2019 (11) TMI 888 - HC - GST

Rate of GST for the restaurant sector - input tax credit - Validity of Notification dated 14th November, 2017 - option to pay 18% GST with full ITC has been removed for the restaurant sector - HELD THAT - Issue notice, returnable on 11th December 2019. In the meanwhile, the respondent shall consider and report to this court as to what amount can be taken to secure to the petitioners the option to discharge GST either at the rate of 18% with full input tax credit or at the rate of 5% without input tax credit.

Summary

Issues: Impugned notification fixing tax rate for the restaurant sector at 2.5% without input tax credit; Legality of the notification under CGST Act; Denial of input tax credit to the restaurant sector; Arbitrariness in the notification.

Analysis:
1. The petitioners challenged a notification fixing the tax rate for the restaurant sector at 2.5% without input tax credit. The petitioners argued that the notification removed the option to pay 18% GST with full ITC, thus denying the restaurant sector the right to avail a higher tax rate with input tax credit.

2. The notification was issued under the powers conferred by various sections of the Central Goods and Services Tax Act, 2017 (CGST Act). The petitioners contended that the restriction imposed by the notification was not prescribed by rules under the Act, and while conditions or restrictions could be imposed under section 16(1) of the CGST Act, denying the right to avail credit was impermissible.

3. The petitioners highlighted the arbitrariness of the notification by pointing out that other service sectors had the option to pay a higher tax rate and avail input tax credit, while the restaurant sector was denied this choice, resulting in a total denial of input tax credit for them.

4. The Court, considering the submissions, issued notice to the respondent to report on securing the option for the petitioners to discharge GST at either the rate of 18% with full input tax credit or at the rate of 5% without input tax credit. The Court directed that direct service was permitted for further proceedings.

5. In a subsequent order, the Court noted an error in a previous order regarding the wording and substituted the word 'amount' with 'measures' to accurately reflect the intended direction to the respondent. The note for speaking to the minutes was disposed of accordingly by the Court.

This detailed analysis covers the issues raised in the judgment, addressing the legality of the notification, denial of input tax credit, and the subsequent corrective measures taken by the Court.