The restaurant and the abolished 18% GST rate
🍽️ Nandita Borah, [age not stated], runs a 60-seat Assamese restaurant in Guwahati split between an air-conditioned inner hall and an open-air courtyard. She filed GST returns correctly—5% on both zones (restaurant service). An audit letter arrived: the AC-zone revenue must be charged at 18%, as it was before 2017. The demand was for three years of alleged under-collection at 18% plus interest and penalties. The problem: the 18% GST rate for AC-space dining had been abolished in July 2017. GST Council had collapsed multiple service categories into a unified 5% rate. The audit notice cited a rate that no longer existed. She had been filing correctly all along.
🚨 The problem
The GST Council's July 2017 rationalization brought all restaurant services under a unified 5% rate, regardless of AC/non-AC zoning. The earlier rate structure (17% for AC, 12% for non-AC) had been complex and unpopular. By 2017, a single 5% rate for all restaurant dine-in was the law. But the audit officer's notice treated the AC zone as if the old rate still applied. This is either a template-error (automated notice using outdated classifications) or a knowledge-gap (the auditor did not verify which GST rates applied in which periods). Either way, the demand was for tax at a rate that had not been law for six years.
🚀 How GabFORGE helped
Nandita started reading the notices carefully:
- 🔍 Identified the rate-applicability error. The demand cited 18% for AC-zone revenue covering FY 2022-23, 2023-24, and 2024-25. GST Council Circular No. 26/2017 (July 2017) unified all restaurant service at 5%, regardless of ambiance. The notice had been issued using pre-2017 classifications.
- 💬 Found the correct defence. GST Council Circular No. 15/2017 and Circular No. 26/2017 are definitive. FSSAI licence classification was secondary; GST rate depends on the supply nature (dine-in service), not AC/non-AC zoning post-2017.
- 📞 Documented the timeline. She filed her DRC-01A response citing the two circulars, attaching her GSTR-9 annual returns showing the 5% rate applied across all dine-in, and noting that her returns matched the published GST rates for every year under dispute.
The audit officer reviewed the response and withdrew the demand. No tax was owed. The notice was closed.
🇮🇳 Why this matters
GST rate rationalization happened in 2017. Most operators filed correctly after that date. But audit templates sometimes reference pre-2017 rate structures, and when a template-generated notice arrives citing a rate that is no longer law, the operator has to actively argue that the law changed, not that they did wrong. The notice said "18%"; she had to say "yes, once, but not anymore." For a restaurant owner, this requires reading the GST Council circulars and understanding the timeline, not just accepting the auditor's classification. The agent read the circulars and said: the rate you applied is correct because here is when the rate changed.
The long version has the audit letter's shock, the moment Nandita checked the GST Council circulars on the portal, the DRC-01A response, and her accountant's relief when the notice was withdrawn.