Tour operators set to get GST relief under new ‘margin scheme’

Currently, a 5% GST is levied on gross tour cost without the facility of input tax credit.

Indian ice-cream manufacturers Association had appealed for regularisation of 5% GST paid prior to October 2021 when it was clarified that ice-cream parlours attract 18% GST with ITC.
Indian ice-cream manufacturers Association had appealed for regularisation of 5% GST paid prior to October 2021 when it was clarified that ice-cream parlours attract 18% GST with ITC.

To reduce the tax incidence in the tour and hospitality sector, the fitment committee of the Goods and Service Tax (GST) Council has suggested levying tax on the margins made by tour operators at a suitable rate.

Currently, a 5% GST is levied on gross tour cost without the facility of input tax credit.

The panel also suggested “regularising” 5% GST paid by ice-cream parlours without input tax credit (ITC) before October 2021. The GST on ice-cream parlours will, however, remain at 18% with ITC. There will not be any refund for parlours which have paid the tax at 18% in the period till October last year.

These recommendations will be considered by the GST Council which will meet in Chandigarh on June 28-29.

Given the adverse impact on the tourism sector due to the pandemic, the panel has suggested a ‘margin scheme’ for tour operators under which GST has to be paid on value arrived at on a deemed value basis as a certain percentage of the gross tour cost representing fair competitive margin. The margin scheme should be all-inclusive or on hotel accomodation or transport. The move may significantly reduce tax incidence on tour operators.

A section of ice-cream parlours were under impression that they are covered under restaurant services and have accordingly been collecting and paying 5% GST since July 1, 2017 without ITC. Since the sector has been badly hit by the pandemic, to discharge the differential of 13% for the past period from their own funds would have been onerous for it. Indian ice-cream manufacturers Association had appealed for regularisation of 5% GST paid prior to October 2021 when it was clarified that ice-cream parlours attract 18% GST with ITC.

These are part of the agenda circulated to states in two volumes ahead of the Council meeting. The first volume with 255 pages deals with clarification on claiming of refund under inverted duty structure, amendment in the formula for calculation of refund for unutilised ITC on account of inverted duty structure, authority to issue recurring show-cause notices to both CGST and SGST authorities irrespective of domain assigned to each other, compulsory registration of those supplying goods or services through e-commerce operators and development of new returns system.

The second volume, with 279 pages, deals with recommendations of the law committee and fitment committee.
In view of ruling by tax tribunals that storage of warehousing of cotton in bales or ginned form is not exempt from GST, the fitment panel suggested coverage of the item under raw vegetable fibres such as cotton and be exempted from GST.

Among others, it has also been suggested to clarify that the import and leasing of hovercraft inside and outside GIFT City are exempted from IGST.

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