Based on a ruling given some months ago, Vigilance and Enforcement Department officials conducted a random check of some leading hotels across the State and found that Rs. 7 crore of Input Tax Credit (ITC) on LPG was due from them retrospectively since 2005.

While hotels were getting input tax credit on LPG all these years, a ruling given by the Advance Ruling Committee of Commercial Taxes Department in July last held that LPG used in any manufacturing and processing unit was outside the purview of the eligibility list under the relevant provisions of Andhra Pradesh VAT Act.’

Input tax credit

In a VAT system inputs become eligible for tax abatement and hotels were allowed ITC since LPG was an essential ingredient used by hotels. Interestingly, the CT department considered hotels as a processing unit and accordingly the input tax credit was being denied following the ruling rendered in the case of Hindustan Unilever.

As a sequel to the random check, Vigilance and Enforcement Department sent an alert to the Revenue Department identifying close to Rs.7 crore as input tax due. However, the liability would be much higher since all the hotels, including various star categories, would be covered by the principle laid down in the ruling, official sources said.

Contesting the decision of the government, the A.P. Hotels Association is planning to move the court on the withdrawal of the facility extending ITC on LPG.

The Association’s president, G.V. Krishnaiah, said the hotel industry was already facing problems and the removal of ITC would cast an additional burden.

He said around 50 per cent hotels in the State with a turnover of Rs.1.5 crore annually were paying 12.5 per cent tax under the VAT system. He said that cooking gas consumption accounts for 15 per cent of the turnover and needed to be removed from the negative list.

He faulted the government for thinking only in terms of mobilising revenue. He said the matter was represented to Chief Minister, N. Kiran Kumar Reddy. “We will go to the court if the government does not agree to continue ITC”, he added.