Service tax applicable on food court

This query is : Resolved

Harish Chandra (Querist)
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21 October 2011 A Co. ABCD Ltd. develop a mall and in mall some part was occupied by Food court containing 1000 seats and 12 Food Counter.

ABCD Ltd. made agreement with 12 organisation for running one food counter each in Food Court certain space was occupied by each shop and prepare particulars kind of foods and sold to customer and give computer software support.

Food Selling procedure is like below

1. Customer enter into shop and purchase Debit card of certain amount (i.e. Rs. 100, 200, 500 etc.) which is paid to cashier arranged by ABCD Ltd.
2. Customer goes to desired counter and purchased food from counter and swap card in machine situated in counter and in the end money remained in Debit card refunded to Customer by cashier of ABCD Ltd.

Accounting in the book of ABCD Ltd.
1. Net Cash collected from Customer everyday
Cash Dr. 500
To. Debit Card Sale 500
2. Total Sale made during the day
Debit Card Sale 500
To Sale 440
To Vat 60
3. Purchase Dr. 300
Vat Dr. 36
To. Certain Counter 336

4. Certain Counter Dr. 336
To. Cash 336

It is cleared from the above condition Rs. 140 is earned by ABCD Ltd each day

I want to ask about Service tax liability on above income of Rs. 140 each day, Service tax Liable or not

Madhukar N Hiregange

Madhukar N Hiregange (Expert)
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24 October 2011 If the amount collected couldbe said tobe renting of IP as it appears then liability on amount collected would arise.

Harish Chandra

Harish Chandra (Querist)
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24 October 2011 query of abcd ltd. is that they are purchasing food from all 12 outlets and selling it to customer and paying vat on sale of food to customer

and difference in sale and purchase is income, as vat paid so no ques. Of s.tax

but acc. To me income is for giving place in mall to outlet so service tax should be charged on this income portion

please clarify me if i am wrong

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 This is a classic question on service tax applicability for a food court operator who acts like a mall developer and also handles cash flow through prepaid debit cards.

Let me clarify the tax treatment based on your description:

Key facts recap:
ABCD Ltd. developed a mall and runs a food court with 12 counters.

ABCD Ltd. enters into agreements with 12 separate organizations to run the food counters.

Customers buy prepaid debit cards from ABCD Ltd.

Customers use the card to purchase food from counters.

ABCD Ltd. refunds unused balance.

ABCD Ltd. records sales, VAT paid on food, purchases from counters, and net income as the difference.

What is ABCD Ltd. actually doing?
ABCD Ltd. is providing space (renting out stalls) to the 12 food vendors.

ABCD Ltd. handles cash collection via debit cards and buys food from these vendors and then sells to customers.

The difference between sale and purchase is income of ABCD Ltd. (essentially ABCD Ltd.'s margin or profit).

The food counters themselves are operated by other entities, but ABCD Ltd. controls the point-of-sale system and cash collection.

Service Tax Applicability:
On ABCD Ltd’s margin (Rs. 140 per day) — Is it Service Taxable?

The income arises partly due to renting of immovable property (stall space) to the food vendors.

Renting of space for business or commercial purposes is liable to service tax under the Renting of Immovable Property service category (unless exempt).

ABCD Ltd. is effectively providing space and related facilities (like cash collection system, software) to vendors.

So, the income portion attributable to rent or space provided is service taxable.

This includes any income over and above VAT paid on sale of food — because VAT covers only the sale of goods (food), not renting service.

On Food Sold:

Food items sold to customers are goods and subject to VAT or sales tax.

Since ABCD Ltd. pays VAT on purchase and charges VAT on sale of food, the food portion is outside the scope of service tax.

If ABCD Ltd. is merely a cash collector and reseller of food items:

They have to pay VAT on food sold.

The margin made is the profit from buying and selling food.

However, their service to food vendors by providing space is a taxable service under renting of immovable property.

Software support / cash handling service:

If ABCD Ltd. provides additional services such as software for billing, card management, that portion may also attract service tax as Business Auxiliary Service or Other services.

But primarily, the rent income part is the main service tax component.

Practical Conclusion:
ABCD Ltd. should pay service tax on the income it earns from renting out space to the food counters, i.e., the Rs. 140 margin.

The VAT is applicable on the food sales only.

ABCD Ltd. must segregate the rental income from sales income to correctly apply service tax and VAT.

Service tax will apply on rental income (renting immovable property) at the applicable rate (historically around 12.36% including cess).

Summary
Income Component Tax Applicability
Sale of Food Items VAT applicable, no service tax
Margin from rent of stalls Service tax applicable under Renting of Immovable Property service
Software / cash handling May attract service tax as Business Auxiliary Service or Other services (if separately identifiable)

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