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The applicant is required to reverse input tax credit (‘ITC’) in terms of sub-section (2) of section 17 of the GST Act read with Rule 42 of the GST Rules for sale of alcoholic liquor for human consumption.

Input tax credit— Section 17 of CGST Act— In the instant case, the applicant is engaged in the business of providing restaurant services from its lounge bar called “The GRID” and is also providing catering services as well as banquet renting services. Along with such supplies or on a standalone basis, at times, the applicant is also engaged in selling/serving of alcoholic liquor for human consumption to its customers.

The applicant has made this application and raised following question—

(i) Whether the Constitution of India has conferred any power onto the Parliament to legislate on sale of alcoholic liquor for human consumption with reference to the Goods and Service tax regime, considering the provision of Article 246A read with Article 366(12A)?

(ii) If the answer to question (1) is in the negative, then whether the Central Goods and Services Tax Act, 2017(CGST Act) can directly or indirectly deal with aspects touching upon sale of alcoholic liquor for human consumption by the applicant either with reference to levy of tax on such sale or with reference to reversal of credit solely because the applicant is effecting sale of such alcoholic liquor?

(iii) Under these circumstances, whether the definition of exempt supply as provided under section 2(47) of the CGST Act, read with definition of the term ‘non-taxable supply’ under section 2(78) can therefore include sale of alcoholic liquor for human consumption by the applicant?

(iv) Whether in order to qualify as non-taxable supply under section 2(78), a transaction must first qualify as supply as defined in section 7 of the CGST Act read with Article 246A and Article 366(12A) of the Constitution and as such therefore, sale of alcoholic liquor for human consumption cannot be said to qualify as a ‘supply’ for the above purposes under the ambit of the CGST Act.

(v) Consequently, whether the applicant is obliged to reverse input tax credit (ITC) under section 17(2) of the CGST Act read with rule 42 of the Central Goods and Services Tax Rules, 2017 (CGST Rules) in view of the sale of alcoholic liquor for human consumption effected by it at its premises under the facts & circumstances of the present case?

Since tax is not leviable on supply of alcoholic liquor for human consumption under the GST Act, there cannot be any inward supply to the applicant of the said item on which tax is to be charged by its supplier or the applicant is liable to pay tax under reverse charge mechanism. We reiterate that input tax, in relation to a registered person means the tax which is charged on his input, input services and capital goods while output tax, in relation to a taxable person means the tax chargeable under the GST Act on taxable supply of goods or services or both made by the taxable person. Thus reversal of tax charged on inward supplies which are altogether different from outward exempted supplies of alcoholic liquor for human consumption would no way lead to discharging of GST liability on outward supply.

Held that— Under the facts & circumstances of the present case, the applicant is required to reverse input tax credit (‘ITC’) in terms of sub-section (2) of section 17 of the GST Act read with Rule 42 of the GST Rules for sale of alcoholic liquor for human consumption.