In 23rd meeting of GST Council, it was decided to reduce the tax rate on restaurant services with no facility of ITC. Notification no. 46/2017-Central Tax (Rate) dated 14-11-2017 has been issued to implement this decision. This notification prescribes the rate of tax at 2.5% CGST on standalone restaurants and restaurants situated in hotel, club, guest house, etc. which has declared tariff of any room less than Rs. 7500/-. This rate is subject to the condition that no ITC is availed on the goods and services used for providing this service. This notification is effective from 15.11.2017. The assessees falling in this category were availing the ITC upto 14.11.2017. Therefore, they had availed the ITC on the stock of goods lying with them as on 14.11.2017.
One school of thought is of view that the said ITC lying in the Electronic credit ledger is liable to be reversed. This view is supported by stating that the assessee have claimed the ITC on the goods and services which are used in supplying the goods or services on 15.11.2017 & onwards. Therefore, since the benefit of ITC has already been claimed on the inward supplies of goods and services, the benefit of concessional rate is not admissible as the condition attached to this notification is not satisfied.
In the case of EICHER MOTORS LTD. Versus UNION OF INDIA [1999 (106) E.L.T. 3 (S.C.)], Hon'ble Supreme Court has held that the right to the credit has become absolute at any rate when the input is used in the manufacture of the final product. The basic postulate, that the scheme is merely being altered and, therefore, does not have any retrospective or retro-active effect. In view of this decision, we can conclude that the once ITC is legitimately availed, it cannot be taken back.
Similarly, Hon'ble Rajasthan High Court in the case of SHANKESHWAR FABRICS PRIVATE LTD. Versus UNION OF INDIA [2002 (142) E.L.T. 42 (Raj.)] has held that "Right to Modvat credit accrues to assessee on the date he pays tax on raw materials or inputs - Credit having been taken by assessee, Clause 5 of the notification ibid not to be given retrospective effect so as to nullify Modvat credit earned by assessee."
In the instant case of High Court, the appellant shifted from normal duty to compounded levy scheme and it was pleaded by assessee that his product is not exempted and he has shifted from one mode payment of duty to another mode of payment of duty. The Government can restrict the taking of Cenvat credit from a particular date but the right earned cannot be taken back.
In view of the above discussed decisions given by Hon'ble Supreme Court and High Court, we can safely claim that Cenvat credit is the right accruing to the assessee on the date of payment of tax on raw materials. Once it is taken, it cannot be demanded back without authority of law. Therefore, demanding back the rightfully availed credit without any specific provision in law is not viable. It is worthwhile to mention here that the system of reversal of ITC is there only if the supply becomes wholly exempted. There is no such provision if the partial exemption is granted, i.e. rate is reduced to some extent.
In view of above discussion, in absence of any specific provision in this regard, we can safely claim that the decision of Supreme Court as discussed above is still applicable and any demand on the credit rightfully availed will not survive.