Hotel not 'specified premises' for FY 2025-26 as combined room-plus-food = Rs.7,500; walk-in restaurant services taxable under serial no.7(ii)

AAR held that because the combined room-plus-food charge under AP/CP did not exceed Rs.7,500 per day per room for FY 2024-25, the hotel is not a "specified premises" for FY 2025-26. Restaurant services to walk-in guests are taxable under serial no.7(ii) of the rate notification as amended (state counterpart applies). If in any subsequent financial year the hotel charges above Rs.7,500 (inclusive of food charges), the premises will be treated as "specified premises" and restaurant services to walk-ins will attract 9% CGST + 9% SGST.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the food component supplied under American Plan (AP) or Continental Plan (CP), when bundled with accommodation and the total combined supply exceeds Rs. 7,500 per unit per day, is to be treated and taxed separately or as part of a composite supply, and what GST rate applies.

2. The GST rate applicable to separate restaurant services provided to walk-in guests at the same hotel premises in light of Notification No. 05/2025-Central Tax (Rate) dated 16.01.2025, and the effect of the "specified premises" definition on that rate.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Tax treatment and rate of food component in AP/CP when combined supply exceeds Rs. 7,500

Legal framework: Composite supply defined under Section 2(30) and principal supply under Section 2(90); determination of tax on composite supply under Section 8; value of supply under Section 15; Notification framing taxation of hotel accommodation and related services, with slabbed rates dependent on unit value of accommodation; definition of "hotel accommodation" in Explanation to Notification No. 11/2017-CT(Rate).

Precedent treatment: No contrary authority or pending adjudication presented by the revenue; the Authority relies on statutory definitions and the Notification amendments rather than prior rulings.

Interpretation and reasoning: Industry practice shows AP/CP are bundled, consolidated charges that include accommodation and meals; guests do not ordinarily receive proportional reduction if meals are not consumed; even where an invoice shows bifurcation, the service remains conceptually a composite supply if the components are naturally bundled and the predominant element is accommodation. Under Section 8 a composite supply is treated as supply of the principal supply. "Hotel accommodation" as defined can include ancillary services like food where supplied as part of lodging; value of supply for hotel accommodation post-amendment follows transaction value under Section 15 and includes the consolidated amount charged for the bundled package.

Ratio vs. Obiter: Ratio - where AP/CP supplies are naturally bundled and accommodation is the principal supply, the entire bundled charge (including food component) is taxable as accommodation service at the rate applicable to accommodation based on the total value of the unit of accommodation. Obiter - observations on industry practice and customer behavior illustrating consolidation of rates.

Conclusion: The food component in AP/CP has no separate tax treatment when supplied as part of the composite bundled package; if the total combined supply (accommodation + food) for a unit exceeds Rs. 7,500 per day, the bundled supply is taxable as hotel accommodation under the higher slab (serial no. 7(vi) of the Notification) at 9% CGST + 9% SGST.

Issue 2 - Tax rate for separate restaurant services to walk-in guests and effect of "specified premises" (Notification No. 05/2025)

Legal framework: Notification No. 11/2017-CT(Rate) (as amended) classifies restaurant and accommodation/food services; Notification No. 05/2025 (effective 01.04.2025) revises the definition of "specified premises" by: (a) adopting price-based criteria based on actual value charged in preceding financial year, and (b) introducing voluntary declarations by existing and new registrants for classification as specified premises; applicable GST rates for restaurant services differ depending on whether premises are specified.

Precedent treatment: No precedent invoked; Authority applies the amended Notification and statutory/value concepts.

Interpretation and reasoning: Post-amendment, "specified premises" for a financial year is determined by whether any unit of accommodation in the preceding financial year had a value of supply exceeding Rs. 7,500 (or by a timely declaration). The value of supply for this purpose is the total transaction value charged for the unit (inclusive of food if supplied as part of AP/CP), not just a segregated figure shown on invoice. Where premises do not qualify as specified premises for the financial year, restaurant services to walk-in guests fall under the lower rate entry for restaurant services other than at specified premises (serial no. 7(ii) of the Notification) and attract the lower GST rate specified for that entry (as applied in the ruling: 2.5% CGST + 2.5% SGST subject to conditions in column 5 for FY 2025-26). If premises qualify as specified premises (by exceeding the Rs. 7,500 threshold in the preceding year or by declaration), restaurant services at such premises attract the higher rate applicable to specified premises (9% CGST + 9% SGST) in the next financial year.

Ratio vs. Obiter: Ratio - the threshold test for "specified premises" must be applied to the total price actually charged per unit in the preceding financial year (including bundled food charges where the supply is composite); consequence is deterministic for restaurant service rates in the subsequent year. Obiter - procedural notes on declaration timelines and the abolition of declared tariff as of 01.04.2025.

Conclusion: For the facts before the Authority, the highest room tariff actually charged in FY 2024-25 did not exceed Rs. 7,500 (highest observed Rs. 7,480.14), and no declaration was filed; hence the premises do not qualify as "specified premises" for FY 2025-26. Consequently, separate restaurant services to walk-in guests are taxable under the notification entry for restaurants other than at specified premises at the lower rate (2.5% CGST + 2.5% SGST subject to conditions for FY 2025-26). If at any time the total charge for any unit (inclusive of food in applicable plans) in a financial year exceeds Rs. 7,500, the premises will be a "specified premises" for the next financial year and restaurant services will be taxable at 9% CGST + 9% SGST.

Cross-references and practical application

The treatment of the food component in AP/CP (Issue 1) directly informs the "value of supply" calculation for the specified premises threshold (Issue 2): where accommodation and meals form a composite supply, the entire consolidated charge must be considered for applying the Rs. 7,500 threshold; separate invoiced bifurcation does not, by itself, convert a composite supply into separately taxable supplies for threshold or rate determination.

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