Kerala AAR Defines GST Rates: 5% for Counter Sales, 18% for Hotel Premises

By: Admin|August 09, 2024|Categories: GST Recent News

Introduction

Devalokam Bakery, a well-known Ernakulam-based establishment, has recently received a significant ruling from the Kerala Authority for Advance Ruling (AAR) regarding the GST applicability on its services. This ruling clarifies the tax treatment of its cooked items sold through a separate counter. In this post, we delve into the specifics of the AAR’s decision and how it affects GST rates for similar businesses.

Background

Devalokam Bakery, renowned for its diverse bakery products, also offers a range of cooked items such as Pani Puri, Masala Chat, Punjabi Lassi, Sev Puri, Samosa Chat, Vada Pav, and Pav Bhaji. These items are sold at a separate counter in front of the bakery. The shop approached the AAR to determine if these sales qualify as ‘restaurant services’ and what GST rate would apply.

AAR’s Ruling

The AAR has ruled that the sale of these cooked items through a separate counter constitutes ‘services provided by restaurants.’ The tax rate for such services can vary:

  • 5% GST Rate: If the counter is located outside hotels, inns, guest houses, clubs, or similar commercial places meant for residential or lodging purposes.
  • 18% GST Rate: If the counter is situated in a hotel where the room tariff is ₹7,500 or more per unit per day.

The ruling confirms that these services fall under the Harmonised System of Nomenclature (HSN) code 996331, covering restaurant services including takeaway, room service, and door delivery.

Implications for Devalokam Bakery

For Devalokam Bakery, this means that their sales are categorized as ‘restaurant services’ and are subject to GST rates based on specific conditions:

  • Without Brand Name Sales: Cooked items sold without branding through the separate counter will attract a 5% GST rate if not located in high-tariff hotels.
  • High-Tariff Hotels: If the separate counter is in a hotel with a room tariff of ₹7,500 or more, the GST rate will increase to 18%.

Key Considerations

  • Tax Rates: The GST rate of 5% applies to most cases unless the counter is part of a high-tariff hotel. The higher rate of 18% is applicable in premium hospitality settings.
  • Input Tax Credit (ITC): The GST rate is also subject to whether input tax credit has been utilized. If ITC has not been claimed, a GST rate of 5% will be applicable under regular and composite registration.

Legal Framework

The AAR and AAAR (Appellate Authority for Advance Ruling) rulings are authoritative but apply specifically to the applicants and jurisdictional tax officers. They serve as guidance in similar cases but do not set binding precedents. However, they can influence policy changes if challenged in higher courts like the High Court or Supreme Court.

Conclusion

Devalokam Bakery’s ruling provides valuable insights into the GST treatment of restaurant services and highlights the importance of understanding tax implications based on the location and nature of the service. Businesses in similar scenarios should carefully evaluate their GST obligations to ensure compliance and optimize tax rates effectively.

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