GST Issues faced by the Hotel Industry

Table of Contents

1. Important Definitions and Rates

2. Issues under Outward Supply

3. Issues under Inward Supplies

1. Important Definitions and Rates

1.1 Important Definitions

Hotel Accommodation Services

• Supply, by way of accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places
• Meant for residential or lodging purposes including the supply of time share usage rights by way of

Restaurant Services

• 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.

Outdoor Catering Services

• Supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink,
• At Exhibition Halls, Events, Conferences, Marriage Halls and other outdoor or indoor functions
• That are event based and occasional in nature.

1.2 Taxability of Services

1.2.1 Hotel Accommodation Services

Value of supply

Section 15(1) specifies that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

1.2.2 Restaurant Services

Outdoor Catering Services/Composite Supply of outdoor catering together with renting

Other Accommodation, food and beverage services

2. Issues under Outward Supply

2.1 Issue 1: Classification of Service

• • Composite supply
  • Mixed supply
  • Independent

2.2 Issue 2: Package services (i.e., New Year events, Christmas events etc.)

Hotel charges single fee for following:

• • Supply of food
  • Supply of beverages (alcoholic, non-alcoholic and caffeinated)
  • Music with provision of dance,

• S. No.	Heading	Description	Rate
  34	9996 (recreational cultural and sporting services)	(iiia) Services by way of admission to entertainment events or access to amusement facilities including casinos, race club, any sporting event such as Indian Premier League and the like	28%

Additional Facilities

• Extra Bed Charges
• Airport pick and drop
• Laundry Services, spa, salon etc.

Declared tariff includes charges for all amenities 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.

2.3 Issue 3: Time of Supply under GST

2.3.1 Section 13(2)

1. If the invoice is issued within 30 days from the date of supply of service, time of supply shall be earlier of:

A. the date of issue of invoice by the supplier, or
B. the date of receipt of payment,

2. If the invoice is not issued within 30 days from the date of supply of service, time of supply shall be earlier of:

A. The date of provision of service
B. The date of receipt of payment

2.3.2 Section 31(2) r/w rule 47

A registered person supplying taxable services shall issue a tax invoice before provision of service or after the provision of service within 30 days from the date of supply

2.3.3 Issues w.r.t TOS

Issue 1: Dual Payment of tax in case of stay across the Financial Year

Accommodation booked from 29.03.2022-03.04.2022

Issue 2: Stay for more than 30 days

Accommodation booked from 05.05.2022-30.06.2022

2.4 Issue 4: Barter Transaction

2.4.1 Rule 27 of the CGST Rules, 2017

Where the supply of goods or services is for a consideration not wholly in money, the value of the supply, shall-

• Be the open market value of such supply,
• If open market value not available, be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply.
• If value is not determinable as above, be the value of supply of like kind and quality,
• If value is not determinable as above, be the sum total of consideration in money and such further amount in money that is equivalent to the consideration not in money as determined by the application of Rule 30 or 31 in that order.

2.5 Issue 5: Amount paid by agent to hotel

2.6 Issue 6: Hotel Management Agreement

Brand Owner and Operator 

• Operation and management
• Licensing Brand name

Hotel Owner                                                         

• Licenses in his name
• Invoicing to customers
• Other compliance

2.7 Issue 7: Taxability of Secondment of KMP

3. Issues under Inward Supplies

3.1 ITC Reversals

• Accommodation services – 18%/12%
• Restaurant services – 18%/5% w/o ITC
• Liquor Sale – No GST

Section 17 of the CGST Act restricts the input tax credit on goods or services or both to so much of the input tax as is attributable to the taxable supplies including zero rated-supplies made for the purpose of business.

The manner of reversal of Input tax credit is stated in the CGST Rules, 2017:

• Rule 42 – Reversal of credit received on Inputs and Input services
• Rule 43 – Reversal of credit received on CapitalGoods

Section 17(2) deals with the provisions where the goods or services or are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

3.2 Issue 8: Expenses pertaining to Exempt Supply

Common ITC

• Supply of liquor
• Restaurant Services at concessional rate

3.3 Issue 9: Change in tariffs during a year

Reversal/availment of the ITC on the goods/capital goods

3.3.1 Section 18(1)(d) read with Rule 40(1)

Where exempt supply becomes taxable, person shall be entitled to take credit of input/input services. In case of capital goods, credit reduced by 5% per quarter shall be allowed.

3.3.2 Section 18(4) read with Rule 44

Where taxable supply becomes exempt, person shall be liable to reverse credit of input/input services. In case of capital goods, credit involved in remaining useful life shall be reversed.

3.4 Issue 10: ITC in respect of Free Accommodation

3.4.1 Section- 16 of CGST Act, 2017

Registered person can claim ITC’ of GST paid on inward supply of goods/services that are used or intended to be used by him in the course or furtherance of his business.

3.4.2 Section – 17 (5) (g) of CGST Act, 2017

ITC shall not be available in respect of Goods or services or both used for personal consumption.

3.4.3 Section- 17(5)(g) of CGST Act , 2017

Goods lost, stolen, destroyed, written off or disposed of by way of gifts or free samples.

3.5 Issue 11: ITC of hotel constructed

Safari Retreat

Odisha High Court ruled that input tax credit would be available for the GST amount paid on the goods or services availed for the construction of the immovable property that would further be used for the purpose of renting.