Hotel Industry –GST Issues Relating to Invoice & Free Supplies

‘A’ is an entrepreneur from Gujarat. His Company owns a Five Star Hotel, Marriage Garden & a Convention Centre in M.P. As the GST is still at nascent stage, he has following three queries:

Query No. 1:

Hotel is having different categories of rooms. The tariff of Executive Room is Rs.10000.00 per night over which GST @ 28% is payable. This tariff includes complimentary breakfast. But at times the customer also takes lunch/ dinner at the Hotel restaurant over which GST @ 18% is payable. At the time of check out a single bill is issued to the customer containing charges for room and restaurant bill. Recently one of the GST authority had visited the Hotel and has advised for charging 28% on the entire bill. What is the correct position?

Reply :

Hotel is charging 18% on restaurant sales & 28% on room sales having tariff  Rs.10000.00 i.e. exceeding Rs.7500.00.Both are separate services & invoice for the same is separately accounted for in the  ledger.

Now while issuing a single bill at the checkout time , whether both services can be taxed at different rates or higher rate is to be applied while issuing the bill can be ascertained on examining the relevant provisions of the GST Act which deals with Composite Supply & Mixed Supply.

As per the provisions of the Act a “Composite Supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

Similarly  ‘Mixed Supply’ means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. For example, A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

In case of composite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply & accordingly prescribed rate of tax rate shall be applicable.

In case of a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax & accordingly higher rate of tax shall be applicable.

In the instant case, if room rent is inclusive of breakfast or other food services, then it is in the category of naturally bundled services & accordingly GST rate applicable on room rent i.e. 28 % shall also be applicable on other services.

However if the customer avails food services in the restaurant apart from room services which are not part of the room package, then it will be a separate contract for room accommodation service.

It is immaterial that the hotel is charging to the customer through a single ledger posting. It is for the accounting convenience to charge both the amount in a single invoice. It is not a naturally bundled services hence cannot be treated as composite supply.

Further the price for room accommodation & restaurant services are separately mentioned, separately charged & collected, it is not the case of single price for two or more individual supplies of goods or services, or any combination thereof, hence it cannot be treated as mixed supply.

Hence the hotel is correctly charging the GST on room accommodation services @ 28% & restaurant services @ 18%, although it is issuing one single tax invoice.

Query No. 2 : 

The Company’s Corporate office is situated in Gujarat . Company’s Directors, Executive Employees, Auditors & others visit the Hotel in M.P. for their respective official works.  Room for their stay and food is supplied to them at free of cost.  Whether tax is chargeable on the Services provided to them, though no tax invoice is issued to them ?

Reply :

The situation is quite peculiar in the common parlance. Presently many Hotels are not paying GST in case of room accommodation & other services provided to Directors / Company Executives / Auditors on the value of  their stay in hotels.

For understanding the tax incidence on this transaction it is pertinent to understand the concept of ‘related person ‘ in GST. As per the provisions  Directors & Company Executives are deemed as “related persons” .

As per Schedule I of CGST Act / SGST Act, Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business, shall be treated as Supply even if it is made without consideration.

Hence, in the given case, if supply is made to Directors / Company’s executive without any consideration, then it will be in the category of supply made to “related persons”, hence GST will be  payable on such supply & accordingly as per valuation rules, open market value of such supply shall be the value of supply made to related persons.

In the case of supply made to Auditor without any consideration, the same will not fall in the category of “related persons”, hence GST will not be  payable on value of such supply. However the input tax credit availed in relation to such supply has to be reversed in accordance with Section 17(5) & Rule 42.

Query No. 3 : 

Hotel is supplying free meals to the staff. This is customary in all big Hotels & this is not a sale. In the books of accounts the Hotel is treating this expenditure under the head ‘Staff Welfare’. Is there any GST liability on this transaction ?

Reply :

As per the provisions of GST Act, this transaction will be treated as supply. Hence the Hotel will be required to reverse the input tax credit on actual cost incurred on free meals provided to staff, on monthly basis.

GST Council extends GST3B Filing Due Date to 22nd February for January 2019

Today is last date to file GSTR 3b for the month of January 2019 and GST portal is not working since morning. It was expected that GST council may extend the Due date of filing GSTR 3B for the month of January 2019. On the GST website and twitter channel of CNBC-TV18 it has mentioned that GST Council has extended due date of filing GSTR 3B by 2 days.  Official information in this regards is yet to come. 
GSTR 3B Filing Due Date Extended by 2 days and for J&k it has extended till 28th February 2019 for January 2019. Official Notification is yet to Come in this regards.  

9 things to know about Composition Scheme under GST

There are high provisions under GST for returns, tax payments, and details to be submitted by registered persons which cannot be complied with by small suppliers and manufacturers.  A composition scheme under GST has been provided as an option for those small suppliers and manufacturers to pay amount (not tax), in lieu of tax payable in normal levy. This scheme provide for less number of returns, less number of compliance and less maintenance of books of accounts etc. A registered person can opt for this option (Composition Scheme under GST) subject to certain conditions specified in the scheme.

1. Eligible Persons for Composition Scheme under GST: Person must be a registered person, whose aggregate turnover in preceding financial year did not exceed seventy five lakh (75 lakhs) rupees. For special category states except Uttarakhand, this turnover limit has been reduced to fifty lakh (50 lakhs) rupees. If a registered person, having the same PAN, has more than one registration, whether in same state or in two different states as Head office and branch, then both will have to opt for composition scheme. A composition supplier is allowed to make purchases from outside state.

2. Non-eligibility for GST Composition Scheme: A person shall not be eligible to opt for this scheme if-

a) Engaged in supply of services other than supplies of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) i.e. Restaurant services;

b) Engaged in making any supply of goods which are not leviable to tax under this act;

c) Engaged in making any inter-state outward supplies of goods;

d) Engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source u/s 52; or

e) Manufacturer of notified goods u/s 10(2)(e) [CGST] i.e.-

♦ Ice Cream and other edible ice whether or not containing cocoa,

♦ Pan Masala, or

♦ Tobacco and manufactured tobacco substitutes.

3. Tax Rate Structure under GST Composition Schemes: Three rates of tax have been prescribed for composition scheme which are as given below- 

Sr. No.	Category of registered person	Rate of Tax  (SGST+CGST)
1.	Manufacturers, other than notified manufacturers	2%
2.	Suppliers- Restaurant Services [Schedule II, Para 6 Clause (b)]	5%
3.	Others	1%

4. Restrictions and Conditions: The Person should comply with following conditions before exercising the option of composition scheme-

a) Not being a casual taxable person or a-non- resident taxable person;

b) Goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax u/s 9(4) i.e. under reverse charge mechanism; and

c) Not engaged in manufacturing of notified goods.

5. Timing for intimation of exercising option of GST Composition Scheme: A person, who wants to exercise option of this scheme, is required to intimate electronically through filing specified form in specified time limit. Person need not to file fresh intimation every year. Any intimation in respect of any place of business in any state or UT shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.

Sr. No.	Timing for exercising option of this scheme	Time Limit	Intimation Form
1	Migration	Prior to appointed day, but not later than 30 days or further extended period.	GST CMP-01
2	Opt for Composition in future	Prior to the commencement of the financial year	GST CMP-02
3	New Registration	Date of application for new registration	Part B of GST REG-01

 6. Effective Date for Composition Levy under GST: The option to pay thx under this scheme shall be effective from the date based upon the timing of exercising the option of this scheme.

Sr. No.	Timing for exercising option of this scheme	Effective Date
1	Migration	Appointed day
2	Opt for Composition in future	Beginning of Financial Year
3	New Registration	Date on which the person becomes liable to registration where the application for registration submitted within 30 days, if not, then date of grant of registration.

7. Person migrating to GST – A person, who has been granted registration on a provisional basis is required to complied with the following conditions-

a) File intimation electronically for opting for composition scheme prior to appointed day not later than 30 days or any further extended period. [GST-CMP-01]

b) Furnish details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under composition scheme within 60 days from the date on which the option for composition levy is exercised or any further extended period. [GST-CMP-03]

c) Migrating person cannot opt for this scheme if, goods held in stock by him on the appointed day have been-

♦ Purchased in the course of inter-state trade or commerce;

♦ Imported from a place outside India;

♦ Received from his branch situated outside the state; or

♦ Received from his agent or principal outside the state.

8. Withdrawal from Composition scheme: This option shall remain valid so long as he satisfies all the conditions. The option shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds specified limit or occurrence of event of ineligibility. After ineligibility, person shall file an intimation for withdrawal within 7 days. If registered person intends to withdraw from this scheme, then he has to file intimation before the date of such withdrawal. Person shall also issue tax invoices instead of Bill of Supply for every taxable supply made thereafter. If proper office has reason to believe that registered person was not eligible to opt for this scheme then he can also issue order of withdrawal after giving opportunity of being heard and such person will be liable to pay the differential amount of tax along with penalty.

9. Returns under Composition Scheme: Quarterly return [GSTR-4] is required to be filed by composition supplier till 18th of the month succeeding quarter. Composition supplier shall also be required to file annual return in Form GSTR-9A.

10 Changes in GST law by GST (Amendment) Act 2018

he Provisions of GST (Amendment) Act 2018 have been made applicable from 1st February 2019. Below is the gist of the amendments made thereon :

1. Definitions

i. Central Board of Excise & Customs (CBEC) has been substituted with Central Board of Indirect Taxes & Customs (CBIC)

ii. Following has been included in the definition of business : Activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club

iii. Definition of Business vertical has been removed

iv. It has been clarified that – “services” includes facilitating or arranging transactions in securities

2. Reverse Charge for supplies from unregistered to registered persons

Now only the goods or services, which will be notified by government, will be taxable under reverse charge, if supplied from unregistered person to the notified registered persons. Accordingly, coverage of this section is restricted now.

3. Composition Scheme:

1. Limit for composition scheme has been increased from Rs. 1 crores to Rs. 1.5 Crores

2. Composition dealers may now supply services of value not exceeding- 10% of turnover in a State or Union territory in the preceding financial year or 5 Lakhs, whichever is higher

3. Rate of tax on services by composition dealer- 0.5% and 0.5%- SGST and CGST

4. Inadmissible Input Tax Credits (ITC) under GST- Section 17(5) of CGST Act 2017

Following are amendments in regards to the same:

1. Earlier the ITC on all types of motor vehicles was restricted, however, the same has not been restricted only to motor vehicles having approved seating capacity up to 13 persons (including driver). However, it shall be allowed, If input service used for following taxable supplies:

a) further supply of such vehicles or conveyances

b) transportation of passengers

c) imparting training on such motor vehicles

2. ITC is not available on Vessels. However, it shall be allowed, if input service used for following taxable supplies:

a) further supply of such vessels & aircrafts

b) transportation of passengers

c) imparting training on navigating such vessels or flying aircrafts

d) transportation of goods

3. ITC has been blocked on Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft, as specified in clause (a) and (b) above

4. Restriction of ITC in following cases:

ITC not available on	Exceptions
Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft as referred in clause (a) & (aa) above, except when used for the purposes specified therein, life insurance and health insurance	When used in supply of similar nature of business
Membership of a club, health and fitness centre	NO EXCLUSION
Travel benefits extended to employees on vacation such as leave or home travel concession	If input service used for: a) employees, if made obligatory by government under any law

5. GST Registration –

1. Earlier every Electronic commerce operator was liable to mandatorily get registered under GST, however, such has now been made mandatory, only if he is liable to collect tax at source.

2. Earlier a person was not allowed to take multiple registrations within same state for same business vertical. Only different verticals were allowed to take separate registration. However, now multiple registrations can be taken within same state for same business & each of them shall be treated as distinct person.

3. During the ongoing process of cancellation of registration, there would be temporary suspension of registration. This would result into releasing the compliance burden while the cancellation of registration is under process.

6. Invoicing

Now consolidated debit notes / credit notes can be issued for more than one number of original invoices.

7. GST Audit

 The same is not applicable now to any Government Department, whose accounts are audited by Comptroller & Auditor General (C&AG) of India.

8. Place of Supply

1. New proviso has been inserted in Section 12 of IGST Act 2017, which states that the place of supply in case of transportation of goods to a place outside India shall be place of destination of such goods, i.e. place outside India. Accordingly, transportation of goods is not liable to GST when goods transported outside India from a place in India

2. As per the earlier provision of Section 13 of IGST Act 2017, tax exemption was available in case of job work services supplied in respect of goods which are temporarily imported into India only for the purpose of repairs and the said goods are exported back after such repairs.

However, amendment with effect from 1st Feb 2019 has been made to extent the tax exemption benefit in case of job work services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and the said goods are exported back after such repairs or treatment or process.
Accordingly, now the scope of exemption has been extended and covered all the process and treatment done on goods imported temporarily

9. Returns

It has been mentioned that Government may notify certain classes of registered persons who shall pay the tax due or part thereof as per the return on or before the last date on which he is required to furnish such return.

10. Input Tax Credit (ITC):

1. No reversal of common input tax credit is required on activities or transactions specified in schedule III other than sales of land and sale of building

2. New Section 43A has been introduced, which mentions to prescribe the procedure for furnishing return & availment of Input Tax Credit. It mentions that new rules may include that maximum ITC that can be utilized in that period shall not exceed 20% of ITC available.

3. The supplier and the recipient shall be jointly held liable for payment of tax or payment of input tax credit availed in relation to the outward supplies for which details have been furnished but the return has not been furnished.

4. The criteria for setting off of Input Tax Credit (ITC) has been changed by introduction of Section 49A & 49B

As per old rules, following was the priority of set-off of ITC was as below:

• For CGST Output – First set off thru ITC of CGST, then IGST
• For SGST Output – First set off thru ITC of SGST, then IGST
• For IGST Output – First set off thru ITC of IGST, then CGST & then SGST

As per CGST (Amendment) Act 2018, the priority of set-off of ITC is as below:

• For CGST Output- First set off thru ITC of IGST, then CGST
• For SGST Output – First set off thru ITC of IGST, then SGST
• For IGST Output – First set off thru ITC of IGST, then CGST & then SGST

Let us understand the same with help of an example:

Head	Output Liability	Input Tax Credit available (ITC)	As per old Set-off rules		As per revised Set-off rules (applicable from 1st Feb 2019)
			Paid thru ITC	Paid thru Cash	Paid thru ITC	Paid thru Cash
CGST	800	500	CGST- 500 IGST- 300	0	IGST- 800	0
SGST	400	200	SGST-200 IGST-200	0	SGST- 200	200
IGST	0	800	–	0	–

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Due date to file Form GSTR-7 for January extended to 28.02.2019

CBIC extends the time limit for furnishing the FORM GSTR-7 return by a registered person required to deduct tax at source under GST Law for the month of January, 2019 till the 28th day of February, 2019.

Ministry Of Finance
(Department Of Revenue)
(Central Board Of Indirect Taxes And Customs)
New Delhi

Notification No. 8/2019–Central Tax

Dated: 8th February, 2019

No.

G.S.R. 101(E).—In exercise of the powers conferred by sub-section (6) of section 39 read with section 168 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereinafter referred to as the said Act), the Commissioner hereby extends the time limit for furnishing the return by a registered person required to deduct tax at source under the provisions of section 51 of the said Act in FORM GSTR-7 of the Central Goods and Services Tax Rules, 2017 under sub-section (3) of section 39 of the said Act read with rule 66 of the Central Goods and Services Tax Rules, 2017 for the month of January, 2019 till the 28th day of February, 2019.

[F. No. 20/06/17/2018-GST (Pt. I)]

Dr. SREEPARVATHY S. L., Under Secy.

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Debit Notes in GST Law

Debit Notes in GST is an altogether different concept from the earlier practices. Under the GST Law, the debit note or a supplementary invoice is a convenient and legal method by which the value of the goods or services in the original tax invoice can be enhanced.

Background

As per GST Law, a supplier of goods or services or both is mandatorily required to issue a tax invoice. Sometimes, there could be situations where the supplier want to increase or to make addition in the tax invoice by the following reasons :

1. The Supplier has declared value which is less than the actual value of the goods or services or both provided.

2. The Supplier has declared a lower tax rate than what is applicable for the kind of the goods or services or both supplied.

3. The quantity received by the recipient (buyer) is more than what has been declared in the tax invoice.

4. Any other similar reasons.

In order to cover these kinds of situations the supplier is allowed to issue a Debit Note to the recipient (buyer). The debit note also includes supplementary invoice.

Note : When the movement of goods is involved, the debit note could not be issued. i.e. The debit note can not be taken as a mean of purchase returns.

Format

There is no prescribed format but debit note issued by a supplier must contain the following particulars, namely:

• name, address and Goods and Services Tax Identification Number of the supplier;
• nature of the document;
• a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;
• date of issue;
•  name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
• name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered;
• serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;
• value of taxable supply of goods or services, rate of tax and the amount of the tax debited to the recipient; and
• signature or digital signature of the supplier or his authorized representative.

Tax Liability

When the supplier issues debit note or a supplementary invoice, it creates additional tax liability. The treatment of a debit note or a supplementary invoice would be identical to the treatment of a tax invoice as far as returns and payment are concerned.

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Set off of Input Tax Credit (ITC) under GST from 1st February 2019

The criteria for setting off of Input Tax Credit (ITC) has been changed under GST thru Central Goods & Services Tax (Amendment) Act 2018, which has been made effective from 1st February 2019.

As per old rules, following was thepriority of set-off of ITC was as below:

• For CGST Output – First set off thru ITC of CGST, then IGST
• For SGST Output – First set off thru ITC of SGST, then IGST
• For IGST Output – First set off thru ITC of IGST, then CGST & then SGST

As per CGST (Amendment) Act 2018, the priority of set-off of ITC is as below:

• For CGST Output- First set off thru ITC of IGST, then CGST
• For SGST Output – First set off thru ITC of IGST, then SGST
• For IGST Output – First set off thru ITC of IGST, then CGST & then SGST
• Following new sections have been inserted thru CGST (Amendment) Act 2018:

As per Section 49A,

Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment.

As per Section 49B,

Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax.

Let us understand the same with help of an example:

Head	Output Liability	Input Tax Credit available (ITC)	As per old Set-off rules		As per revised Set-off rules (applicable from 1st Feb 2019)
			Paid thru ITC	Paid thru Cash	Paid thru ITC	Paid thru Cash
CGST	800	500	CGST- 500 IGST- 300	0	IGST- 800	0
SGST	400	200	SGST-200 IGST-200	0	SGST- 200	200
IGST	0	800	–	0	–