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18% GST for aerated water supplied in hotel restaurants, 28% for cigarettes: AAR

Shishir Sinha New Delhi | Updated on October 21, 2020

The Authority for Advance Ruling (AAR) of Tamil Nadu has held that supply of soft beverages (aerated water) in a restaurant located in the premises of a hotel can be taxed at 18 per cent, and cigarettes at 28 per cent.

In a matter relating to Mfar Hotels & Resorts Pvt Limited (popularly known as the Westin-Chennai), the AAR also ruled that liquor will not be taxable under the GST. However, free food supplied by the employer to its employees in the premises will attract GST at the rate of 18 per cent.

The applicant offers a variety of services such as rooms and suits, banquets, dining, spa, etc. On certain occasions, at the request of guests it supplies aerated water and cigarettes as separate items, and not as part of food in the buffet, and the billing of these items are separate.

After going through facts and hearings, the AAR said that with the applicant being a five-star hotel, which has a declared tariff of ₹7,500 or more and a restaurant with a licence to serve alcohol, the supply of soft beverages/aerated water (whether in person or through room service) by the restaurant located in the premises of the hotel will be taxable at 18 per cent.

It said that supply of tobacco products by the restaurant is not a composite supply, but involves supply of two individual supply of goods and supply of services of serving by the restaurant. Such a supply is a mixed supply. Hence, “the tax liability on 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.” As the rate on cigarette is 28 per cent, the same will follow.

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Clarifying the taxability of liquor, on which only VAT is being charged by the restaurant, the AAR held that it is a non-taxable supply. It also ruled that the supply of food to employees from the canteen on the premises of the hotel amounts to supply, liable to 18 per cent GST on the value as determined by law.

According to Harpreet Singh, Partner at KPMG, in case of supply of beverages/aerated water in restaurants, the supply is naturally bundled with services; while in the case of supply of cigarettes, supply and services are not naturally bundled is a peculiar observation.

“In restaurants which service liquor, it is quite common for guests to smoke with their drinks, and hence stating that the supply is not naturally bundled appears to be invidious,” he said.

Published on October 21, 2020

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