Rate of tax

[Bharat Cholleti]

Dear sir,

What is the rate of tax cigarettes supplied in Bar and restaurant, whereas as food rate is 5%. HSN/SAC code. please clarify.

[Rajagopalan Ranganathan]

Sir

Cigarettes will fall under heading 2402 attracting tax @ 28% plus compensation cess at various rates depending upon the type cigarettes vide Notification No. 1/2017-Compensation Cess (Rate) dated 28.06.2017 as amended. The rate of tax is same irrespective the place of supply.

[Bharat Cholleti]

Thank you so much sir

[Amit Agrawal]

Under Notification No. 11/2017-Central Tax (Rate) (as amended till date), ‘Restaurant service’ means 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 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.

Furthermore, as per Serial No. 6 of SCHEDULE II of CGST Act, 2017, "composite 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 (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration" should be treated as a supply of services.

In my view, where bar / restaurant is supplying 'cigarettes' as part of its service / composite supply, similar gst-rate (i.e. 5% as per facts stated in your query) & HSN code (i.e. 9963) as should apply for billing for 'cigarettes' too with no ITC (as per condition specified in above-said notification for subject entry).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

It is very risky to pay GST @5% on cigarettes. Cigarette is not a food item. Cigarettes are sin goods.Sin goods cannot be clubbed with restaurant services. So it is advisable to GST @28%.

[KASTURI SETHI]

AAR decisions are easily available on this issue.

[Bharat Cholleti]

Thank you kasturi sir, please share the AARs

[Bharat Cholleti]

Thank you Amit sir for sharing your view

[Amit Agrawal]

In continuation of my earlier post at Serial No. 3 and with due respect to both the contrary views, I wish to add the followings:

A. Provisions quoted by me deal with 'food or any other article for human consumptionor drink'.

B. Serial No. 6 of SCHEDULE II of CGST Act, 2017 specially excludes 'alcoholic liquor for human consumption' from food or any other article for human consumption or drink' but same does NOT include 'cigarettes'

C. My earlier-shared views are for a situation where bar / restaurant is supplying 'cigarettes' as part of its service / composite supply and NOT otherwise.

C1. 'Cigarettes' - as goods - cannot be sold over MRP. And bar / restaurant are able to charge higher selling price (than MRP) against such goods only because same being part of its service.

C2. Merely paying GST@ 28% will not solve problems or eliminate risk/s. One also needs to consider liability to pay applicable compensation cess, in such a option if chosen.

C3. In given situation where bar / restaurant is supplying 'cigarettes' as part of its service / composite supply, just paying GST@ 28% against 'cigarettes' will NOT entitle such bar / restaurant to avail ITC against 'cigarettes' so purchased.

C4. Issues highlighted in C3 & C4 can lead to substantial loss.

C4. Therefor, in my humble view, paying GST@ 28% by bar / restaurant - where bar / restaurant is supplying 'cigarettes' as part of its service / composite supply - very risky as well as costly.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Kindly read Para B of above post as '............but same does NOT exclude 'cigarettes''.

[Amit Agrawal]

Also, I fully respect contrary views.

[Shilpi Jain]

I would also go with the view that cigarettes is liable @ applicable to the restaurant services. However, in fact most of the restaurants pay @ 28% along with cess since they do not want to have any dispute with department (department looks at the rate of tax which fetches them the most revenue).

So if your 5% option gives more revenue you can continue (under this option no ITC eligible).

[KASTURI SETHI]

Delhi High Court vide its order 9.2.21 directed GST Council to take up the matter for afresh decision within three months. Thus the issue stands referred to in the case of DEL SMALL ICE CREAM MANUFACTURERS WELFARE’S ASSOCIATION (REG.) Versus UNION OF INDIA reported as 2021 (2) TMI 558 - DELHI HIGH COURT. Thereafter, no status of compliance is available. However, relevant para is extracted below :-

"10. The contention of the counsel for the petitioner is that respondent No. 2 GST Council, in exercise of powers under Section 10(2)(e) of the Act, has clubbed ice cream with pan masala and tobacco. The counsel for the petitioner has contended that there is no reason for clubbing ice cream with sin goods like pan masala and tobacco. It is contended that pan masala and tobacco are sin goods and ice cream cannot be clubbed therewith. On enquiry, as to the reasons if any given by the respondent No. 2 GST Council in its meeting, for excluding ice cream from benefit of Section 10(1) of the Act, the counsel for the petitioner contends that the reason which prevailed for excluding ice cream was that there is no Goods and Services Tax (GST) on milk, being a large constituent of ice cream and if small manufacturers of ice cream were to be given benefit of Section 10(1) of the Act, there would be large scale loss of revenue."

AI Summary

Debate on GST Rate for Cigarettes in Restaurants: 5% or 28% as per Notification No. 1/2017? A query was raised regarding the Goods and Services Tax (GST) rate on cigarettes supplied in bars and restaurants, where the food tax rate is 5%. One participant clarified that cigarettes fall under heading 2402, attracting a 28% tax plus compensation cess, as per Notification No. 1/2017. Another participant argued that cigarettes supplied as part of restaurant services could be taxed at 5%, citing provisions of the CGST Act, 2017. However, others warned against this approach, emphasizing the risk and advising adherence to the 28% rate to avoid disputes. A reference to a Delhi High Court order on a related issue was also mentioned.