GST UPDATE ON REVERSAL OF ITC IN CASE OF REDUCTION IN TAX RATE ON RESTAURANT SERVICES
By: – Pradeep Jain
Goods and Services Tax – GST
Dated:- 8-12-2017
In 23rd meeting of GST Council, it was decided to reduce the tax rate on restaurant services with no facility of ITC. Notification no. 46/2017-Central Tax (Rate) dt. 14-11-2017 has been issued to implement this decision. This notification prescribes the rate of tax at 2.5% CGST on standalone restaurants and restaurants situated in hotel, club, guest house, etc. which has declared tariff of any room less than ₹ 7500/-. This rate is subject to the condition that no ITC is availed on the goods and services used for providing this service. This notification is effective fro
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IA [ 1999 (1) TMI 34 – SUPREME COURT OF INDIA ], hon'ble Supreme Court has held that the right to the credit has become absolute at any rate when the input is used in the manufacture of the final product. The basic postulate, that the scheme is merely being altered and, therefore, does not have any retrospective or retro-active effect. In view of this decision, we can conclude that the once ITC is legitimately availed, it cannot be taken back. Similarly, hon'ble Rajasthan High Court in the case of SHANKESHWAR FABRICS PRIVATE LTD. Versus UNION OF INDIA [ 2001 (8) TMI 139 – RAJASTHAN HIGH COURT ] has held that "Right to Modvat credit accrues to assessee on the date he pays tax on raw materials or inputs – Credit having been taken
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t cannot be demanded back without authority of law. Therefore, demanding back the rightfully availed credit without any specific provision in law is not viable. It is worthwhile to mention here that the system of reversal of ITC is there only if the supply becomes wholly exempted.
There is no such provision if the partial exemption is granted, i.e. rate is reduced to some extent. In view of above discussion, in absence of any specific provision in this regard, we can safely claim that the decision of Supreme Court as discussed above is still applicable and any demand on the credit rightfully availed will not survive.
The content of this GST update is for educational purpose only and not intended for solicitation.
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