Restaurants asked not to charge GST on alcohol
The government on Tuesday cautioned hotels and restaurants against imposing the goods and services tax (GST) on food bill and then again charging value added tax (VAT) on alcohol.
Revenue Secretary Hasmukh Adhia clarified that the GST would be levied on the food bill, including service charge but excluding alcohol. The value of alcohol or alcohol products consumed would attract only VAT.
“Restaurants should not levy both VAT and GST on alcohol,” Adhia told reporters. His remarks came after reports of some restaurants charging both taxes on alcohol. Potable alcohol does not come under the GST.
Adhia also said eateries should cut rates on food items in their menu to reflect the benefit of being able to set off tax paid on inputs under the GST. “Most of the restaurants should revise downward the rate charged on food items in their menu because of ITC (input tax credit), which is now available. So, ITC should be accounted for now in the form of reduction in the value of supplies which they are giving,” he said.
Previously, a service tax was levied on the bill. But the tax the hotel or restaurant operators paid on inputs could not be set off against the tax on final bill. This facility, called input tax credit, is available in the GST regime.
For AC restaurants, the entire service tax (15 per cent) was not charged on the food bill under the old system, but only on 40 per cent because there was abatement of 60 per cent. So, it was 6 per cent (15% of 40%) of the food bill. Besides, VAT used to be imposed by states, which vary from states to states -- from 12.5 per cent to 14 per cent. There was no service tax in case of non-AC restaurants. So effectively, the total liability of service tax and VAT used to be almost same as the GST rate, but input tax credit is now available under the GST.
Upender Gupta, GST Commissioner, explained that if food bill, excluding alcohol, is ~500, ~100 is service charge and alcohol bill is ~1,000, then the GST should be levied only on ~600 and VAT on ~1,000.
VAT, as applicable in states, should be charged separately on alcohol served in the restaurant, he said. HASMUKH ADHIA