output tax liability of restaurant where tax rate is 5% without ITC.

[NILESH PITALE]

Dear Experts

Whether ITC from other business verticals under same GSTIN be used for offsetting output tax liability of restaurant where tax rate is 5% without ITC.

Please Guide

[KALLESHAMURTHY MURTHY K.N.]

Dear Nilesh Sir, 

Tax payable on Restaurant @5% is not eligible to avail ITC. There is no relation with other verticals and restaurant supplies. This tax is payable in cash. Therefore, ITC cannot be utilized across different business verticals. You may refer to an advance ruling by AAR of Gujarat in the case of Aristo Bullion Pvt. Ltd. - 2021 (4) TMI 561 - AUTHORITY FOR ADVANCE RULING, GUJARAT, which has a similar issue.

Thank you.

[KASTURI SETHI]

ITC not admissible. Otherwise also the concept of 'business vertical' stands omitted w.e.f. 1.2.2019 vide CGST (Amendment) Act, 2018.

[Shilpi Jain]

There is no condition for restaurant business to pay this 5% tax only through cash. In my view this 5% tax can be paid by using any other credit in the same registration.

It is clear that no ITC would be eligible for any of the expenses (specific or common) to the restaurant business.

The condition of payment of tax through cash ledger exists only for the real estate new pojects

[KALLESHAMURTHY MURTHY K.N.]

Madam, 

I have some more doubts. If the ITC is used for payment of tax of 5% of restaurant liability, 

Does it not violate the provisions of Composition law?

If ITC availed on other business verticals did not generate output tax against the ITC availed, does it not imply a deficit of output tax liability?  

Does it not count as excess utilisation of ITC?

Need clarifications.

[Shilpi Jain]

Are u registered as a composition tax payer? 

If not, then merely since you are paying at 5% does not mean you have opted for the composition scheme, since in normal scheme as well as composition scheme the rate of tax is 5%

[Shilpi Jain]

If you are a composition taxpayer then you cannot get credit from any other business vertical as well. please note that.

One cannot be a composition tax payer for one business and a normal tax payer for another business in the same PAN.

[Shilpi Jain]

Also there is no restriction in the law that overflow of credit from one business, for whatever reason, cannot be used for paying output tax liability in another business. 

This is a very good way of mitigating inverted duty structure if it exists for any tax payer.

[KALLESHAMURTHY MURTHY K.N.]

Madam, 

In my opinion, if a taxpayer running a restaurant and another business is taxable  @18%,  he will not be eligible to pay tax @5% on the restaurant business. If he opted for 5% and even running another business taxable at 5%, he could not pay tax out of ITC and the inverted duty structure would not apply. In the case of a restaurant with lodging services having a tariff equal to Rs. 7500 or more, he has to pay tax at a higher rate only utilising ITC. 

 I request your clarification on this point.

With regards.

[Tarun Agarwalla]

dear sir

the taxpayer is having other business in the same registrated number and also restaurant business. hence it is not a case of composition deer under section 10.

now the taxpayer as opt for 5% without ITC for restaurant business it have to reverse entire ITC related to the restaurant business only. his other line of business would be be stand alone hence where the ITC is eligible for all such stand alone business would be carried to electric credit ledger and can be utilised for payment of out put tax.

now payment of liability of out put tax for restaurant business and the liability of other business under same registration no are similar and can be paid from cash or from available balance in the ITC ledger. there is no bar.

the only bar in this case is that the ITC pertains to the restaurant business required to be revised at the source being not eligible and never forms balance in the credit ledger. what remain in credit ledger is otherwise available for payment of out put tax and very well useable to even payment towards tax liability of restaurant business.

[Jatin Sanghvi]

The AAAR has since overruled the AAR Ruling

AI Summary

Can Input Tax Credit from Other Verticals Offset 5% Restaurant Tax? Experts Say No, Must Pay in Cash. A discussion on a forum addresses whether Input Tax Credit (ITC) from other business verticals under the same GSTIN can be used to offset the output tax liability of a restaurant taxed at 5% without ITC. Experts clarify that ITC is not applicable for restaurants under this tax rate, and the tax must be paid in cash. The concept of 'business vertical' has been omitted since February 2019. While some argue ITC can be used across businesses, others emphasize restrictions under composition schemes and specific conditions for restaurants. The debate references rulings and interpretations of GST laws.