In this article, we shall discuss about availing of input tax credit (ITC) on hotel accommodation / stay services under GST. One of the objectives of the introduction of GST regime was the seamless flow of credits in order to avoid cascading of taxes. However, this motto of GST law is somewhat impacted due to the blocking of credit in certain situations provided in Section 17(5) of the CGST Act.
Further in some other situations also input tax credit may not be availed despite the expenditure being incurred for business purposes and for taxable supplies. One such situation is stay in a hotel situated in a State / UT other than State / UT where the recipient of hotel accommodation/stay is located.
The above position arises as GST is a destination-based tax i.e. consumption tax, which means the tax will be levied where goods and services are consumed and will accrue to such State. Such place of consumption is referred to as ‘place of supply’ under GST Law.
Further as per Section 7 and 8 of the IGST Act, 2017, ‘place of supply’ determines whether a supply is intra-State i.e. where the location of supplier and place of supply are in the same State / UT or inter-State i.e. where the location of the supplier and place of supply are in different States.
We should be knowing that in case intra-State supply, CGST and SGST is applicable, whereas in the case inter-State supply, IGST will apply.
In the above backdrop let us discuss about the input tax credit on hotel accommodation/stay services.
Place of supply / nature of supply of hotel accommodation / stay services:
The place of supply of hotel accommodation services is determined as per Section 12(3) (b) of IGST Act, 2017 which is reproduced below:
“the place of supply of services by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.”
As in the case of the hotel the location of the supplier as well the location of the immovable property i.e. hotel will be in the same State , such a supply will always be regarded as intra-State supply and thus such supplier will in cases charge CGST + SGST, irrespective of the location of the recipient i.e. place where such recipient is registered. Let’s understand this with help of an example:
Illustration 1:
An employee of X Ltd, which is registered in Delhi went for an official tour to Mumbai and stayed in a Hotel of Y Ltd. In such a case although X Ltd is GST registered in Delhi and even if its Delhi address is entered in Invoice, Y Ltd will charge CGST + SGST only as in this case the location of supplier as well as place of supply are in same State i.e. Maharashtra.
Relevant Advance Ruling:
The above discussion made is reinforced by the case of Gogte Infrastructure Development Corporation Ltd. (AAR Karnataka); Advance Ruling No. KAR ADRG 2/2018, wherein the Hon’ble AAR has held as follows:
- The place of provision of services in case of Hotel has been prescribed under the Act location of the Hotel’ the rendition of services of restaurant, short term accommodation and Banqueting / conferencing cannot be said to have been ‘imported or procured’ into SEZ Unit/Developer. Hence, by no stretch of imagination and therefore, in the instant case, the supply is intra state supply.
- The Hotel Accommodation & Restaurant services being provided by the Applicant, within the premises of the Hotel, to the employees & guests of SEZ units, can not be treated as supply of goods & services to SEZ units in Karnataka & hence the intra state supply and are taxable accordingly.
Input Tax Credit (ITC) on Hotel Accommodation:
In case hotel accommodation has been used for business purposes and taxable supplies, Input Tax Credit thereon can be availed as the hotel accommodation services are not blocked under Section 17(5) of the CGST Act, 2017. However, availing of the input tax credit will hinge upon whether the hotel is located in State in which the recipient has taken registration or not. Let’s discuss.
Where State in which hotel is located and recipient is registered is same:
In such a case as the hotel shall be charging CGST + SGST of the State where the recipient is registered, there will be no impediment in availing of input tax credit subject to fulfilling of other conditions prescribed under Section 16 and 17 of the CGST Act, 2017.
Where State in which hotel is located and State of registration of recipient is same:
As discussed supra the place of supply in case of hotel accommodation services shall be the location where the hotel is located and in such cases the supplier will charge CGST + SGST even if the service recipient is registered in other State.
In above situation as CGST and SGST has been charged by supplier of other State the input tax credit thereof cannot be availed by the service recipient located in other State. In view of above under Illustration 1 as discussed supra, X Ltd registered in Delhi will not be able to avail input tax credit in respect of CGST + SGST charged by Y Ltd in Maharashtra.
The reason for the above conclusion is that as the recipient of hotel services is not registered in the State where the hotel is located, SGST and CGST paid on intra-state inward supply in such State are not ‘input tax’ to such recipient. Applicant cannot avail ITC or cannot adjust ITC of one State from the output liability of another State along with this the recipient cannot adjust GST paid in unregistered State for the payment of IGST.
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Relevant Advance Rulings:
The Hon’ble AAR has examined the issue in detail in the matter of Storm Communications Private Limited (GST AAR West Bengal), Order No. 39/WBAAR/2018-19 wherein it was held as follows:
The Applicant is not registered under Section 25(1) of the CGST Act in Tamil Nadu. The SGST and CGST paid on intra-state inward supply in Tamil Nadu are not, therefore, ‘input tax’ to the Applicant. The GST Act does not contain any concept of ‘input tax’ in relation to an unregistered person. No credit of it is, therefore, admissible under the GST Act. So, to answer in the Applicant’s language:
a. A person, registered in WB, cannot claim ITC for CGST & SGST of other states.
b. He cannot adjust the ITC of one state’s CGST for payment of another state’s CGST.
c. He cannot adjust the ITC of Tamil Nadu GST for payment of IGST, whereas he is not registered in Tamil Nadu.
Concluding remarks:
From the above deliberations, it should be clear that in case a person stays in a hotel located in the State where he is registered, input tax credit can be availed in respect of hotel accommodation/stay services, provided it is used for business purposes & taxable supplies and fulfillment of other conditions.
However where the hotel is located in other State, despite such stay is for business purposes, input tax credit thereon cannot be availed as the supplier, in this case, will charge CGST + SGST of the State where the Hotel is located and a registered person cannot avail ITC of CGST and GST of other States charged in the hotel bills. This view has been corroborated from an Advance Ruling on the issue.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
