Service tax abatement for hotels

This query is : Resolved 

Querist : Anonymous (Querist) 03 April 2012

1.Sir i want to know that in a hotel industry Hotel booked a marriage Party of Rs.2Lac in which amount it pay service tax & in which amount it pay VAT.

2.In case of Room Rent Percentage of abatement of Service Tax & Luxury Tax if Hote booked a room @ 3000/- in which amount it charge service tax & which rate & in which amount it charge Luxury Tax & which rate.

Applicability Date of Service Tax Notification No.13/2012 Dt. 17th March, 2012

Please clarify as soon as earliest

Thanks Regards.

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
07 April 2012

Food served in hotel rooms from their air conditioned restaurants with liquor licences will not attract service tax, the revenue department said on Tuesday.

"When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor," a Central Board of Excise and Customs circular said.

While clarifying the provisions of service tax to be levied on services provided by air conditioned restaurants with licence to serve liquor, the CBEC said the value added tax excluded from the taxable value.

Similarly, luxury tax would be excluded in case of short term accommodation service.

Presenting the Budget for 2011-12, Finance Minister Pranab Mukherjee [ Images ] had announced that a 10 per cent tax on services provided by air-conditioned restaurants that have licence to serve liquor, with an abatement of 70 per cent.

Thus, the effective burden will be 3 per cent of the bill.

Besides, bills for short-term accommodation provided by hotels, inns, guest houses, clubs or campsites went up by 5 per cent.

The clarification comes a week after the new provisions on Service Tax came into effect from May 1.

In the circular, CBEC said the tax also cannot be charged under the provision of short-term accommodation if the bill for the food is raised separately and does not form part of the declared tariff.

Regarding value added tax, it said: "For the purpose of service tax, state VAT has to be excluded from the taxable value".

In its circular, the department said service tax is leviable on services provided by a restaurant if it has facility of air-conditioning in any part of the establishment and has licence to serve alcoholic beverages.

"Within the same entity, if there are more than one restaurant, which are clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax," it added.

Besides, services provided by a restaurant in other parts of the hotel like swimming pool or an open area attached to the restaurant are also liable to taxation as these areas become extensions of the restaurant.

In case of short term accommodation service, the circular said the actual tax will be liable to be paid on the amount charged which means the declared tariff plus subtraction of any discount.

The circular further added that wherever the declared tariff includes the cost of food or beverages, service tax will be charged on the total value amount.

"But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff," it said.

The revenue department further said separate tariff for the same accommodation based on the 'class' of customers could be given but not for corporate entities in case of short-term accommodations.

The tax liability would also factor in discounts offered during lean seasons, it added.

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