Restaurants that have offset input tax credit (ITC) in respect of liquor sales will be impacted by a recent goods and services tax (GST) advance ruling given by the West Bengal bench. In this regard, the GST-Authority for Advance Rulings (GST-AAR) has held that the applicant would have to reverse the ITC. While advance rulings do not set a judicial precedent, they do influence tax assessments.
Karnani FNB Specialities, the applicant, operated a lounge bar called ‘The Grid’. It also provided catering services as well as banquet renting services. It submitted to the AAR that as sale of liquor (aka, alcohol meant for human consumption) was outside the ambit of the GST, it is not liable to reverse the ITC. The AAR bench did not agree with this view.
The AAR bench held that section 17 (2) of the GST Act, read with rule 42, allows a GST-registered taxpayer to utilise ITC to the extent of input tax paid on inputs and input services that are used for making taxable supplies including zero-rated supplies. However, credit of input tax attributable to exempt supplies is to be reversed according to the prescribed formula. As the AAR bench held the sale of liquor to be an exempt supply, it ruled that the applicant would have to reverse the ITC attributed to the exempt supply.