2018 (9) TMI 1042 - AAR - GST

Input tax credit - rate of tax - restaurant services - applicability of N/N. 46/2017 dated 14.11.2017 - Whether the applicant is entitled to pay GST @ 18% (CGST-9% and SGST-9%) and claim input tax credit? Held that - The classification of the services rendered by the applicant is, therefore, clearly defined under Service Code (Tariff) 996331. Notification No. 11/2017Central Tax (Rate) dated 28th June 2017 notifies the rate of central tax in column 4 on the intra-State supply of services of description as specified in column (3) of the Table in the notification, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2) - The restaurant services provided by the applicant are squarely covered under serial number 7 of the aforesaid Notification. Explanation given in Notification 46/2017 makes it clear that 2.5% tax shall be payable and input tax credit shall not be available. The explanation removes any kind of ambiguity on the issue. Ruling - The Applicant is not entitled to pay the GST @ 18% with input tax credit as the services being offered by the Applicant are classified under a heading attracting GST @ 5%, without input tax credit.

Summary

Issues Involved:
1. Entitlement to pay GST at 18% and claim input tax credit.
2. Interpretation of Notification No. 46/2017 and its applicability.
3. Classification of services under the relevant GST notifications.
4. Legal validity of conditions imposed by notifications vis-à-vis statutory rights.

Issue-wise Detailed Analysis:

1. Entitlement to Pay GST at 18% and Claim Input Tax Credit:
The applicant sought clarification on whether they could opt to pay GST at 18% (CGST 9% and SGST 9%) and claim input tax credit. The applicant argued that the right to input tax credit is conferred by Section 16(1) of the CGST Act, 2017, which cannot be overridden by a notification. They contended that the notification's condition of not availing input tax credit for a concessional rate of 5% implies that if the condition is not met, the standard rate of 18% should apply, allowing input tax credit.

2. Interpretation of Notification No. 46/2017 and Its Applicability:
The applicant argued that Notification No. 46/2017, which provides a concessional GST rate of 5% for restaurants not availing input tax credit, does not prevent them from opting to pay 18% GST and claim input tax credit. They relied on the phrase "provided that" to assert that the concessional rate is conditional and not mandatory, suggesting that if they do not meet the condition, they should fall under the standard rate of 18% as per Serial No. 35 of Notification No. 11/2017.

3. Classification of Services Under the Relevant GST Notifications:
The services provided by the applicant, running restaurants where food and non-alcoholic beverages are served, are classified under Heading 9963, Group 99633, Service Code (Tariff) 996331. Notification No. 11/2017 specifies a GST rate of 5% for these services, amended by Notification No. 46/2017 to include the condition of not availing input tax credit. The applicant's services are explicitly covered under Serial No. 7 of this notification, which mandates a 5% GST rate without input tax credit.

4. Legal Validity of Conditions Imposed by Notifications Vis-à-vis Statutory Rights:
The applicant contended that the statutory right to input tax credit under Section 16(1) of the CGST Act, 2017, cannot be curtailed by a notification. However, the judgment clarified that Section 16(1) itself states that the right to input tax credit is subject to conditions and restrictions prescribed. Therefore, the notification's conditions are valid and enforceable, and the applicant's interpretation does not hold.

Findings & Discussion:
The judgment emphasized that the classification of services under Heading 9963 mandates a 5% GST rate without input tax credit as per Notification No. 46/2017. The explanation in the notification clearly stipulates that the 5% rate applies without input tax credit, removing any ambiguity. The applicant's argument that they can opt for an 18% rate under Serial No. 35 was rejected, as this entry applies only to services not classified elsewhere, whereas the applicant's services are specifically classified under Heading 9963.

Ruling:
The applicant is not entitled to pay GST at 18% with input tax credit, as their services are classified under a heading attracting GST at 5% without input tax credit.