Hotels Qualify as Industrial Consumers, GST Applicable on Institutional Sales Without ‘Not for Retail Sale’ Label: TN-AAR

The petitioner, M/s. Fairmacs Shipstores Private Limited is a wholesale company in Chennai that supplies liquor, frozen meat products, and food products in bulk to hotels, institutions, ships, and consulates etc. The main supplies include frozen meat like fish, chicken, etc. The company has branches in Bangalore, Vizag, and Kakinada. They also transfer goods between their Chennai and Bangalore branches and are registered for GST in both places. Their products are sold in packs of different sizes, like 1 kg, 2 kg, 3 kg and are marked “For Institutional Sale Only”.

Question Asked by Applicant

1. Whether hotels qualify as industrial/institutional consumers as per Rule 2bb and 2bc of the Legal Metrology (Packaged Commodities) Rules, 2011?

2. As supply to institutions is not classified and as ‘pre-packaged labelled’, as per Rule 3(b) of the Legal Metrology (Packaged Commodities) Rules, 2011, the applicant is of the opinion that such supplies are ‘Nil’ rated. Whether the applicant’s understanding that ITC cannot be availed, as such supplies are ‘Nil’ rated, is correct?

3. Supply to the Bangalore branch is wholly done by Chennai Head Office, and at Bangalore, they sell the products only to hotels or institutions. So, there will not be any output tax and they cannot claim ITC on inter-branch transfer. Whether GST is to be charged on inter-branch transfer?

4. The frozen meat products packed in individual packs of 1Kg, 2Kg, 3Kg etc., are sold to distributors with the marking For Institutional sale only’, which means distributors can sell these products only to hotels/Institutions. Whether the applicant should charge GST on such supplies to distributors?

Advance Ruling

As per the authority for advance ruling, Tamil Nadu:

• The hotel falls under the “industrial consumer” as per Rule 2(bb) of the Legal Metrology (Packaged Commodities) Rules, 2011.
• The packages do not have the required label “Not for Retail Sale“, so the supplies are not exempt from GST. Even if the conditions for nil-rated supply are later fulfilled, the Input Tax Credit (ITC) on inward supply cannot be claimed.
• For branch transfers, as the “Not for Retail Sale” label is reportedly not available in the packages, these supplies also do not qualify for exemption.
• As the “Not for Retail Sale” is not available on the packaging, and the applicant has not confirmed that the distributor is a wholesale dealer, the applicant must charge GST on these supplies to distributors.