ANALYSIS OF NOTIFICATION NO.20/19-CT (R) DATED 30.09.2019 VIZ-A-VIZ RECOMMENDATIONS OF 55TH GST COUNCIL MEETING IN RESPECT OF HOTEL & RESTAURANT SERVICES

[KASTURI SETHI]

The GST Council in its 55th meeting held on 21.12.2024 has recommended  to amend the definition of “declared tariff” and “specified premises” to link them  with the actual value of supply of any unit of accommodation provided by the hotel  and to make the GST rate on restaurant services in hotels dependent on the value of supply  of units of accommodation in the preceding financial year i.e.

i. 18% with ITC if the value of supply exceeded Rs. 7,500 for any unit of accommodation

ii. 5% without ITC

and provide an option for hotels to pay tax on restaurant services at 18% with ITC by giving a declaration at the beginning of the financial year or upon obtaining registration.

The Council has recommended to implement above amendments w.e.f. 1.4.25 whereas such amendment should be implemented retrospectively in the interest of fair justice to the providers of hotel and restaurant services on the following grounds: -

(i)   The need for proposed amendment has arisen due to interpretation dispute between the department and tax-payers which resulted into issuance of show cause notices throughout India;

(ii)   The root cause of dispute revolves around the definition and scope of “specified premises” and “declared tariff” provided in Notification No. 20/19-CT (R) dated 30.09.2019. The department has differently interpreted the phrase, “any” unit of accommodation mentioned in the Explanation of ‘specified premises’ at serial no.7 of the Notification No.20/2019-CT (R) dated 30.09.2019 amending original Notification No.11/2017-CT (R) dated 28.06.2017.

(iii)   In Notification No.20/2019-CT (R) dated 30.09.2019 the word, ‘ANY’ does not signify ‘ALL’. As per dictionary, the word ‘ANY’ has many meanings and one of them is ‘one of several’. It is not in a plural sense as it can be restricted to a singular sense. The essence of the word, ‘any’ in the Notification in this context is a singular which means if any one room of the hotel is charged above Rs.7500/ - it is to be taxed @ 18% otherwise it will be taxed @ 5% and 12 % depending upon the room tariff. The word, ‘ANY’ must qualify to the declared tariff whether below or above Rs.7500/- The word ‘ANY’ is not independent of the tariff declared. Therefore, it is worthwhile to go through the legal dictionary meaning, essence and message of the word, ‘any’.

(iv)    As per The Law Lexicon, The Encyclopaedic Law Dictionary with Legal Maxims(Compiled and edited by P. Ramanatha Aiyar, published By Wadhwa and Company, Law Publishers, Nagpur,  the word, ‘any’ may have one of several meanings, to the circumstances, it may mean “all”; each; every; some; “or one or more out of several”. “Any” is not confined to a plural sense. “Any” is a word which excludes limitation or qualification; as wide as possible. ‘Any’ is used in the sense of anybody, any person. Any stands for one and not for all.

(v)   As per legal dictionary, ‘Supreme Court Words and Phrases with Legal Maxims (judicially considered) (third edition) compiled by Surendra Malik and Sumit Malik and published by Eastern Book Company, Lucknow, the word, ‘any’ dictionary means “one or some or all. In Black’s Law dictionary it is explained, “word ‘any’ has diversity of meanings and may be employed to indicate, ‘all’ or ‘every’ as well as ‘some’ or ‘one’ and its meaning in a given statute depends upon the context and the subject matter of the statute”.

(vi)    The word, “any” has meanings; some; one of many; an indefinite number, one indiscriminately of whatever kind or quantity. It is often synonymous with “either”, “every” or “all”. Its generality may be restricted by the context;

(vii)  The department is making out the meaning of phrase, ‘any unit of accommodation’ for ‘ALL Units/rooms’ of a hotel’ and thus segregating this phrase from ‘above seven thousand five hundred rupees’ which is not correct. Here the term ANY UINT OF ACCOMODATION means that if any one of the unit of accommodation is charged above Rs 7500/- per day then it will attract GST @ 18%. It does not connote that even if one room is charged above Rs 7500/-, then all the rooms and services provided in the hotel will be charged @18% GST.The department is treating all the rooms in the category of above Rs.7500/- irrespective of the size of the room and amenities provided therein. The factum of ‘off-season and peak-season’ is also being brushed aside. Here, ‘ANY’ stands for one of several i.e. one of all those rooms where tariff has been declared above Rs.7500/-per day per unit and thus ‘any’ does not stand for ALL the units/rooms of a hotel including those rooms which fall under the category of ‘other than specified premises’. Hence all the rooms of a hotel cannot be categorized as above tariff of Rs.7500/-. It is neither the intention of legislature nor the Govt. to drag the rooms falling below the tariff of Rs.7500/- per unit per day into the category of ‘Specified Premises’ i.e. above tariff of Rs.7500/- per unit per day thereby fetching revenue at highest rate of GST i.e.18%. The highest rate is not applicable to the category of tariff below of Rs.7500/- as clarified in the Explanation (a) (vi) at serial no.7 of the said Notification.

(viii) The tax slabs for tariff below Rs.7500/- (other than specified premises)mentioned at serial no.7 (ii), (iii), (iv) & (v) of Notification are mandatary. These slab rates cannot be disturbed. In other words, GST rates mentioned specifically in the category of ‘Other Than Specified Premises’’ cannot be dragged into the category of ‘Specified Premises’. If it is done so, that shall be in contravention of the provision of the Notification as well as Section 15 of the CGST Act. Hence it will be violation of the principles of Natural Justice/Fair Justice. The purpose of three slabs provided in the Notification itself will be defeated, if all the rooms of below tariff of Rs.7500/- are brought forcibly into the category of the tariff of above Rs.7500/-. All the rooms  cannot be brought under one umbrella by any stretch of imagination.

(ix) Further, Notification No.20/19-CT (R) dated 30.9.2019 cannot be read in isolation from Section 15 of CGST Act inasmuch as GST has to be paid on transaction value. Both are to be read conjointly for all purposes. It cannot be denied that GST has to be paid invoice-wise and room-wise and category-wise on transaction value. There is no ambiguity in the Notification. The declared tariff is meant for the purpose of categorization of rooms.

(x) A notification cannot override the Act. It has been held by Hon’ble Supreme Court in the case of UOI Vs. Jalyan Udyog  reported as 1993 (68) ELT 9 (56) which is extracted below for ready reference: -

“Rules and notifications cannot override Act and cannot be derogatory to the object of the Act”

  Thus, it is amply clear that the department cannot go beyond Section 15 of CGST Act. The Notification has to be applied in consonance with the Act.

(xi)  The notification no 20/2019-CT (R) dated 30.09.2019 has done away with the declared tariff for the room accommodation and charging of GST has been made as per transaction value. Since the rate of tax is based on the declared tariff as per the tax invoice, it is specific and precise to those particular invoices. In case a few of invoices bear tariff of above Rs.7500/ per day per unit of accommodation, that cannot be generalised.

(xii)  Basically, tariff rates are variable, seasonal, and demand & supply based. Levy of tax is transaction as well as tariff centric. The fixing tariff is the choice of the hotel management keeping in view of the above factors/parameters.

(xiii)  As per the declared Tariff referred to above, the rooms are categorised as per the facilities provided, size of the room and other amenities. During the lean period these rates are reduced and during peak season the tariff rates sometimes go above this declared tariff. If the tariff of some or a few rooms during the peak season goes up and are charged Rs.7500/- and above, then the entire supply of hotel accommodation cannot be treated as more than Rs.7500/- and are covered under the definition of ‘specified premises’ as envisaged in the Notification No.20/19-CT (R) dated 30.9.2019. In this factual position transaction value is important and determinant factor. Each supply is to be determined as per invoice value and rate of GST is applicable on transaction value as  discussed in the preceding paras.

(xiv)  It is pertinent to mention that a statute is stated to be edict of the legislature. To interpret the statute the best norm would be to give literal construction keeping the legislative intent of those who made/framed it.

In view of the above of the above and in the interest of natural justice and fair justice, the proposed amendment deserves to be made effective retrospectively to cover up the period prior to 1.4.2025 and NOT from 1.4.2025. Such retrospective amendment will save the hotel and restaurant industry from the rigours of  litigation which is avoidable.