Analysis of change in definition of “Specified Premises” for the levy of GST on restaurant service
Analysis of Notification No. 5/2025 Central Tax (Rate) dated January 16, 2025, issued by the central government which has amended the definition of “specified premises” in Notification No. 11/2017 Central Tax (Rate) dated 28th June, 2017.
Notification Number 05/2015 Central Tax (Rate) dated 16th January, 2025
On the 16th of January, 2025, the Central Government, issued Notification No. 05/2025- Central Tax (Rate) effective from the 1st day of April 2025,-
By this notification, the central government has deleted the definition of declared tariff which was given in explanation of paragraph 4.
Further, the definition of “Specified premises” is substituted. The new definition is given below:-
Clause (xxxvi) “Specified premises”, for a financial year, means,-
| (a) | a premises from where the supplier has provided in the preceding financial year, ‘hotel accommodation’ service having the value of supply of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent; or | |
| (b) | a premises for which a registered person supplying ‘hotel accommodation’ service has filed a declaration, on or after the 1st of January and not later than 31st of March of the preceding financial year, declaring the said premises to be a specified premises; or | |
| (c) | a premises for which a person applying for registration has filed a declaration, within fifteen days of obtaining acknowledgement for the registration application, declaring the said premises to be a specified premises;”; |
The said notification refers to three declarations and a brief of these declarations is given below:
| S. No. | Head Note of Declaration | Annexure No. of Declaration | Purpose of Declaration |
| 1 | Declaration by a registered person supplying hotel accommodation service before the jurisdictional GST authority declaring the premises to be a ‘specified premises’. | Annexure-VII | OPT-IN DECLARATION FOR REGISTERED PERSON |
| 2 | Declaration by a person applying for registration before the jurisdictional GST authority declaring the premises to be a ‘specified premises’. | Annexure-VIII | OPT-IN DECLARATION FOR PERSON APPLYING FOR REGISTRATION |
| 3 | Declaration by a registered supplier of hotel accommodation service before the jurisdictional GST authority declaring the premises as not a ‘specified premises’. | Annexure-IX | OPT-OUT DECLARATION |
Analysis of the new definition of “Specified Premises”
| Clause | Requirement for filing of a declaration | Whether the person who is giving the declaration is providing accommodation service | Whether it will impact the rate of tax on Hotel Accommodation Service | Whether it will impact the rate of tax on Restaurant Service | Is there any reference to accommodation service in the clause |
| a. | No need to file any declaration as it is linked with the value of the supply of accommodation service per unit per day in the preceding financial year. | Yes | No | Yes, the rate of GST for Restaurant Service will be 18% with ITC( Effectively same rate as per current provision) | Yes |
| b. | Need to file a declaration between 1st Jan to 31st March in annexure VII by the supplier providing accommodation service. | Yes | No | Yes, the rate of GST for Restaurant Service will be 18% with ITC | Yes |
| c. | Need to file a declaration by a person applying for registration for premises within fifteen days of obtaining acknowledgement for the registration application. | No | No/NA | Yes, the rate of GST for Restaurant Service will be 18% with ITC | No. |
Issues arise from the definition of “Specified Premises”
From the definition given above, the following questions emerge regarding the definition of Specified Premises that need to be answered:
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Clauses A and B mention “Hotel Accommodation” Service, whereas Clause C does not. What is the reason for this? Could this be due to oversight, or is there another underlying reason? |
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Does Clause C refer to premises that have nothing to do with “Hotel Accommodation” Service, given that Clause C does not mention “Hotel Accommodation” Service? |
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Does the new definition of Specified Premises suggest that new standalone restaurant service providers can also opt for an 18% rate by submitting a new application for registration? |
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Does Clause C be interpreted to refer to standalone restaurants, regardless of whether they are located in premises where hotel accommodation services are provided or not? Even if the hotel accommodation service provider does not declare their premises as specified premises, the restaurant service provider has the option to declare their premises as specified premises. |
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Currently, specified premises are only associated with hotel accommodations. Can it be inferred from this notification that specified premises can now also include restaurant premises, in addition to hotel accommodations? |
Furthermore:
A person mentioned in Clause C needs to provide the following declaration as per Annexure VIII:
OPT-IN DECLARATION FOR PERSON APPLYING FOR REGISTRATION –
This is a declaration by a person applying for registration before the jurisdictional GST authority, declaring the premises to be ‘specified premises’.
If we read the heading in Annexure VIII, it indicates that this declaration is for a person who is not involved in hotel accommodation services, i.e., not located in premises providing “Hotel Accommodation” Services.
For OPT-OUT DECLARATION, there is another Annexure IX.
However, upon reading the heading of Annexure IX, it appears that this declaration is not for a person mentioned in Clause C who wants to opt-out, as Annexure IX is applicable to a registered supplier of hotel accommodation services. Please refer to the heading:
“Declaration by a registered supplier of hotel accommodation service before the jurisdictional GST authority declaring the premises as not a ‘specified premises’.”
Since Clause C does not mention “Hotel Accommodation” services, it can be presumed that Clause C will be applicable in the following two cases:
a. For premises where a person applying for new registration is providing restaurant services in a location offering hotel accommodation services, but the hotel accommodation service has not opted for specified premises status. In this case, the restaurant service provider can choose to opt for an 18% tax rate with ITC.
b. For premises where a person applying for new registration is a standalone restaurant and does not operate from any specified premises. In this scenario, the restaurant service provider can opt for an 18% tax rate with ITC.
Further more :
Based on the plain reading of Clause C if it is accepted as such that this clause C refers to standalone restaurants, then these standalone restaurants can never opt-out because Annexure-IX is meant for opt-out to a registered supplier of hotel accommodation services, not for anewly registered person who is not located in premises providing hotel accommodation services.
Furthermore, Clause C pertains to premises for which a person is applying for a new registration. However, this raises the question of why existing registered restaurants are not given any options, as Clause C specifically refers to new registrations.
Press Release dt 21.12.2024
3. To omit the definition of declared tariff and suitably amend the definition of specified premises (from the services rate and exemption notification) to link it with actual value of supply of any unit of accommodation provided by the hotel and to make the rate of GST applicable on restaurant services in such hotels, for a given financial year, dependent upon the ‘value of supply’ of units of accommodation made in the preceding financial year, i.e. 18% with. ITC if the ‘value of supply’ exceeded Rs. 7,500 for any unit of accommodation in the preceding financial year, and 5% without ITC otherwise. Further to give an option to pay tax on restaurant service in hotels at the rate of 18% with ITC, if the hotel so chooses, by giving a declaration to that effect on or before the beginning of the financial year or on obtaining registration. The above changes to be made effective from 01.04.2025 to avoid any transition difficulties.
In addition to the above issues, one important and interesting point is that the tax rate will be applied to restaurant services based on the status of the person providing “hotel accommodation” services. In other words, the option to file a declaration is given to the hotel accommodation service provider, but it impacts the tax rate for the person providing restaurant services. It means someone else does the work, but another person pays the price. In the author’s opinion, this option should have been given to the restaurant service provider instead of the hotel accommodation service provider. The above issues need to be addressed by the Government.
Conclusion
Following the 55th meeting of the GST Council, a new notification was supposed to be issued allowing restaurant service providers the option to pay tax at an 18% rate instead of 5%. However, based on the above analysis, it appears that the new Notification No. 05/2025, Central Tax (Rate) dated 16th January 2025, does not align with the lawmakers’ intentions. It can be inferred that the 18% tax rate is applicable only to those restaurants (providing hotel accommodation services), where the value of the accommodation is less than Rs. 7,500/- per unit per day, and the supplier of hotel accommodation service declare the premises as specified premises.
Limitation: The purpose of this article is for knowledge sharing purpose. Views expressed in this note are personal views of the author. The same should not be construed as professional advise
