QUESTION

A client has a hotel business ( Rooms on Rent). He serves Cold Drink to the customers on a complimentary basis. Now the question is whether he can take ITC of GST paid on Cold Drinks. if Yes, what to do with Cess?

ANSWER

FACTS OF THE CASE :

A hotel is giving complementary cold drinks along with rooms on rent. To decide whether ITC paid on input of cold drinks is eligible.

LAW APPLICABLE :
(i) Subsection 1 of Section 16 ,CGST ACT dictates that
"Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person."

(ii) Section 2(30) of CGST act defines Composite Supply as follows :
" '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 "

INTERPRETATION :
In the given case the output supply of the hotel is a composite supply under Section 2 (30) wherein cold-drinks/tea/coffee/water are provided along with the principle supply of Room given on rent. The customer is charged a single price (i.e. Room Tariff ) for all these naturally bundled supplies.

It is important to note here that cold-drinks/tea/coffee/water given to the customers who are taking room on rent cannot be considered Free of charge supplies because these are given only to customers who are taking room on rent and the same are not given to any person who walks in the hotel reception and does not avail any service from the hotel (i.e. does not take room on rent )

As per Section 16(1) of CGST Act, ITC shall be available on all the input and input services that are used in furtherance of business. Since cold-drinks/tea/coffee/water are used in course of furtherance of business for making a taxable supply (i.e. giving room on rent ) therefore the ITC and Cess on the same shall be eligible.

CONCLUSION :

The ITC on cold-drinks can be availed if all the conditions in Section 16(2) CGST are fulfilled. (Reply dt. 02/08/2021)