Multi-Year GST Demand - Hospitality Business, ₹1.1 Cr

The Problem

A Hyderabad-based hospitality business operating a banquet hall and restaurant on the outskirts of Secunderabad had been paying GST at the composite levy rate of 5% (as applicable to restaurants with turnover below ₹1.5 Cr under the composition scheme) for four financial years.

The GST department issued a show cause notice cum demand order for ₹1.1 Cr covering FY 2018-19 through FY 2021-22, alleging that the business was not eligible for the composition scheme because:

1. Its turnover had exceeded the ₹1.5 Cr threshold in FY 2019-20
2. It operated both a restaurant service AND a banquet hall (event venue) — making it a "mixed supply" business not entirely eligible for restaurant composition rates
3. The correct classification for banquet hall services was 18% GST (as "accommodation and convention/event services") rather than 5%

The demand included differential GST, interest at 18% per annum, and 100% penalty — totalling ₹1.1 Cr.

What We Did

Turnover Threshold Defence We reviewed the turnover calculations and found that the department had incorrectly clubbed the turnover of a related catering entity (a proprietorship belonging to the owner's wife) with the main business. Under GST, turnover aggregation for composition eligibility applies only to entities under the same PAN — the wife's business had a separate PAN. With the correct calculation, the main entity's turnover remained below ₹1.5 Cr for two of the four contested years.

Service Classification Analysis For the mixed supply issue, we filed detailed submissions distinguishing the restaurant services (food and beverages consumed on premises) from the banquet hall services (venue rental). We argued that these were separately invoiced — food bills at 5% and venue rental separately — and did not constitute a "composite supply" or "mixed supply" under Section 8 of the CGST Act.

We relied on AAR rulings from Karnataka and Maharashtra where similar hospitality businesses were held to be providing separate and distinct services, eligible for separate rate treatment.

Industry Precedents We compiled 11 GST appellate authority and AAR decisions from across India on the restaurant vs. banquet classification question and presented them in a consolidated precedent memo to the Appellate Authority.

Penalty Challenge For the years where some differential GST was ultimately payable, we argued against the 100% penalty under Section 122 on the grounds that the classification question was genuinely contested — not a case of willful evasion. Multiple court rulings support the proposition that bona fide disputes on classification do not attract penalty.

The Result

The GST Appellate Authority granted relief for two financial years (where turnover was below threshold) and also accepted the separate classification of restaurant and venue services for the remaining years. The demand was reduced from ₹1.1 Cr to ₹32L — a reduction of ₹78L. Penalty was waived on the accepted portion. The balance ₹32L was paid in six monthly instalments negotiated with the department.

Key Takeaway: Hospitality businesses must carefully classify each revenue stream under GST — venue rental, food service, and accommodation have different rates and eligibility rules. Mixing them on a single invoice or under a single classification can create multi-year exposure if audited.