ITC on Hotel Accommodation/Stay Under GST

Input tax credit on hotel accommodation/stay has been a controversial issue due to the place of supply of services of service providers after the Goods and Services Tax regime. GST is a destination based tax i.e. consumption tax, which means the tax will be levied where goods and services are consumed and will accrue to that State. Under GST, there are three levels of Tax, IGST, CGST & SGST and based on the “place of supply” so determined, the respective tax will be levied. “Place of supply” will be determined by the locations of the supplier and the recipient, in the transactions comprising of the goods/services. IGST is levied where the transaction is inter-State, and CGST & SGST are levied where the transaction is intra-State. So, it is very important to determine the “place of supply” for understanding the levy of tax and further availing of Input Tax Credit (ITC). There is no issue in taking Input Tax Credit in case of the intra-state supply of hotel accommodation services. If the service providers supply the service to the interstate located recipient of service in this case recipient of service cannot take the input tax credit related to hotel accommodation/stay because the place of supply for these particular services is of the service provider and service provider charge always CGST and SGST. The place of supply has been defined under Section 12(3) (b) of IGST Act, 2017 read as follow:

“the place of supply of services by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.”

Therefore the place of supply shall be that of the service provider and the service provider which charge CGST and SGST for the above-said services even if the service recipient is located in interstate. The place of supply cannot be treated as interstate for these particular services. When the service recipient is located intra-state of the service provider then service recipient can undoubtedly take the input tax credit of these services related to business activity. However, if the recipient of service is located in interstate service provider will charge CGST and SGST. In this situation, CGST and SGST cannot be transferred to another state in view of this input tax credit is not admissible to the service recipient located in other states.

The Hon’ble AAR has examined the issue in details in the matter of In Re: Storm Communications Private Limited (GST AAR West Bengal), Order No. 39/WBAAR/2018-19 has held as follow:

Adjustment of credit received in Tamil Nadu by assessee registered in West Bengal – Location of supplier, providing hotel, banquet hall or restaurant in Tamil Nadu and location of recipient i.e. assessee, receiving service, also Tamil Nadu – Assessee can avail ITC on said invoices in Tamil Nadu only, if registered in Tamil Nadu – Assessee cannot claim/adjust/avail ITC outside Tamil Nadu on said invoices, even if invoices issued as B2B mentioning assessee’s GSTIN in West Bengal – Assessee not registered in Tamil Nadu, SGST and CGST paid on intra-State inward supply in Tamil Nadu are not ‘input tax’ to said person – No concept of ‘input tax’ to an unregistered person and no credit of it is, therefore, admissible – A person, registered in West Bengal, cannot claim ITC for CGST & SGST of other States – He cannot adjust ITC of one State’s CGST for payment of another State’s CGST – He cannot adjust ITC of Tamil Nadu GST for payment of IGST as he is not registered in Tamil Nadu – Sections 2(62), 25 and 49(4) of Central Goods and Services Tax Act, 2017. As input tax and its credit are always linked with whether the person is registered or not, the two components of GST paid on inward intra-State supply in Tamil Nadu could have been taken credit of, if only registration is taken in Tamil Nadu under Section 25(1) of the GST Act and is regarded as “distinct person” within the meaning of Section 25(4) of the GST Act. The architecture of the GST Act is such that even if a person is registered in different States all such registrations will be treated as distinct persons, and input tax in the credit ledger of one such person is not transferable to the credit ledger of another. If the person is not registered in a particular State, the tax paid on the inward supplies in that State is not ‘input tax’ in relation to the said person.

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5. The main issue to be determined in  this Advance Ruling is, whether the Applicant registered in West Bengal, can claim/adjust/avail ITC on the CGST & SGST charged on the invoices issued by Tamil Nadu suppliers. Here, the basic concept of “place of supply” comes into play. In this case, the location of the supplier, providing hotel, banquet hall or restaurant in Tamil Nadu and the location of the recipient i.e. the Applicant, receiving the service, is also Tamil Nadu. So, the Applicant can avail ITC on the said invoices in Tamil Nadu only, if registered in Tamil Nadu. In no case, the Applicant can claim/adjust/avail ITC outside Tamil Nadu on the said invoices, even if the invoices are issued as B2B mentioning the Applicant’s GSTIN in West Bengal.

6. The answers to the Applicant’s questions, therefore, depend upon whether any component of the tax paid on intra-State inward supplies in a state can be used as an input tax credit for paying the outward tax liability in another State.

Section 49(4) of the GST Act provides that the amount available in the electronic credit ledger, as defined under Section 2(46), may be used for making such payment toward outward tax liability. The electronic credit ledger contains the balance of input tax credit on inward supplies as per the return of a registered person.

Under Section 2(62) of the GST Act ‘Input tax’ in relation to a registered person, inter alia, means, the CGST, SGST and IGST charged on any supply of goods or services to the registered person. CGST and SGST are two components of the GST charged on intra-State supplies and IGST is the GST charged on inter-State supplies.

As input tax and its credit are always linked with whether the person is registered or not, the two components of GST paid on inward intra-State supply in Tamil Nadu could have been taken credit of, if only registration is taken in Tamil Nadu under Section 25(1) of the GST Act and is regarded as “distinct person” within the meaning of Section 25(4) of the GST Act. The architecture of the GST Act is such that even if a person is registered in different States all such registrations will be treated as distinct persons, and input tax in the credit ledger of one such person is not transferable to the credit ledger of another. If the person is not registered in a particular State, the tax paid on the inward supplies in that State is not ‘input tax’ in relation to the said person.

As the Applicant is not registered under Section 25(1) in Tamil Nadu, the SGST and CGST paid on intra-State inward supply in Tamil Nadu are not ‘input tax’ to the said person. The GST Act does not contain any concept of ‘input tax’ to an unregistered person. No credit of it is, therefore, admissible under the GST Act.

In view of this input tax credit cannot be transferred to other states and in the case of the same state, ITC will be admissible.

Further, in the case of In Re: Gogte Infrastructure Development Corporation Ltd. (AAR Karnataka); Advance Ruling No. KAR ADRG 2/2018, the Hon’ble AAR has held as follow:

9. The place of supply of the services by way of lodging accommodation by a hotel, shall be the location at which the immovable property (hotel) is located or intended to be located, as per Section 12(3)(b) of the Integrated Goods and Services Tax Act, 2017. Also, the place of supply of restaurant and catering services shall be the location where the services are actually performed, as per Section 12(4) of the Integrated Goods and Services Tax Act, 2017. In the instant case, admittedly, the applicant is located outside the SEZ. Therefore the services rendered by the applicant are neither the part of authorized operations nor consumed inside the SEZ.

10. Since the place of providing of services in the case of Hotel has been prescribed under the Act ‘location of the Hotel’ the rendition of services of restaurant, short term accommodation and Banqueting/conferencing cannot be said to have been ‘imported or procured’ into SEZ Unit/Developer. Hence, by no stretch of the imagination and therefore, in the instant case, the supply is intra-State supply.

11. In view of the foregoing, we pass the following:

RULING

12. The Hotel Accommodation and Restaurant services being provided by the applicant, within the premises of the Hotel, to the employees and guests of SEZ units, cannot be treated as supply of goods and services to SEZ units in Karnataka and hence the intra-State supply and are taxable accordingly.

Therefore, in view of the hotel owners within the state or interstate supply of services always liable to charge CGST and SGST and not IGST though their customers belong to other states.