1.Mr. Rohan Shah, learned counsel with Mr. Bhavesh B. Chokshi and Mr. Mayank Jain, learned advocates for the petitioners invited the attention of the court to the impugned notification dated 14th November, 2017 and submitted that by virtue of the said notification the rate of tax for the restaurant sector has been fixed at 2.5 % without any input tax credit.

2. Reference was made to the Explanation inserted vide the said notification whereby it is inter alia clarified that supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant shall attract State tax @ 2.5% without any input tax credit under item (1) and shall not be levied at the rate specified under that entry. It was submitted that for the first time such rate has been made mandatory, that is, the option to pay 18% GST with full ITC has been removed for the restaurant sector. It was submitted that thus, the Explanation takes away the right of the restaurant sector to avail the option of paying higher rate of tax and availing input tax credit.

3. Next it was submitted that the notification has been issued in exercise of powers conferred under sub-section(1) of section 9, sub-section (1) of section 11, sub-section (5) of section 15 and subsection (1) of section 16 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”). Referring to sub-section (1) of section 16 of the CGST Act, it was pointed out that the same provides that every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49 be entitled to take credit of input tax charged on any supply of goods or services or both, to mean which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. Reference was made to sub-section (87) of section 2 of the CGST Act which defines the expression prescribed to mean “prescribed” by rules made under the Act on the recommendations of the council.

4. It was submitted that in the present case, the provision whereby the right of the petitioner is restricted is introduced by virtue of a notification and is not prescribed by the rules. Moreover, under sub-section (1) of section 16 of the CGST Act, a condition or a restriction can be imposed; however, it is not permissible to deny/extinguish the right to avail of credit thereunder.

5. It was submitted that the Explanation is also arbitrary inasmuch as, in case of other services, there is an option to pay a higher rate of tax and avail of input tax credit, whereas in case of the restaurant sector, such option has not been granted which amounts to total denial of input tax credit.

6. Having regard to the submissions advanced by learned counsel for the petitioner, issue notice, returnable on 11th December 2019. In the meanwhile, the respondent shall consider and report to this court as to what amount can be taken to secure to the petitioners the option to discharge GST either at the rate of 18% with full input tax credit or at the rate of 5% without input tax credit. 7

Direct service, is permitted.