Service Tax - Restaurant Service - Board Clarifications
CBEC has issued certain clarifications on doubts and questions raised in representations:
1. In a complex where air conditioned as well as non-air conditioned restaurants are operational but food is sourced from the common kitchen, will service tax arise in the non-air conditioned restaurant?
Clarifications: Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year (hereinafter referred as ‘specified restaurant') attracts service tax.
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. In a hotel, if services are provided by a specified restaurant in other areas e.g. swimming pool or an open area attached to the restaurant, will service tax arise?
Clarifications: Yes. Services provided by specified restaurant in other areas of the hotel are liable to service tax.
Isn't this contradictory to the first clarification? When service provided in a non-AC restaurant from a common kitchen is exempted, how come service provided at swimming pool and open area is taxable?
3. Whether service tax is leviable on goods sold on MRP basis across the counter as part of the Bill/invoice.
Clarifications: 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.
No restaurant sells the MRP affixed goods at the price shown but do so at a higher price, which they attribute to "service" charges. Normally in a Star Hotel, a thirty rupee bottle of water is sold for a hundred rupees. Now is the Service Tax exempted or should they pay Service Tax on seventy rupees? When you have a treat in a hotel, it is actually the Government that has a treat, for the Central and State Governments take away 25% of your bill. In such a scenario, does the Board intend to say that if the MRP affixed goods are sold at a higher price, the value is not to be excluded! And why would MRP based goods be sold ‘across the counter' ONLY. They are provided along with the food items - eg. Aerated waters/mineral water. So, is this clarification not applicable when the MRP based goods are given to a customer along with his food at the AC restaurant? Complicated calculations ahead…..
The Delhi High Court in the case of The Federation of Hotel Restaurants Association of India - had held -
MRP price - Petitioners question the impermissibility to charge customers above the MRP on mineral water bottles - Predominant activity of a hotel or restaurant is to provide service and not sale of any provisions which is only incidental to its main activity and, thus supply of food and drink by them does not constitute sale - There is no violation of Standards of Weights and Measures Act which limits charging above the listed price - Petition allowed.
When the law allows these restaurants to charge from customers more than the MRP price, can the non-exclusion of the MRP from the value of service be justified?
And is the Board aware of the Kerala High Court decision in the case of Kerala Classified Hotels and Resorts Association - () which held that when food is supplied or alcoholic beverages are supplied as part of any service, such transfer is deemed to be a sale and there cannot be a different component of service which could be imposed with any service tax in exercise of the residuary power of the Central Government under Entry 97 of List I of the Constitution of India?The Court had declared that sub Clauses (zzzzv) and (zzzzw) to Clause 105 of Section 65 of the Finance Act 1994 as amended by the Finance Act 2011 is beyond the legislative competence of the Parliament as the sub Clauses are covered by Entry 54 and Entry 62 respectively of List II of the Seventh Schedule.
Circular No. , Dated: October 07, 2013