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Service Tax on Restaurant Services from 01-04-2013

by on March 26, 2013

The change in Budget 2013-14 has covered all the restaurants, eating joints, outlets or food places in any other name under service tax that does not serve liquor or alcohol. Though only few words changed in the text but this will bring lot of revenue because few fast growing states like Gujarat (dry states) are added in service tax net now even under restaurant services.

The said changes are applicable from 01-04-2013 as precribed in Notification No. 03/2013 dated 01/03/2013 and to charge service tax to customers from April the restaurants are required to (or at least apply) take registration on or before 1st April 2013 itself.

For full text on all Budget changes related to Service Tax please refer our article at – http://aviratshiksha.wordpress.com/2013/03/04/service-tax-budget-2013-14-speech-text-and-interpretation/

Analysis of new change -

- Liquor license or sale is irrelevant.

- The restaurants covered shall have at least one air-conditioning unit or central air-heating in any part of establishment. If either air-conditioning unit or central air-heating is not there then such restaurants are excluded from service tax.

- Restaurants services include supplies of goods as well and therefore these are composite nature of services. To avoid service tax levy on goods as per Rule 2C of Service Tax (Determination of Value) Rules, 2006 prescribed from 01-07-2012 under Notification No. 24/2012, the abatement is available for restaurant service @ 60%. Therefore the effective service tax payable will be 4.944%. (12.36*40%).

- VAT amount is to be excluded while calculating service tax.

- If the abatement option is to be availed then service provider shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985. It means excise duty or cess paid on the other inputs are eligible for CENVAT Credit. In addition to that, the excise duty paid on capital goods and service tax paid on input services are available as CENVAT Credit subject to CENVAT Credit Rules, 2004 and further amended from time to time.

- The benefit of threshold exemption of Rs. 10 lakh is definitely available.

- The benefit of paying service tax on receipts basis is available till turnover of Rs. 50 lakhs.

Be ready to pay even service tax next time you visit Pizza Hut or McD! Even if without a booze!

CA GAUTAM JOSHI

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From → Service Tax

32 Comments
  1. aditya pandya permalink

    what about home deliveries??

    • Dear Aditya,

      The budget 2013-14 had extended service tax to all air-conditioned restaurants, without distinguishing between a restaurant, eating joint, canteen or a mess, from April 1.

      In the absence of any clarity, most home-delivery chains, takeaway joints, food & beverage outlets at theatres, self-service outlets and a clutch of air-conditioned entities are likely to play safe and impose service tax at least till the time any clarification issued.

      Best Wishes.

  2. what is the service tax(in Percentage) applicable on hotels with A.C. Rooms and Mamdapkeepers

    • Dear Kaushikji,

      The accommodation provided by hotel and restaurant service within the hotel are two different services provided by hotel.

      Therefore, accommodation is covered under Hotel Services taxable from 01-05-2011 and the levy will be applicable on short-term accommodation with a declared tariff of Rs.1000 per day or above. Also 40% abatement is provided so 60% of value is taxable @ 12.36% leading to effective rate of service tax as 7.416%.

      On the other side, if hotel also provided bundle services i.e. service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises then abatement of 30% is applicable. The tax payable will be on 70% of value @12.36% leading to effective service tax as 8.652.

      Best Wishes.

  3. afsal permalink

    hello sir,

    if a hotel bill shows Rs 1000 as food expense and Rs 100 as serivce charges. and VAT 145. then how to calculate service tax??

    • Hi Afsal,

      It seems you have received restaurant services from a hotel (usually mean for providing accomodation service). The service tax shall still be calculated on total Rs. 1,100/- but on 40% of value @12.36%.

      Best Wishes.

  4. Vivek permalink

    Dear Sir,

    I have one tricky query for you. What will be the service tax rate applicable and under which service tax category. Ex- In AC Hotel rooms, food is been served from Non Air Conditioned Restaurant . Whether any Service tax is applicable on this sale of food & beverage ? At what rate and in which Category ?

    Regards;
    Vivek Thakkar

    • Hi Vivek,

      Sometimes the trickiest questions have easiest answers.

      Please don’t confuse between hotel and restaurant services – both are different under service tax law and have different valuation and abatement options.

      There can be two possibility in your case –

      1. When hotel has billed including food provided by restaurant within the AC room –

      In this case, a new concept is introduced called “Bundled Services” from 01-07-2012 which says services should be naturally bundled to decide the taxability of services. Hence, the services of restaurant shall be bundled with the hotel rooms because bills are not separated. When bills are not separated it forms part of the declared tariff of hotel. Therefore, service tax shall be paid on even food amount but with an abatement of 30% as per Entry No. 4 of Notification No. 26/2012.

      2. When hotel has provided separate bill for accommodation and food provided is billed by restaurant –

      As the services are billed separately, the food provided by restaurant shall not be taxed. When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant. Also, the same cannot be charged under the hotel service head because the bill for the food is raised separately and it does not form part of the declared tariff.

      In case number 2 above please note that even if restaurant has no AC in any of the establishment if it has central air-heating machine installed within it then the restaurant service becomes taxable. If that is the case then food provided within restaurant is also taxable and that provided within hotel room and billed with hotel services shall be taxed as per case 1 above.

      Best Wishes.

  5. jitendra permalink

    a restaurant bill is Rs 1154/-. the owner added 15% service charges on the total . on enquiring that only 4.94% tax is applicable , he denied and said that they charge 15% as service charges. is this valid or the tax should be only 4.94%. please clarify

    • Dear Jitendra,

      I think there is some misunderstanding between you and restaurant owner.

      Service charges are different then service tax. Service charges are charges collected by restaurant for providing services to you apart from food costs. Service tax is chargeable @4.944% only whereas the service charges are decided by restaurants on their own.

      Service tax @4.944% is payable on total price i.e. bill of food plus service charges.

      Best Wishes.

  6. A. Ramanujam permalink

    Dear all,

    I want to know, that for the Restaurant Category, the Restaurants are claiming 50 % abatement on gross income and afterwards they are charging service tax on remaining 50 % balance. The Notification No and serial no to be mentioned in the st3. Hence, pl. help me in this regard.

    A. Ramanujam

    • Dear Ramanujam,

      Please note there are only two valuation options in case of Restaurants i.e. 40% for restaurant services and 60% for catering services as per Notification No. 24/2012 dated 06/06/2012.

      There is no option of 50% of abatement.

      Best Wishes.

  7. viral permalink

    dear sir
    i have a hotel running since 2011 i have no Service tax registration until
    what are the penalty and interest to be paid if i take registration now

    • Dear Viral,

      This year VCES benefits can be claimed to avoid penalties for late registration and interest and penalty on late payment of service tax, if any.

      Best Wishes.

  8. rajesh gupta permalink

    Can a restaurant claim CENVAT credit on items like Paper napkins, paper towels etc which are used? These are covered in Chapter 48 of CETA

    • Dear Rajesh,

      Yes, you can avail credit on items like Paper napkins, paper towels etc which are used for providing restaurant services. The restriction as per following explanation to Notification No. 24/2012 dated 06/06/2012 is only related to Chapter 1 to 22 of CETA:

      Explanation 2.- For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986).”.

      Best Wishes.

  9. megha khandelwal permalink

    if sum1 sales alcohol at rs 100 and purchase it @ 80 rs. den which value service tax he has to pay on? nd wat abatement will be provided?

    • Dear Megha,

      I believe there will be no service tax on selling alcohol to a customer come and collect it as alcohol is subject to state excise in India.

      However, if the same alcohol is served in restaurant, either with or without food, the service tax shall be levied on Rs. 80 with abatement of 60%. The restaurant shall have AC or heating machine somewhere in it’s establishment. The rate of tax hence shall be 4.944%.

      Please note there is no service tax on discounts provided to customers i.e. Rs. 20 in your case.

      Best Wishes.

  10. Ankita Rathi permalink

    Dear
    Please tell me clearly what is service tax rate and vat in case of restaurant is providing only food? what in case of hotel is providing only accommodation? and what in case of both?

  11. Dear Ankita,

    VAT differs from state to state in India. If hotel and restaurant services are provided in Gujarat then rate of tax is 5%.

    In case of service tax, the accommodation provided by hotel is covered under Hotel Services taxable from 01-05-2011 and the levy will be applicable on short-term accommodation with a declared tariff of Rs.1000 per day or above. Also 40% abatement is provided so 60% of value is taxable @ 12.36% leading to effective rate of service tax as 7.416%.

    On the other side, if hotel also provided bundle services i.e. service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises then abatement of 30% is applicable. The tax payable will be on 70% of value @12.36% leading to effective service tax as 8.652.

    The restaurant as a separate entity is eligible for 60% abatement is taxable rate is 4.944%.

    Hope you have detailed view now.

    Best Wishes.

  12. Mehta Sachin permalink

    Kindly provide us the guidance in case a restaurant providing food etc in air conditioned restaurant and the restaurant owner has taken on lease basis the restaurant premises. The restaurant avails 60% abatement . Now he is also paying service tax on rentals of restaurant. My querry is whether the restaurant owner can avail the input service tax credit for the service tax paid on rentals of restaurant

    • Hi Sachin,

      Yes you can avail the credit of service tax paid on renting of premises. It is an eligible input service and even abatement Notification 26/2012 allows credit of input services.

      Best Wishes.

      • I have a restaurant. On a restaurant bill, 4.944% service tax is applicable on food.
        On service charge is it 12.36% ? That is if bill is Rs. 1000 and 10% service charge
        1000+100=1100+54.38=1154.38
        Or
        1000+49.44+100+12.36= 1161.80
        My CA suggests the 2nd method as he says there is no abatement on service charge so full 12.36% service tax is applicable.

        Kindly clarify.

        – amit

      • Dear Amit,

        The doubt is not free from confusion. There is clarification on this issue.

        The text is like this “Service portion in an activity wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant“. Please mark the words “in any manner as a part of the activity, at a restaurant”.

        What is the main activity of restaurant? Undoubtedly, supply of food to customers. Now any income earned (in your example service charges) for serving the food to customers, customizing the food as per their choice, explaining how the food has been made etc. is a part of the main activity i.e. supply of food to customers. Hence, I believe the benefit of doubt shall go to tax payers. Putting it clearly, the benefit of 4.944% is eligible even for Rs. 100 charged as service charges in your example.

        Best Wishes.

  13. Sheldon permalink

    I have a hotel business which provides foods to our customers. Our hotel charges restaurant charges on the hotel bill, but it does not charge ST on the restaurant bill?
    So now i have to pay ST on the restaurant service. Do i need to pay the tax inclusive of ST with the abatement of 60%. or do i need to pay tax exclusive of ST?

    Regards

    • Dear Sheldon,

      Your hotel bears the service tax on its own and does not collect separately from customers so it can consider the receipts as gross receipts and pay service tax on inclusive basis.

      Best Wishes.

  14. Kamal permalink

    I would like to know can we claim service tax paid on royalty?. In my case I have a subway restaurant wherein i pay service tax on royalty. Moreover, going by the previous discussion i think we can claim the service tax on the rent.

    • Dear Kamal,

      Service tax paid on royalty and rent are eligible for credit for a restaurant service provider.

      Best wishes.

  15. Mohan Prasad permalink

    Hello,

    I had registered with service tax under Mandap Keeper and Restaurant head. While filing the returns it is asking for the “Exemption” and “Abatement” Notification. Please provide me the Notification No. for both.
    Clarify whether both have separate notification no. if so what is the Sl. no.

    • Hi Mohan,

      Please find below Notification No. and Sr. No.:

      Mandap Keeper –
      Notification No. 24/2012-ST Dated 06/06/2012 Sr. No. 1 (if at all it becomes a works contract i.e. with supply of goods chargeable under VAT)

      Restaurant – Notification No. 24/2012-ST Dated 06/06/2012 Sr. No. 1

      Please note the notification and numbers are same but the technical reasons are different.

      Best Wishes.

Trackbacks & Pingbacks

  1. Calculation of service tax by Restaurants | aviratshiksha
  2. Clarifications on Service Tax on Restaurant Services w.e.f. July 2012 | aviratshiksha

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