Vat
This query is : Resolved
rajiv bedi
(Querist)
22 May 2013
I am running a cafe and paying 5% service tax .Do I have to pay vat on service tax component of bill.
Rajiv
Rajiv
CMA Ramesh Krishnan
(Expert)
23 June 2013
For cafe both Service tax & vat applies separately .not to pay service tax on VAT
rajiv bedi
(Querist)
01 July 2013
PL INFORM UNDER WHICH CLAUSE SO THAT I CAN CONVINCE MY C.A
02 August 2025
Great question, Rajiv.
You're running a **café**, and you're rightly charging **both VAT and Service Tax**, which was the norm **prior to GST** implementation (i.e., under the pre-GST indirect tax regime).
---
### 📌 Clarification: **Is VAT payable on Service Tax component?**
> **No**, VAT is **not levied on the Service Tax component** of the bill.
Both taxes apply **on different parts of the bill** and should be calculated **independently**. Charging VAT on the **service tax** portion would result in **tax-on-tax**, which is **not allowed**.
---
### 🔍 Legal Basis / Justification:
While there is **no specific “clause” in the VAT Act** stating “VAT should not be charged on Service Tax,” this principle is derived from:
#### 1. **Valuation Rules under State VAT laws**
VAT is levied **only on the sale price of goods**, not on services or taxes on services.
#### 2. **Service Tax (Determination of Value) Rules, 2006**
These rules clarify how to segregate value of goods vs. services in a composite supply like in restaurants or cafes.
#### 3. **CBEC Circular No. 173/8/2013-ST dated 7th October 2013**
This circular clarified that **VAT is applicable only on the value of goods (i.e., food and drink)** and **Service Tax is applicable only on the service portion** (usually 40% of bill under composition scheme in restaurants).
> 📌 **Important**: In case you're under **composition scheme** (where you pay 5.6% or 6% Service Tax on 40% of the bill), you apply VAT **only on the goods value** — typically **60% of the bill**.
---
### 💡 How to explain to your CA:
> "VAT is a state levy on goods only. Service tax is a central levy on services. As per CBEC Circular 173/8/2013-ST and valuation rules, each is applied on a distinct component. Hence, VAT should not be charged on service tax, and vice versa."
---
Let me know if you'd like a sample invoice breakdown showing this.
You're running a **café**, and you're rightly charging **both VAT and Service Tax**, which was the norm **prior to GST** implementation (i.e., under the pre-GST indirect tax regime).
---
### 📌 Clarification: **Is VAT payable on Service Tax component?**
> **No**, VAT is **not levied on the Service Tax component** of the bill.
Both taxes apply **on different parts of the bill** and should be calculated **independently**. Charging VAT on the **service tax** portion would result in **tax-on-tax**, which is **not allowed**.
---
### 🔍 Legal Basis / Justification:
While there is **no specific “clause” in the VAT Act** stating “VAT should not be charged on Service Tax,” this principle is derived from:
#### 1. **Valuation Rules under State VAT laws**
VAT is levied **only on the sale price of goods**, not on services or taxes on services.
#### 2. **Service Tax (Determination of Value) Rules, 2006**
These rules clarify how to segregate value of goods vs. services in a composite supply like in restaurants or cafes.
#### 3. **CBEC Circular No. 173/8/2013-ST dated 7th October 2013**
This circular clarified that **VAT is applicable only on the value of goods (i.e., food and drink)** and **Service Tax is applicable only on the service portion** (usually 40% of bill under composition scheme in restaurants).
> 📌 **Important**: In case you're under **composition scheme** (where you pay 5.6% or 6% Service Tax on 40% of the bill), you apply VAT **only on the goods value** — typically **60% of the bill**.
---
### 💡 How to explain to your CA:
> "VAT is a state levy on goods only. Service tax is a central levy on services. As per CBEC Circular 173/8/2013-ST and valuation rules, each is applied on a distinct component. Hence, VAT should not be charged on service tax, and vice versa."
---
Let me know if you'd like a sample invoice breakdown showing this.
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