GST - Impact On Sector

 

IMPACT OF GST ON ENGINEERING CONTRACTS AND REAL ESTATE SECTOR- PART-I

IMPACT OF GST ON ENGINEERING CONTRACTS AND REAL ESTATE SECTOR- PART-I
 
Pre-GST Scenario
1. One of the most complex areas of the tax levied by the Centre and the States was Works Contract and Sale of Property. Prior to 01.7.2017, such transactions could have been broken into three parts:
Value of goods and materials,
Value of services; and
Value of land.
1.1 : Prior 1.7.2017, builders/developers were paying following indirect  taxes:
Service tax (ST) on services either to provider or on reverse/ joint charge (sub contractors, manpower supply etc);
Value added tax (VAT)/Central sales tax (CST) on steel, cement, RMC, electrical sanitary, lifts, DG sets etc;
Excise duty on all items paid earlier to those on which VAT paid;
2. The Real Estate Sector was subject to multiple taxation scheme by the government. The Central Government has levied Service Tax on under construction projects with no explicit tax on the transaction value of land, the State Government were charging VAT and Composite Tax on various materials used in the construction, without benefit of Input Tax Credit. The State also collected stamp duty and registration charges for  the registration of property.
 
 
1 Pkmittal171@gmail.com: Past Central Council Member, The Institute of Company Secretaries of India
 
3. There were various duties which were levied on this sector and there was no provision for claiming set off, which makes taxation in this sector onerous and costly. There was tax evasion due to  this condition. Now the real estate now being subject to GST, the revenue loss to  the government will stop and set off facility will provide transparency and good taxation environment.
Post-GST Scenario
 
4: Pursuant to the introduction of GST regime, there will be levy of both CGST as well as SGST (in case of intra-state works contract) and an IGST (in case of inter-state works contract), both the Centre and the States will get their respective shares of taxes on one single transaction and on one amount charged for works contract. Therefore, the problem of valuation will be resolved.
5: Under the GST law, we find the following two entries: Clause 5 of Schedule-II “Supply of Service (a)………………………………………………
(b): Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for a sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
Explanation: For the purposes of this Clause:-
 
(1)………………………………………….
(2): the expression “construction” includes additions, alterations, replacements or remodeling of any existing civil structure;
6: As per Section 2(119) of the CGST Act,
 
 
 
“Works Contract” means a contract of building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein the transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.”
7: Works Contract is essentially and inherently a contract of service, irrespective of legal fiction created by Article 366(29A) of Constitution of India as has been held by the Supreme Court in the case of Larsen and Toubro Ltd Vs. CST 2015(318) ELT 633.
8: Basically, works contract is a contract of “work”, where supply  of material is incidental to the contract of work. When a person acquires a flat for his own use, person declare that he has purchased a flat but he never says that he purchased (a) steel (b) cement (c) sand (d) bricks (e) bathroom fittings (f) electrical fittings (g) sanitary fittings – though the person is  owner of all the above - yet he says that he acquired a flat.
 
9: As is evident from the definition of “Works Contract” as appearing in Section 2(119) of CGST Act, it would mean either (i) there is a emergence  of the “immoveable property” or (ii) work or process has been done to “immoveable property”. In the erstwhile Service Tax Law, “Works  Contract” definition included both movable and immovable property. However, in the CGST Act, the above definition shall be restricted to “immovable property” only.
 
10: Another interesting question arises as to whether the “immoveable property” would also include those cases where the “plant and machinery” or “structure” assembled and erected at site is a “Works Contract”.
11: In the case of Triveni Engineering Ltd Vs. Union of India, 2000 (120) ELT 273 SC,= MANU/SC/0488/2000, it was held by the Supreme Court as follows:-
From a perusal of the above Explanatory Notes, it is clear that when generating sets consisting of the generator and its prime base mover are mounted together as one unit on a common base and, therefore, it follows that installation or erection of turbo alternator on the platform constructed on the land would be immovable property, as such it cannot be 'excisable goods'.
 
12: The Supreme Court in the case of T.T.G. Industries Ltd., Madras vs. Collector of Central Excise, MANU/SC/0459/2004, has observed as follows:-
Keeping in view the principles laid down in the judgments noticed above, and having regard to the facts of this case, we have no doubt in our mind that the mud-guns and the drilling machines erected at site by the appellant on a specially made concrete platform at a level of 25 feet above the ground on a base plate secured to the concrete platform, brought into existence not excisable goods but immovable property which could not be shifted without first dismantling.
 
13: As per Clause 5(b) of Schedule II of CGST Act, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. The expression “construction” includes additions, alterations, replacements or remodeling of any existing civil structure. At the same time, “Residential Complex” mean any complex comprising of a building or building, having more than one single residential unit – para 2 of Notification No.12/2017-CT (Rate) dated 28.6.2017  effective from 1.7.2017. Single residential unit” means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family – para 2 of Notification No.12/2017-CT (Rate) dated 28.6.2017 effective from 1.7.2017.
 
13.1:   The immovable property part is expected to be excluded from the GST in terms of the decision of the Supreme Court in case of L&T 2014(303) ELT (003) in para 115 of said judgment. Herein the value of land and completed construction as on the date buyer comes to developer and gets into an agreement would be out of the purview of GST. Hopefully, the basis of deduction of the land value from the transaction liable to GST must be unambiguous and clear. Any ambiguity would only open the Pandora box of disputes.
Non-availability of Input Tax Credit (Section 17(5)©).
 
14. In GST regime, all the above duties/taxes (except stamp duty and registration charges) will get subsumed, therefore a builder should be able to avail the input tax credit of all its procurement of goods/ services except for few restrictions placed in Section 17 (5) of CGST. Therefore, it  would reduce the tax costs substantially in the construction industry. Under GST, it is expected that seamless credit of all taxes paid on procurement of goods, services & Capital goods will be allowed so that net outflow of GST liability would be minimized and would thus reduce the cost of property.
15: The Input Tax Credit shall not be available in respect of works contract services when supplied for construction of an immoveable property (other than plant and machinery) except where it is an input service for further supply of works contract.
 
16: The question that arises is whether the Developers or Builders would have the choice of opting for classifying their output supplies under either of the above two entries, under the GST regime. The term ‘Developer’ is used to refer to realty players who have outsourced the actual construction activity to contractors and consequently and cannot be treated as being engaged in transferring property in goods in the execution of works contract. Builders are indeed engaged in execution of works contract, though a part of activity could be outsourced to contractors.
 
17: Under the current law i.e. pre-GST regime, it was more or less settled that irrespective of the type of the agreement that they enter into, Developers and Builders can opt to pay service tax on 30% of the total value under Notification No.26/2012-ST dated 20-06-2012 or under Rule 2A of the Service Tax (Determination of Value) Rules, 2006 in terms of which service tax is payable on 40% of the construction value.
18: The CGST Act provides for restriction of input tax credit on-
 
Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service.
Goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business.
19: Very often, a question arises in the minds of assessee and readers about the true meaning, scope and intent of “plant and machinery” – because of the obvious reason that the Input Tax Credit (as per Section 16 of CGST Act) shall be allowable in case there emergence of a plant and machinery - though immoveable one. Hence, every one would like that his “immoveable property” be termed as “plant and machinery” so that the party is entitled to Input Tax Credit.
 
20: The Hon'ble Supreme Court in the case of  Scientific  Engineering  House Pvt. Ltd. Vs. Commissioner of Income Tax, 1986(157) ITR 0086 SC relied upon foreign decisions while dealing with the explanation 'Plant' and gave it a wide meaning under the provisions of Income Tax law in the following manner:
"The classic definition of 'plant' was given by Lindley, L.J. in Yarmouth
v. France, [1887] 19 Q.B.D. 647, a case in which it was decided that a cart-horse was plant within the meaning of section 1(1) of Employers' Liability Act, 1880. The relevant passage occurring at page 658 of the Report runs thus:-
"There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business, -not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business."
20.1 : In other words, plant would include any article or object fixed or movable, live or dead, used by businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. In order to qualify as plant the article must have some degree of durability.
 
 
 
20.2 :       In       C.I.T.       Andhra       Pradesh       v.       Taj       Mahal  Hotel, MANU/SC/0239/1971 : 82 I.T.R. 44, the respondent, which ran a hotel, installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipe-line fittings installed fell within the definition of “Plant” given in Sec. 10(5) of the 1922 Act which was similar to the definition given in Sec. 43(3) of the 1961 Act and the Supreme Court held that sanitary and pipe-line fittings fell within the definition of plant.
20.3 :  The Hon'ble Bombay High Court in the case of CIT v. Mazagaon Dock Ltd. MANU/MH/0278/1991 : (1991) 191 ITR 460 (Bom) has held that dry dock and wet dock created for ships are to be treated as plant and not building.
 
20.4 :    The Hon'ble Apex  Court  in the case  of CIT v. Dr.  B. Venkata    Rao MANU/SC/1284/1999 : (2000) 243 ITR 81(SC) has held that in the  case of an “Operation Theatre” in the hospital, it has been held to be a part  of plant and not a part of building. The Court further held that the operation theatre in an hospital building is not simply a concrete structure but necessarily a part for running of the hospital and the assessee is entitled to claim depreciation as applicable to plant and machinery.
 
20.5 : In another decision  reported  in  CIT  v.  Karnataka  Power Corporation MANU/SC/0585/2000 : [2001] 247 ITR 268 (SC), the Supreme Court held as follows (head-note):
 
The question whether a building can be treated as plant, basically, is a question of fact and where it is found as a fact that a building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a “Plant” for the purposes of investment allowance. Held accordingly, that there was a finding by the fact-finding authority that the assessee's generating station building was  so constructed as to be an integral part of its generating system. It was "plant" entitled to investment allowance.'
 
20.6 : The  ITAT,  in  an  appeal  ITA  No.7111/Mum/2011,  vide  order dated 14.3.2014, made very interesting observations. If we apply the above decisions to the facts of the case before us, we are of the considered view that taxiways and aprons, parking bays cannot be said to be merely concrete structures but are necessary tools for operating/using the Airport. Hence, the same are to be considered as part of plant and machinery. Therefore, we hold that assessee is entitled for depreciation at the rate as applicable on plant and machinery in respect of taxiways, aprons, parking bays etc.
 
13:    The       assessee       claimed       depreciation       @        25%    on cold storage building by considering the same as plant which was allowed by the Learned Assessing Officer @ 10% by treating the same as building relying on the decision of Supreme Court in the case of Anand Theaters MANU/SC/0409/2000 : 244 ITR 192. In appeal, the Learned Commissioner of Income Tax (Appeals) allowed the claim of the Assessed following the decision of the Hon'ble Calcutta High Court in    the    case    of    CIT    v.    Shree     Gopikishan     Industries   (Cal) MANU/WB/0061/2003 : 262 ITR 568 and the decision of the Allahabad     High     Court     in     the     case     of     CIT     v. Kanodia cold Storage MANU/UP/0175/1974 : 100 ITR 155 by observing as under:
 
14: The Appellant, during the course of appellate proceedings, has submitted that the cold storage is required to be constructed and maintained as to be damp proof, heat proof and protected against entry of or damage to the stored agriculture and other produce by pests, noxious insects, rats and other rodents. The same is to be provided with insulation of the floors, roofs and doors and insulation and water proofing treatment is to be done in a proper manner in accordance with cold temperature to he maintained below or above freezing point. The Appellant has. therefore submitted that the storage or chamber itself is an apparatus and tool of the trade through which the business is carried on and the insulation without the building cannot  produce the result and the building without the insulation also equally disastrous for the purpose. Therefore, it was contended that the cold storage plant is different   from   the   other   normal    building    because    without   the cold storage plant  it  is  not  possible  to  carry  on  the  business  of cold storage. In support of its contentions, the Appellant placed several   court   decisions,   such   as   100   1TR   155-C1T   v.  Kanodia Cold Storage (All); MANU/WB/0061/2003 : 262ITR 568- CIT v. Shree Gopikishan Industries (Cal.) etc.
21: The  Punjab  and  Haryana  High  Court  in  the  case  of  CIT  v. Yamuna Cold Storage MANU/PH/0244/1981 : [1981] 129 ITR 728 (P&H), has held that the cold storage is a factory building entitled to 10 per cent depreciation. In other words, the plant and machinery would be entitled to depreciation as is allowable to a plant and machinery.
22:    The     Supreme     Court     in     CIT     Vs.     Dr.     B.      Venkata Rao MANU/SC/1284/1999 : 243 ITR 81, dealing with a question as to whether a building of “Nursing Home” is plant and machinery. In that case, the ITAT has held that the nursing home to be a plant and the same was affirmed by the High Court. In the appeal, the Supreme Court held that since the nursing home is equipped to enable the sterilization of surgical instruments and bandages to be carried on and it was reasonable to assume that nursing home was equipped with operation theater and, therefore, held  to be plant and machinery.
 
23: After dealing with the above very important issue, now let us deal with other issues:
23:1 Transitional Credits: To transfer the existing credits in the GST regime, condition has been kept that such credit must have been admissible in the GST regime. Therefore, builders should be able to transfer the following credits to the GST regime:
24: Credit of  Service Tax: The same must be  properly reflected  in the  last service tax returns and documentation must be in place to establish the same. Further, service tax credit pertaining to inputs in stock can also be availed.
25: Excise Duty/ CVD: Prior to promulgation of GST, builders were not availing the credit of excise duty &, therefore, builders need to ascertain the value of stock as on the appointed day and based on the availability of the invoices or other duty paying documents or any other documents  establishing purchase of materials, credit can be availed.
 
 
 
26: VAT/ SAD: Similarly, if a builder was not availing the credit of VAT/SAD hitherto due to restriction in the state VAT law or due to being in the composition scheme, then the credit can be availed based on the ascertainment of stock as on appointed day. However, if the credit of VAT was being availed, then the same needs to be properly reflected in the last VAT return to transfer such credits to the GST regime. The Section 169 relating to transitional credit on stocks also provides for deemed credit at rates to be prescribed in the absence of duty/ tax paying documents.
27: Credit of CST: The same cannot be availed based on the stock availability as on the appointed day.
28: Entry Tax: Credit of same can be availed subject to possession of appropriate documents for the same in states where such set off is permissible.
29: From the careful examination of the catena judgments cited in the preceding paras, it could be said that the “building”, “premises”, “structure” “roads within the airport or factory”, would squarely within the meaning of “plant and machinery” and hence, shall be entitled to “Input Tax Credit notwithstanding the bar laid down in Clause (c) and (d) of Sub-Section (5) of Section 17 CGST Act –, of course, in various situations explained in various judgments cited above.
To be continued …………...
 
 
 

IMPACT OF GST ON HOTELS & RESTAURANTS

IMPACT OF GST ON HOTELS & RESTAURANTS

 
 
The Indian Hospitality Industry is one of the key drivers of growth in the service sector. Apart from hotels, lodges and restaurants, it includes tourism services as well. Tourism and Hospitality Sector’s direct contribution to GDP in 2016 was estimated to be $47 billion. In fact, the National Restaurant Association of India (NRAI) in the Indian Food Services Resort (IFSR) 2016 estimated the total contribution of the restaurant industry would alone contribute 2.1% of GDP by 2021. Since hospitality market is quite big, any change in the Tax regime is going to have far reaching implications - more particularly after the introduction of GST.
 
PRE-GST REGIME
 
2:  In the  Indirect Tax Regime prior to 1.7.2017, the Hospitality Industry   pays multiplicity of taxes in the form of Service Tax, VAT, Luxury Tax etc. If we take room in a hotel with a room tariff in excess of Rs. 1000, it was subjected to service tax of 15% which upon 40% abatement would come down to 9%. In addition, VAT ranging from 5.5%- 14.5% and luxury tax was also payable. In case of restaurant, an abatement of 60% was available whereby effective rate of service tax was brought down to 6%. Upon which, VAT at the appropriate rate and luxury tax was also payable.
3: Similarly, the bundle of services like social functions, marriage function, seminars etc., abatement of 30% was available. However, for restaurants and hotel owners, the main drawbacks were:
No input tax credit was available on the taxes paid by them. The main reason being the central tax like service tax could not be set off against state taxes.
Compliance required to be done under the various tax laws
 
1 Past Central Council Member The Institute of Company Secretaries of India, New Delhi.
 
From the point of view of the end user, the cascading effect of VAT lead to increased prices of products.
 
COMPONENTS OF RESTATURANT BILL - PRE-GST
 
4:    As a consumer, we do not pay much attention to the bill received by us    at the dinner table. However, if we look closely, there were usually three components of bill:
 
   SERVICE TAX    VAT
   SERVICE CHARGES
 
5:  The  Service  Tax is payable for the services  rendered by the restaurant. Vat is payable on the food portion of the bill. Service Charge is not a tax but a fee (without any authority of law) levied by the restaurant sector for the services provided by them. It amounts to income of such restaurant and distributed among staff as it claims to be tips.
6: While the case of VAT and service  tax  the  amount  collected  by  restaurant from customers were deposited to the credit of the State Government and Central Government respectively. The same is not the case with the service charges, which directly goes to the hotel or restaurant owner’s kitty.
 
VAT+ SERVICE TAX GOVERNMENT
SERVICE CHARGE HOTEL OWNER
 
7:  The difference between the service tax and service charge is that service tax is a tax that the service provider has to pay to the government, while the service charge is an additional tip charged by the provider and is not in the nature of tax. Service Tax is mandatory and recovered from the end
 
consumers, while government has issued advisory that consumers can refuse to pay the service charge if they are dissatisfied with the service. As per clarification issued by Ministry of Consumer Affairs, service charges are voluntary in nature and if the consumer is not happy with the services, he may decline to pay.
GST IMPACT ON RESTAURANT BILL
 
8: Under GST, the taxes namely Service Tax, VAT and Entertainment Tax (if levied by State Government) have been merged into a single levy. GST will be levied into two parts i.e. CGST and SGST. For example, if GST to be levied at 18%, then it will be charged 9% CGST and 9% SGST.
GST RATES FOR RESTAURANT WHO ARE UNDER COMPOSITION SCHEME
 
9: The restaurant, whose aggregate turnover is less than Rs 75 lakhs, can  avail the benefits of “Composition Scheme” under Section 10 of CGST Act. Under this Scheme, 5% GST will be levied. i.e. 2.5% CGST and 2.5% SGST and interestingly, this is to be paid out of pocket of restaurants own kitty as the owner is neither entitled to avail Input Tax Credit of taxes so paid on raw materials nor on Services and at the same time, nor the restaurant owner recover the tax i.e. 5% from the customers visiting the Restaurant.
10: In other words, they cannot charge any tax in their  bills. They  cannot pass their burden on to their consumers because of the inherent design of the composition scheme. They cannot avail input tax credit. However, they have the liberty to join the mainstream of GST and pay full tax and avail credit.
NON AC RESTAURANT WITH LIQUOR LICENCE – 12%.
 
 
11: In the pre-GST era, non-AC restaurant in your local market  serving  snacks and providing takeaway service were exempt from paying service tax and were liable to pay only VAT as per the state laws. However, post GST, GST is charged at 12% on the bill, i.e. 6% CGST and 6% SGST. In this case, full input tax credit is available on the inputs, services, capital goods i.e. inputs purchased and input services availed for providing output service i.e. restaurant service.
 
 
AC RESTAURANT – GST 18%
 
12: These restaurants are primarily dining  out  places with  proper sitting and air conditioning facilities. At the same time, such restaurants also possess license to serve liquor. Hence, tax rate of 18% is applicable even if only part of the restaurant is air-conditioned while the remaining part is non-AC. Even if the customer does not dine in the AC portion, still he will be subjected to the same tax rate of 18%. Further, if a restaurant is non-AC and yet it possesses a license to serve liquor, the applicable rate of GST is 18% and not 12%.
 
5 STAR AND ABOVE RATED RESTAURANT - 28%
 
 
13: These days mostly all 5 star and above rated hotels have restaurants at their premises. Before the implementation of GST, such restaurants were liable to pay service tax at 6% after availing abatement. Thereupon, VAT was chargeable as per the State law. However, no input tax credit was available. However, post GST regime, the taxability has significantly increased. Now, the customer availing facilities at the restaurant would be liable to GST @28% i.e. 14% CGST and 14% SGST. Full input tax credit (on inputs, input services and capital goods) shall be available while providing “output service” i.e. restaurant service.
 
OUTDOOR CATERING
 
14: Besides restaurants, another “service” comes to our mind is “Outdoor Catering Services”. Such “Outdoor Catering” may be for pre-marriage, marriages, social, religious, cultural and sports events and also services provided to corporate entities. In the pre-GST scenario, outdoor caterings were liable to service tax @9% after providing benefit of abatement. Thereupon, VAT, as per the provisions of the respective State VAT laws, was leviable. However, post GST, the “Outdoor Catering Service” would be subject to tax @18%. Though rate of tax may be 18% but service providers shall now be entitled to avail full “Input Tax Credit” on (i) inputs (ii) input services (iii) capital goods.
 
GST RATE FOR HOTEL, LODGE, INS, RESORT, CAMPSITE, CLUB, ETC.ETC. WITH ROOM DECLARED TARIFF LESS THAN RS.1000/- NIL
 
15: Budget hotels providing cheap accommodation and food usually have room tariff less than Rs. 1000/- per night. On such hotels and lodges, no GST  is payable.
 
Room Tariffs between Rs. 1000/- to Rs. 2500/- GST RATE IS 12%.
 
16: The rooms which have declared tariff between Rs.1000/- to Rs. 2500/- per night were in the pre-GST scenario liable to service tax @ 9% after receiving abatement of 40% on the tariff value. Such amount was subjected to VAT between 12%- 14% and additionally luxury tax was also leviable. Under the GST regime, for availing the facilities of such hotel the customer has to pay GST at 12% i.e. 6% CGST and 6% SGST. The hotels will be able to claim full input tax credit of (i) inputs (ii) input services (iii) capital goods.
 
17: Upon comparison of both pre-GST and post GST scenarios, it can be seen that in the pre-GST scenario, the “aggregate tax rate” was higher. Under the GST regime, it is merely 12 % with further benefit of ITC.
 
1. Room Tariff between Rs.2500/- to Rs. 5000/- - 18%
 
18: Taking  the case of pre-GST scenario, such hotels were liable to  service  tax @ 9% (post abatement of 40% on the tariff value), thereupon VAT @ 5%- 14.5% together with the luxury tax was levied. However, in the post GST period, services of such hotels shall be liable to 18% i.e. 9% CGST and 9%
 
SGST. The net effect is that the tax liability has been significantly reduced plus such hotels are now eligible for full input tax credit benefit.
 
2. Room Tariff exceeding Rs. 5000/- -28%
 
19: These are usually 4 star or 5 star hotels where average room per room  per night exceeds Rs. 5000/-. Such hotels were in the pre-GST regime were liable to service tax @ 9% (post abatement of 40% on the tariff value), thereupon VAT @5.5%- 14.5% together with the luxury tax was charged. However, in the GST era, now such hotels are liable to pay GST @ 28% (14% CGST + 14% SGST). Additionally, they will be able to claim input tax credit in respect of the services rendered.
20: The Ministry of Finance, Government of India, has issued a Circular No.139/8/2011-TRU dated 10.05.2011, which reads as follows:-
 
i)Relevance of Declared Tariff
 
It has been clarified that “Declared tariff” includes charges for all amenities provided in the unit of accommodation like furniture, air-conditioner, refrigerators etc., but does not include any discount offered on the published charges for such unit. The relevance of ‘declared tariff’ is, in  determining the liability to pay service tax as far as short term accommodation is concerned. However, the actual tax will be liable to be paid on the amount charged i.e. declared tariff minus any discount offered. Thus, if the declared tariff is Rs. 1100/-, but actual room rent charged is Rs. 800/-, tax will be required to be paid @ 5% on Rs. 800/-
 
ii). Levy of differential tariff for the same accommodation
 
It is possible to levy separate tariff for the same accommodation in respect of a class of customers which can be recognized as a distinct class on an intelligible criterion. However, it is not applicable for a single or few corporate entities.
 
iii).Inclusion of cost of meals of beverages in the declared tariff.
 
Where the declared tariff includes the cost of food or beverages, Service Tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff.
 
iv. Whether off-season prices will be considered as declared tariff
 
When the declared tariff is revised as per the tourist season, the liability to pay Service Tax shall be only on the declared tariff for the accommodation where the published/printed tariff is above Rupees 1000/-. However, the revision in tariff should be made uniformly applicable to all customers and declared when such change takes place.
 
v. Inclusion of luxury tax imposed by states in the declared tariff or actual room rent
 
For the purpose of service tax luxury tax has to be calculated from the taxable value.
 
21:  Although there is no circulars/clarification about the meaning  of word “Declared Tariff” in the GST Regime, but, in my view, the circular aforesaid issued by the Ministry of Finance, Government of India, in relation to levy of Service Tax, shall be squarely applicable in the GST regime as well. The Hon’ble Supreme Court in the following cases has held that Circulars issued by the Department are binding and Department cannot take a contrary view: -
 
(i) Collector of CE, Guntur v. Andhra Sugar Ltd. reported in MANU/SC/0079/1988 : 1988 (38) ELT 564;
 
(ii) State of Tamilnadu v. Mahi Traders reported in MANU/SC/0561/1989 : 1989 (40) ELT 266;
 
(iii) UCO Bank, Calcutta v. Commissioner of Income Tax, W.B. reported in MANU/SC/0389/1999 : (1999) 4 SCC 599;
 
(iv) Collector Central Excise, Vadodara v. Dhiren Chemical Industries reported in MANU/SC/0787/2001 : 2002 (139) ELT3 "
 
INPUT TAX CREDIT – SECTION 16 OF CGST ACT.
 
 
22: Section 16 of CGST Act provides that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. In other words, this Section 16 virtually permits taking credit all taxes paid on procuring (i) inputs (ii) input services (iii) capital goods used in the course of or furtherance of business. Now, we need to consider the meaning of “ in the course of “ or “furtherance of business”.
23: The meaning of 'furtherance', as per Black's Law Dictionary, 6th Edition, 11th reprint, 1997, is "act of furthering, help forward, promotion, advancement or progress". Furtherance of business, will
 
thus mean, act of furthering the business, helping forward business, promotion of business, advancement of business or progress of business. Therefore, if a service provider is renting the property in the course of or for furtherance of business or commerce, it will amount to an activity in favour of service recipient for helping forward business, promotion of business, advancement of business and progress of business. It automatically generates value addition and comes within the meaning of 'service tax' as defined under Sec.65[105][zzzz].
 
24: Section 17 (5) of CGST Act, inter-alia, speaks of blocked credit, which is, as is relevant for our purpose, is reproduced below:-
 
(5) Notwithstanding anything contained in sub-section
(1) of Section 16 and sub-section (1) of Section 18, input tax credit shall not be available in respect of the following, namely:-
(a)……………………………………………..
(b) the following supply of goods or services or both:
(i) food and beverages, outdoor catering, beauty treatment, health service, cosmetic and plastic surgery except where an inward supply of goods or service or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of taxable composite or mixed supply
By virtue of Section 17(5), no input tax credit shall be permissible on “food and beverages” and/or “outdoor catering” unless the same is used for making outward supply. Therefore, the input tax paid on “food and beverages and outdoor catering” shall be allowable  only if the same are used for making taxable “outward supply”
 
©: works contract services when supplied for construction of an immoveable property (other than plant and machinery) except where it is an input service for further supply of works contract service.
25: Plainly speaking Section 17(5)© of CGST Act, bars inputs tax credit on works contract services used for construction of an immoveable property unless the same is used as a “plant and machinery” and also where “works contract service” is an input for further supply of “works contract service. Now, the question arises as to what does “plant and machinery” mean? Does it mean what is fabricated out of steel items, some bought-out items of steel and brought to site and erected, installed and commissioned at the Works/Factory Site or could it be something else? In order to find answer, we have to look the following judgments of Hon’ble Apex Court and that of different High Courts.
26: The Hon’ble Supreme Court in the case of  Scientific  Engineering House Private Limited v. Commissioner of Income Tax, Andhra Pradesh, (1986) 157 ITR 0086 (SC), held as under:
"10. In deciding whether a 'building' or a structure is a plant, the functional test has to be applied as indicated in the said decisions. If the 'building' is an apparatus or tool used by the Assessee for carrying on the business or manufacturing activity, then it would be part of the 'plant'.
11. Therefore, the word 'installed' is used in connection with the words ‘plant and machinery’, can also refer to 'installation' of a factory building. Therefore, the mere use of the word 'installed' with reference to 'plant and Machinery' is not sufficient to exclude the factory building, from the scope of the 'plant and machinery' used in the Notification dated 15.10.1981.
27: The Supreme Court in the case of CIT vs. Taj Mahal Hotel, Secunderabad (12.08.1971 - SC) : MANU/SC/0239/1971
 
Land, buildings, machinery, apparatus and fixtures employed in carrying on trade or other industrial business....
28: The Supreme Court in the case of CIT vs. Dr. B.Venkata Rao MANU/SC/1284/1999 : [2000] 243 ITR 81, has held that if it was found that the 'building' or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, amounted to a 'plant' but where the structure played no part in the carrying on these activities but merely constituted a place where they were carried on, 'building' could not be regarded as a 'plant'.
29: The Supreme Court in the case of Anand Theatres MANU/SC/0409/2000 : [2000] 244 ITR 192 (SC), has observed that where a building that was used as a hotel or a cinema theatre could be given depreciation on the basis that it was a 'plant' and it was in relation to that question that the court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or a cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the court said: "To differentiate a building for grant of additional depreciation by holding it to be a 'plant' in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable." This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and will not always apply otherwise.
30: Moradabad Toll Road Co. Ltd. vs. Assistant Commissioner of Income Tax (05.11.2014 - DELHC) : MANU/DE/2962/2014
 
RECORDS TO BE MAINTAINED UNDER GST
 
31: Under GST, the activities of manufacture, provision of taxable service and sale of goods have a common law and hence, businesses can now maintain consolidated information which was maintained separately earlier. Under GST, every registered taxable person is required to maintain the following accounts:
 
1. Purchase Register should be maintained for all purchases made within a tax period for manufacturing of goods or provision of services.
2. Sales Register should be maintained for all the sales made within the tax period.
3. Stock Register containing correct stock of inventory available at any given point of time should be maintained.
4. Register for input tax credit availed should be maintained to mention the details of input tax credit availed for a given period.
5. Output Tax Liability Register which should mention the details of GST liability outstanding to be adjusted against input credit or paid out directly.
6. Output tax paid Register which should mention the details of GST paid for a particular tax period.
7. Register of goods produced which contains the details of goods manufactured in a factory or production house. It should be maintained by every assesse carrying out manufacturing activity.
 
32: In addition to maintaining the accounts specified above,  a  registered person, whose turnover during the financial year exceeds Rs.
1 crore, is required to get the accounts audited by a chartered accountant or cost accountant and submit a copy of the audited annual accounts and a reconciliation statement in Form GSTR-9B while filing the annual return in Form GSTR-9.
 
33: Every registered person is required to retain account for five years from the due date of filing annual returns for the year to which the account and records pertain.
 
34: In view of the enormous potential in  the  Hospitality  Sector and also in view of the ever increasing size of the  foreign tourists of various categories viz. (i) industry (ii) business (ii) medical (iv) pilgrimage (v) government business
 
(vi) political business. Therefore, it is absolutely imperative that the Government must, by their policies, give philip to this Sector and tap the enormous opportunities coming soon.