All of us visit restaurants, hotels or eating houses. And many of us also notice that recently the bills issued by some restaurants have service tax mentioned in it. Let us try to understand the concept of service tax on restaurants.
Prior to 1st July 2012, restaurants serving food & beverages and having a licence to serve alcoholic beverages only were covered by service tax. After 1st July 2012, the component of service in any activity of serving food & beverages including alcoholic beverages was declared as a taxable service. With effect from 1st April 2013, the necessity of having licence to serve alcoholic beverages was deleted. Thus all restaurants from 1st April 2013 having air conditioning or central air heating system will be liable to service tax.
It may be noted that the facility of air conditioning or air heating could be provided at any time during a financial year in any part of the restaurant. It is not necessary that it should be provided for the entire year. Some restaurants have separate air-conditioned rooms. These restaurants are also covered by service tax.
Valuation & Abatement of Restaurant Service
As per Rule 2C of Service Tax (Determination of Value) Rules, 2006, 40% of the total bill will considered as service part. Abatement of 60% of the total bill is provided in restaurant services. Hence, service tax will be computed on 40% of the total bill. Service Tax @ 12.36% will be calculated on 40% of the total bill. Thus the effective rate of service tax in such cases will be 4.944% (40 x 12.36%)
While calculating the total value, VAT should be excluded from the taxable value.
Certification by CBEC
CBEC has issued Circular No. 173/8/2013-ST dated 07/10/2013 and clarified following important points:-
1. In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in a non air-conditioned or non centrally air- heated restaurant will not be liable to service tax. In such cases, service provided in the non air-conditioned / non-centrally air-heated restaurant will be treated as exempted service and credit entitlement will be as per the Cenvat Credit Rules
2. Services provided by specified restaurant in other areas of the hotel are liable to service tax. For example Food serve on swimming pool or an open area attached to the restaurant are liable to service tax.
3. If goods are sold on MRP basis (fixed under the Legal Metrology Act) they have to be excluded from total amount for the determination of value of service portion
Cenvat Credit for Restaurant Services
Explanation 2 to Rule 2C of Service Tax (Determination of Value) Rules expressly provides that the provider of taxable service i.e. restaurant service in this case, shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of Central Excise Tariff Act, 1985. Input credit of any other input services, goods or capital goods other than those specifically excluded can be taken.
Goods mentioned in the Chapters 1 to 22 are:
|Chapter 2:||Meat and edible meat offal|
|Chapter 3:||Fish and crustaceans, molluscs and other aquatic invertebrates|
|Chapter 4:||Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included|
|Chapters 5-6||Chapter 5: Products of animal origin, not elsewhere
specified or included
|Chapter 6: Live trees and other plants; bulbs, roots and the like; cut flowers & ornamental foliage|
|Chapter 7||Edible vegetables and certain roots and tubers|
|Chapter 8||Edible fruit and nuts; peel of citrus fruit or melons|
|Chapter 9||Coffee, tea, mate and spices|
|Chapter 11||Products of the milling industry; malt; starches; inulin; wheat gluten|
|Chapter 12||Oil seeds and oleaginous fruits, miscellaneous
grains, seeds and fruit; industrial or medicinal plants; straw and fodder
|Chapter 13||Lac; gums; resins and other vegetable saps and
|Vegetable plaiting materials; vegetable products,
not elsewhere specified or included
ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES.
|Animal or vegetable fats and oils and their cleavage
products; prepared edible fats; animal or vegetable waxes
PREPARED FOODSTUFFS; BEVERAGES AND VINEGAR; TOBACCO AND MANUFACTURED TOBACCO SUBSTITUTES
|Chapter 16||Preparations of meat, of fish or of crustaceans, molluscs or other
|Chapter 17||Sugar and sugar confectionery.|
|Chapter 18||Cocoa and cocoa preparations|
|Chapter 19||Preparations of cereals, flour, starch or milk; pastrycooks’ products|
|Chapter 20||Preparations of vegetables, fruit, nuts or other
parts of plants.
|Chapter 21||Miscellaneous edible preparations|
|Chapter 22||Beverages, vinegar and spirits|