Addressing the restriction of input tax credit (ITC) on sale of alcohol in restaurant premises, the advance ruling authority confirmed credit reversal by treating it as ‘non-taxable’ supply under GST.

Engaged in the restaurant business alongside catering and banquet renting services, the applicant served alcohol to customers. It argued that ITC reversal on sale of liquor for human consumption lacks legislative competence since it cannot fall under the purview of “supply” as defined under Section 7 of GST Act.

At present, liquor for human consumption has been kept outside GST. Thus, the question was whether sale of alcohol can be termed as “supply”. Is it ‘leviable’ or ‘not leviable’ under GST? Since the sale cannot be termed as “supply” under GST, there is no question of treating it as either exempt supply or non-taxable supply.

Discarding the above contentions, West Bengal authorities held that GST shall not be levied on liquor for human consumption, excluding it from the levy and collection provisions of GST. Consequently, alcohol for human consumption fits within the ambit of supply on which GST is not leviable, qualifying as ‘non-taxable supply’.

Though rulings under GST are binding only on the applicant, they certainly have persuasive value. Restaurants are currently not eligible to claim ITC except in the case of units situated in large hotels with room fare exceeding ₹7,500 per night. However, for such large hotels as well as standalone restaurants providing multiple services in addition to eatery and sale of alcohol, such as banquet renting, where ITC is claimed at present or in the past, it would be imperative to revisit the ITC reversal position owing to this recent ruling, as also the interest implication where ITC is claimed and utilised.

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(The writer is Associate Director-Indirect Tax, Nangia Andersen LLP)