GST is levied on services provided by hotels under Heading 9963 as ‘Accommodation, food and beverage services’ of Notification No. 11/2017-CT(R) (‘Rate Notification’). The GST Council in its 37th Meeting held on 20.09.2019 had recommended that the rate of GST applicable on the accommodation services provided by a hotel should be reduced. To give effect to this recommendation, Notification No. 20/2019-CT(R) dated 30.09.2019 (‘Amending Notification’) has been issued w.e.f. 01.10.2019. A brief analysis of the Amending Notification relevant to the hospitality industry is as follows:
Changes in GST applicable on Accommodation Services
The Amending Notification has introduced new entries from (i) to (vi) under S. No. 7 pertaining to Heading 9963. A summary of the rate on accommodation applicable before and after the amendment is as below:
|S. No.||Value of supply per unit (room) per day for accommodation||Previous Rate||New Rate
|Entry as per Notification|
|(1)||Less than Rs. 1000||Nil||Nil||[Exempted vide Notification No. 12/2017-CT(R)]|
|(2)||Rs. 1,000 and above but less than Rs. 2,500||12%||12%||No. 7(i) of Rate Notification|
|(3)||Rs. 2,500 and above but less than Rs. 7,500||18%||12%||No. 7(i) of Rate Notification|
|(4)||Rs. 7,500 and above||28%||18%||No. 7(vi) of Rate Notification|
At this instance, it is pertinent to highlight that the definition of ‘hotel accommodation’ has also been added to the Rate Notification vide the Amending Notification which reads as follows:
“Hotel accommodation” means 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 accommodation.
It appears that the above definition has been added in order to remove any ambiguity regarding the scope of services. However, there are different streams of inflows to a hotel from its’ guests and it is advisable that the rate of tax on each type of transaction should be carefully vetted post 01.10.2019, particularly with regard to the concept of composite supply of services.
Changes in GST applicable on Restaurant Services
The Amending Notification has also introduced new rates for restaurant services. As per the said rates, supply of restaurant service other than at ‘specified premises’ is chargeable at 5% GST (without ITC). However, supply of restaurant services at ‘specified premises’ is chargeable at the existing rate of 18% itself.
Hence, in order to analyse the new prescribed rates, it is first pertinent to examine the newly introduced definitions of ‘restaurant services’ and ‘specified premises’ as prescribed vide the Amending Notification. The definitions are reproduced below:
“Restaurant service” means 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.
“Specified premises” means premises providing “hotel accommodation” services having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.
A reading of the definition of ‘specified premises’ with the definition of ‘restaurant services’ implies that the food provided by the restaurants in hotel premises which do not have any unit of accommodation with a declared tariff above Rs. 7500 will be charged GST at 5% (without ITC) for the restaurant services provided at such premises/hotel. However, the Amending Notification in Entry No. 7(vi) has prescribed a rate of 18% for food, beverages and accommodation services which are not covered anywhere else in Entry No. 7(i) to 7(v). Thus, those hotels having a declared tariff above Rs. 7,500 for any unit of accommodation shall have be charged GST at 18%.
It is pertinent to note that while the value of supply will be taken into account for the purpose of calculating the GST rate applicable on accommodation however, for determining the rate of tax applicable on ‘restaurant services’, the declared tariff of a unit of accommodation of the hotel shall be taken into consideration. Moreover, a hotel will qualify as ‘specified premises’ if the declared tariff value of any of the units of accommodation of that hotel is above Rs. 7,500.
Changes in GST applicable on Outdoor Catering Services
A major source of revenue for a hotel is from ‘MICE’, i.e., meetings, incentives, conferences and exhibitions; where food supplied along with rented premises as a bundle. The Amending Notification has prescribed the following GST rate for such activities as follows:
1. The GST rate on ‘outdoor catering services’ shall be 5% (without ITC).
2. Cases where renting of premises and ‘outdoor catering services’ are being provided as a composite supply the rate applicable shall also be 5% (without ITC).
However, the aforementioned rates in (a) and (b) shall not be applicable on supply of ‘outdoor catering services’ in the cases listed below:
For the cases as mentioned in (1), (2) and (3) above, the applicable GST rate shall be 18% as per Entry No. 7(vi) of the Rate Notification. Hence, the GST rate of 18% shall be applicable on ‘outdoor catering’, and on composite supply of ‘outdoor catering’ along with renting of premises, when it is provided by a hotel whose declared tariff exceeds Rs. 7,500 for any of their rooms, at such hotel or by a supplier located at such hotel.