Can water be sold at above the MRP and what is the Service Tax implication?
IN the above hotel bill, you can see that three bottles of mineral water are sold for Rs. 285. On this also a 4.944% Service Tax has been charged, which works out to about Rs. 14. So each bottle of water is sold for Rs. 100. The MRP will certainly be less. Now, this raises two questions.
1. Can the water bottle be sold at a price higher than the MRP?
2. What is the Service Tax implication?
The first question was answered by the Delhi High Court in The Federation of Hotel Restaurants Association of India - . The High Court held,
Charging prices for mineral water in excess of MRP printed on the packaging, during the service of customers in hotels and restaurants does not violate any of the provisions of the SWM Act as this does not constitute a sale or transfer of these commodities by the hotelier or Restaurateur to its customers. The customer does not enter a hotel or a restaurant to make a simple purchase of these commodities. It may well be that a client would order nothing beyond a bottle of water or a beverage, but his direct purpose in doing so would clearly travel to enjoying the ambience available therein and incidentally to the ordering of any article for consumption. Can there by any justifiable reason for the Court or Commission to interdict the sale of bottled mineral water other than at a certain price, and ignore the relatively exorbitant charge for a cup of tea or coffee. The response to this rhetorical query cannot but be in the negative.
Mr. SB Parikh writing in our ST se GSTTak observes,
Restaurants are generally engaged in purchase and sale of some items like bottled water, soft drinks, liquor, pouches of snacks like wafers, etc. If such items are sold at MRP across the counter, service tax is not leviable as per CBEC's Circular No. dated 07.10.2013. This activity amounts to trading.
If the bought out items have been sold as such by restaurants at a price higher than MRP or if such items have not been sold across the counter but served in the restaurant, whether such activity is to be considered as trading or not? I am unable to offer views on this issue, but interested readers may like to refer dated 08.10.2013 where the issue has been deliberated in detail.
Eating out is intaxicating and keep your fingers crossed till GST comes.