10 lakh exemption for hotel / restaurent - after abatement ?

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Kuldeep Kulkarni (Querist)
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23 January 2012 Restaurant service & accomodation service are made liable to tax from 1.5.11. Notification No 1/2006 exempts 70% / 50% of amount received from tax. Condition is that the assessee should not avail cenvat credit and should not avail benefit of Noti 12/2003.
Notification No 6/2005 (small scale exemption) exempts gross amount charged towards taxable service upto first Rs.10 lakh. The value of "Wholly" exempt service is to be excluded from rs.10 lakh (Explanation B of Notification 6/2005). In case of hotels / restaurants, the exemption is partial. (50% & 70%). Question is : For calculating exemption of Rs.10 lakh, whether 30% or 50% as the case may be should be taken or full amount should be taken? Example : Restaurant sale amount : Rs.14,00,000/- Working 1 : 14,00,000 X 30% = 4,20,000/ - It is less than Rs.10 lakh so no service tax. Working 2 : 14,00,000 – 10,00,000 = 4,00,000 is liable. 4,00,000 X 30% = 1,20,000 taxable. Service tax 1,20,000 X 10.3% = 12,360. Which is correct ? Dept. stand is working 2.

Arun Gulati

Arun Gulati (Expert)
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24 January 2012 Explanation B to Notification No. 6/2005-ST, 01-03-2005, the “aggregate value not exceeding ten lakh rupees” does not include payments received towards such gross amount which are exempted from the whole of service tax leviable thereon under section 66 of the said Finance Act under any other notification. Therefore, working 2 is correct.