restaurant services is redefined and this article aims to throw light on the impact of such change.

Amendment in the entry

Accommodation, food and beverage services are classified as serial no 7 to the Notification 11/2017 supra under the tariff heading 9963. The amendment in the said classification is as under:-

“Supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by 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 and lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent.”

Outlets and premises covered-

This amended entry will now cover the following:-

1. Canteens, restaurants, mess, cafeteria or any other eating joints.
2. Dining space of different institutions as schools, colleges, hospitals, industrial units, office etc.

Meaning of declared tariff – 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.

Will there be any change in tax rate if the amount charged is less than declared tariff- Even if the amount charged actually is lesser than the declared tariff then also the said service shall fall in this classification only. To put it differently, even if the actual charges charged are lesser then the published charges, the declared tariff shall be equivalent to published charges.

How to calculate the limit of ₹ 7500/- The declared tariff needs to be seen for per room per day.

Can we consider the declared tariff on daily basis – The declared tariff for different days can be different and in that case the classification shall also be different for different days. If the declared tariff on one day is ₹ 7500/- then the classification shall be done accordingly and if the declared tariff on the other day is ₹ 15000/- then the classification shall be done accordingly. Thus, the classification of service can change on any day as per revised declared tariff as published by the said institution.

Whether the declared tariff is to be checked room-wise – The declared tariff of different rooms can be different on any day or throughout the year. According to this entry if the declared tariff of any single room is ₹ 7500/- of above then the classification for the said premises shall change. For instance, the hotel is having 100 rooms in its premises and the maximum declared tariff is ₹ 7000/- per room per day. In this case its services are classified in this entry. Now, on day it increased its declared tariff of a special suite to ₹ 8000/- per room per day. On the said the classification of tis services shall not fall in the above mentioned amended entry. Now when it again reduces declared tariff of the said special suite to an amount below ₹ 7500/-, the said services shall again be classified in the above stated amended entry.

Whether the checking of declared tariff is to be done assessee-wise –The above mentioned classification is applicable on premises. Thus if an institution is having accommodation facility in different premises and declared tariff in one premises is below ₹ 7500/- per room per day and the declared tariff in the second premises is ₹ 8000/- per room per day, then the said assessee has to classify services of different premises differently, that is to say, for the first premise the classification shall be as per the amended entry mentioned above and the second premises shall not be classified in the amended entry as mentioned above.

Condition attached

The important conditions attached to this entry is that the assessee engaged in providing services falling under this entry shall not be eligible to avail of the input tax credit of tax paid on inward supply of goods or services.

Rate of tax

The services falling under this entry are chargeable to 2.5% CGST + 2.5% SGST.

Whether this classification is optional

While analysing this entry a thought flow in mind as to whether this entry is optional or the service provider has the option to pay taxes on its outward supplies at full rate and claim input tax credit of goods and services.

Conclusion

With the thought of smoothening the processes and compliances and rationalization in rate of taxes, government has amended the entry for restaurant services and accommodation services so as to simplify the same. However, it does not entail any option of paying full taxes and claiming input tax credit.

This is just for your reference. It does not constitute our professional advice or recommendation.

---

CA Akash Phophalia

9799569294

ca.akashphophalia@gmail.com