About Service Tax ... how restaurants loot your money ... Be aware - Mischievous email/blog/tweet in Circulation
I got this e-mail a couple of weeks ago:
We had been to several restaurants recently. I observed that "service tax" has been misused and charged to the customers like you and me.
Let me give an example.
Food and Beverage | = | Rs. 1000.00 |
Service Charges @ 10% | = | Rs. 100.00 (10% on the Food and beverage amount) |
Service Tax @ 4.94% | = | Rs. 54.34 (4.94% on F&B + Service Charges) |
VAT @14.5% | = | Rs. 145.00 |
Total | = | Rs. 1299.34 |
As per the definition - "Service Tax can be charged only for the services provided to the customer".
Now, see what is happening here in the above said example.
Service Tax should be charged only on the Service Charges amount i.eRs.100 and not on the entire amount (1000+100).
In this example, the customer should be charged only Rs 4.94, whereas he has been charged Rs. 49.00 extra.
Where does this money go? Only the restaurant owner and the chartered accountants who work for them know.
So, I have started asking them the questions - and surprised to see the reactions from the famous restaurants. Either they say,“Sir we cannot change the format of the bill - so, we will recalculate and tell you the revised amount. You may pay only that.
Sir, you do not need to pay the Service Tax amount itself.”
I now have 3 to 4 restaurant bills, for which I have paid only the service tax - on the service charges and not on the total amount.
Every bill must carry the TIN number and Service Tax Number, if they charge it. So, I ask for the Service tax number if it is not available in the receipt that they provide.
We cannot go to any government official and ask them to get this right - because of our system.
Please remember - we cannot change any political leader - but we can change ourselves. If we change ourselves - things will change.
Please do share this with every one of your friends and known people.
Ask for the right tax calculation and pay only the tax, which is supposed to be paid. Verify every bills and receipts that you make payment on.
I ignored the mail as some spam, but now it seems, this mail has been widely circulated through email, Facebook, twitter - and what have you?
And you know what; this mail was forwarded to me by a Service Tax Officer! And in this Internet age people are influenced by such authoritative (and wrong) interpretations. Even the Delhi High Court Bar Association was swayed by this misinformation that they put a notice on their Notice Board to the effect that the hotels are virtually charging you Rs. 49 excess as shown in the above example. The Association has requested its members to note this and educate their family, friends and clients; and rightly refuse to pay the extra tax and see the difference!
What is the Legal Position? Please see Rule 2C of the Service Tax (Determination of Value) Rules, 2006, extracted here:
2C. Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering. - Subject to the provisions of section 67, the value of 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 or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely:-
Table
Sl. No. | Description | Percentage of the total amount |
|---|---|---|
(1) | (2) | (3) |
1. | 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 | 40 |
2. | Service portion in outdoor catering 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 such outdoor catering | 60 |
So, the Service Tax payable on food served in a restaurant would be 12.36% on 40% (or 4.94%) of the total amount. That is, the Service Tax charged by the restaurant in the example given in the widely circulated mail is absolutely correct. And this blogger believes he is a crusader and the Delhi High Court Bar Association wants the lawyers to advise their clients based on a mischievous mail from an unknown blogger. Lawyers are obviously not the best persons to get legal advice from.
The restaurant was absolutely right and the experts thoroughly wrong. This is the problem with complicated laws which restaurant clerks understand but which experts in the Internet and lawyers don't!