Service Tax - A/C Canteens in Factories exempted - Is there Confusion? - Board should immediately clarify
GOVERNMENT has exempted Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.
This has been done by inserting a new entry 19A in the mega exemption Notification No.25/2012-Service Tax,dated the 20th June,2012.
Immediately after we carried the notification,we received frantic calls and mails from concerned assessees. Their concern was - air-conditioned canteens are exempted. Does this mean that non-A/c canteens are not exempted? An assessee sought our immediate clarification stating, “In my opinion there is a drafting error in the notification,the notification should be that Services provided by a canteen maintained in a factory other than those having the facility of air conditioning or central air heating is exempted from payment of service tax.”
This doesn't seem to be the intention of the Government. Read on…
At present vide notification 25/2012-ST,the following services are exempted -
19. Services provided in relation to serving of food or beverages by a restaurant,eating joint or a mess ,other than those having the facility of air-conditioning or central air-heating in any part of the establishment,at any time during the year;
Simply put,a restaurant,eating joint or a mess and which can include a Canteen in a factory and which does not have either the air conditioning or heating facility is not liable to pay any Service Tax.
However, a canteen in a factory, which has the facility of air conditioning or central air heating, is required to pay service tax.
So, the government has in its wisdom exempted such canteens maintained in a factory & covered under the Factories Act, 1948 from Service Tax by virtue of this notification.
After all, the CENVAT credit issues were taking a heavy toll on these companies.
To conclude, there seems to be no problem with this notification.
Another view : We asked an expert and this is what he stated:
Vide Notification No 14/2013 issued on 22.10.2013, a new entry 19A has been inserted after entry 19 in Exemption Notification 25/2012 ST dated 20.06.2012. After inserting 19A, the Notification reads:
19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess,other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year;
19A. Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.
While the new entry intends to exempt air conditioned / central air heating canteens maintained in a factory covered under the Factories Act, 1948, it has opened several issues on taxability of non-AC / non - Air Heating canteens maintained in a factory covered under Factories Act, 1948. Since the new entry covers only Air conditioned canteens, what is the liability of non Air Conditioned canteens? Are they covered under existing entry No 19? If yes,is a canteen in factory is same as a “restaurant,eating joint or a mess” mentioned in entry No 19? Will the field formations accept this interpretation? Will they not now issue demand notices for non-AC canteens on the ground that the exemption under entry No 19A is applicable only for AC canteens? Why can't the Board explain the effect of this amendment in clear terms as DGFT does instead of leaving it to be decided by the Tribunal? And what about those factories which are not required to statutorily provide a canteen,(having less than 250employees) yet prefer to provide AC canteen facility for the benefit of their employees? Should they pay service tax while the bigger factories having of more than 250 employees enjoy exemption?
The idea seems to be that non airconditioned canteens are already exempted and now the Government has exempted airconditioned canteens also, but apparently, there is no clarity and doubts persist in the minds of highly knowledgeable assessees.
Maybe the use of, ‘eating joint' in Sl. No 19 and canteen in 19A has created the confusion and the whole issue hangs on, whether joint includes a canteen. But should Government notifications be using taboo (slang) words like “JOINT”?
It seems many assessees have represented to the Government to exempt the service of outdoor catering provided by private caterers in their canteens or at least to allow the CENVAT credit of the Service Tax paid on this catering and what they got is this notification.
And another expert told me that the sentence, Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year implies air-conditioning for a factory and not for canteen because there is no comma after ‘canteen'. If they wanted to exempt canteen,the notification should have read as, Services provided in relation to serving of food or beverages by a canteen, maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.
The Board should give an immediate clarification before litigation mounts, as this is likely to affect every factory. Please please don't make this a litigation matter for the next twenty years.
Notification No. ,Dated: October 22,2013