Vat

This query is : Resolved

Share Report Follow Query Ask a Query

rajiv bedi

rajiv bedi (Querist)
Follow

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

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
Follow

23 June 2013 For cafe both Service tax & vat applies separately .not to pay service tax on VAT

rajiv bedi

rajiv bedi (Querist)
Follow

01 July 2013 PL INFORM UNDER WHICH CLAUSE SO THAT I CAN CONVINCE MY C.A

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

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 need to be the querist or approved CAclub expert to take part in this query .
Click here to login now

Similar Resolved Queries

Unanswered Queries

Popular
Recent

Trending Online Classes

Direct Tax Laws & International Taxation May 26,Sept 26 & Jan 27

CA Arvind Tuli

Enroll Now
Audit Fast Track Recorded Batch For May 26,Sept 26 & Jan 27

CA Aarti Lahoti

Enroll Now
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English

CA Bhanwar Borana & CA Shubham Keswani

Enroll Now

view all classess

Meet our CAclubindia PRO Members

NISHANT SIPANI

RAGHUNATH KASIBHOTLA

siddhesh satardekar

Vimlesh kumar

Prakash Kaduluri

Subscribe Now

Vat

Similar Resolved Queries

Trending Online Classes

Meet our CAclubindia PRO Members

Quick Links

Browse by Category

Latest Job Openings

CA Final

GST CONSULTANT

GST CONSULTANCY

Manager- Finance and Compliance

Accountant

Senior Executive