2024 (2) TMI 847 - AAR - GST

Restaurant service providers under GST notification 11/2017-CT cannot claim ITC on general expenses unless providing other eligible supplies

In Re: M/s. Mangaldas Mehta & Company Ltd.

The AAR Gujarat ruled that a restaurant service provider operating under GST notification 11/2017-CT (Rate) at 5% tax rate is generally not entitled to ... Entitlement to claim input tax credit - expenses incurred for the general expenses of the Company which are meant for the purpose of business - entitlement to enjoy the benefit of the input tax credit based on the square foot & area of usage of the premises - applicability of provisions of Rule 42/43 of the CGST Rules, read with SGST Rules for the claim of the input tax credit of the applicant as the declared tariff of the hotel rooms never exceeds Rs. 7499/- at any time during the year. Whether applicant are entitled to claim ITC of the expenses incurred for the general expenses of the Company which are meant for the purpose of business? - HELD THAT:- The applicant has stated that they are providing restaurant services and discharging GST @ 5% by availing the benefit of notification 11/2017-CT (Rate) as amended - A conjoint reading of the facts mentioned with the wording in the notification under which the applicant discharges GST, depicts that the applicant by virtue of providing restaurant service at a premises other than at a specified premises is eligible for availing the benefit of the notification subject to the condition that input tax charged on goods and services used in supplying the service has not been taken. Explanation (iv) would come to play meaning thereby that credit of input tax charged on goods or services used exclusively in supplying restaurant service is not eligible. Further, credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for ITC, is reversed as if supply of such service is an exempt supply attracting provisions of section 17(2) of the CGST Act, 2017 and the rules made thereunder. The applicant has not mentioned as to what other supplies are being made by them. Non mentioning of the details of such other supplies, if any, by the applicant has resulted in a situation wherein we can only state that if/since they are only providing restaurant services the question of availing ITC in respect of expenses incurred for general expenses of company, does not arise. However, if they are engaged in providing certain other supplies eligible for ITC, information of which are not privy to, in such a situation explanation (iv) (b) of the basic notification No. 11/2017-CT (Rate) would apply and credit would be eligible subject to the same. Whether applicant are entitled to enjoy the benefit of the input tax credit based on the square foot & area of usage of the premises? - Whether the provisions of Rule 42/43 of the CGST Rules, read with SGST Rules are not applicable to the claim of ITC of the applicant as the declared tariff of the hotel rooms never exceeds Rs. 7,499/- at any time during the year? - HELD THAT:- If the applicant is engaged in providing certain other supplies eligible for ITC, information of which we are not privy to, in such a situation explanation (iv) (b) of the basic notification No. 11/2017-CT (Rate) would apply and credit would be eligible subject to the same. The credit however, shall be restricted in terms of section 17(2) of the CGST Act, 2017. The manner of determination of ITC in respect of inputs or input services and reversal thereof would clearly be governed by Rule 42 of the CGST Rules, 2017. Likewise, in the manner of determination of ITC in respect of capital goods and reversal thereof would clearly be governed by Rule 43 of the CGST Rules, 2017. The applicant has stated that section 17 of the CGST Act, 2017 would not be applicable to the present case. However, there are no merit in the argument more so since it is found that the argument is made ignoring explanation (iv) of the basic notification no. 11/2017-CT( Rate) dated 28.6.2017. Issues Involved:1. Entitlement to claim input tax credit (ITC) for general expenses.2. Entitlement to ITC based on square foot and area of usage.3. Applicability of Rule 42/43 of the CGST Rules, read with SGST Rules, to the claim of ITC.Summary:Issue 1: Entitlement to Claim ITC for General ExpensesThe applicant sought to claim ITC for general expenses incurred for the business. The applicant provides restaurant services and discharges GST at 5% under Notification No. 11/2017-CT (Rate) as amended by Notification No. 20/2019-CT (Rate). The notification specifies that the benefit is available only if ITC on goods and services used in supplying the service has not been taken. Since the applicant provides restaurant services at premises other than specified premises, they are eligible for the notification's benefit, subject to not claiming ITC. Therefore, the applicant is not eligible to claim ITC for expenses incurred in respect of restaurant services. If the applicant provides other supplies eligible for ITC, the credit would be eligible subject to the conditions in explanation (iv) of the notification and section 17(2) of the CGST Act, 2017.Issue 2: Entitlement to ITC Based on Square Foot and Area of UsageThe applicant inquired whether they could enjoy the benefit of ITC based on the square foot and area of usage of the premises. The ruling states that if the applicant provides other supplies eligible for ITC, the credit would be eligible subject to the conditions in explanation (iv) (b) of the notification. The determination of ITC and its reversal would be governed by Rule 42 of the CGST Rules, 2017 for inputs and input services, and Rule 43 for capital goods.Issue 3: Applicability of Rule 42/43 of the CGST Rules, Read with SGST RulesThe applicant questioned the applicability of Rule 42/43 of the CGST Rules, read with SGST Rules, given that the declared tariff of the hotel rooms never exceeds Rs. 7,499/-. The ruling clarifies that Rule 42/43 of the CGST Rules, read with SGST Rules, are applicable to the claim of ITC by the applicant.Conclusion:The applicant is not entitled to claim ITC for general expenses related to restaurant services. ITC based on square foot and area of usage is subject to the conditions in the notification and section 17(2) of the CGST Act, 2017. Rule 42/43 of the CGST Rules, read with SGST Rules, are applicable to the claim of ITC. The ruling emphasizes strict interpretation of exemption notifications, aligning with the Supreme Court's judgment in the case of Dilip Kumar & Company.