Service tax 4.944 for "food outlet" in malls

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Jerome

Director

23 Points Posted on 21 November 2014

I am a director for a Private Limited Company in Chennai.

We recently started a restaurant in Chennai in a mall. It is in a "food court" where there is a common dinning for may food outlets. My company [Franchisee] franchised a branded food company and we pay royalty from sales to the franchiser

Now my problem is:

We collect from customers a VAT of 2% and "Service Tax" 4.944% [as recommended by Franchiser].

We purchase raw materials from franchiser and from other suppliers. When we purchase items, we pay a Sales TAX of 5%.

When we pay royalty to the franchiser, they charge a service tax of 12.36% with the royalty fee.

When we pay the rent & the maintenance to the mall [which is already very high], they charge a service tax of 12.36% Education Cass and higher education charges 2+1=3%.

Before we plan to start the business, our auditor said, whatever we pay the tax, we can deduct the amount we paid to the suppliers [purchase / rent / royalty] and the difference will be paid. But when we talk to him now, when we charge 4.944% as service tax and 2% as the VAT, we cannot deduct the amount we paid already to the suppliers!

It is shocking news for us, while we not even get the breakeven in our business. We end up in paying many taxes.

Please advise how to resolve the situation.

Thanks

Replies (2)

CA SHRAVANA DOTA

ACA

110 Points Posted on 22 November 2014

Dear Jerome, when it comes to serivce tax, CENVAT Credit on INPUT SERVICES such as rent, maintenance charges, etc is very much available for restaurant service. Service tax paid on such services can be set off against your service tax liability. Kindly refer Explanation 2 to Rule 2C of Service Tax (Determination of Value) Rules, 2006 as amended vide notification no 24/2012- service tax, dated 6th June 2012.

Jerome

Director

23 Points Posted on 24 November 2014

Hi Mr. CA Shravana, Thank you so much for your advice.

Could you also please clarify that, when we charge the customers for a Sales Tax VAT of 2% and a Service Tax of 4.944%, CAN WE set off the amount paid to suppliers as VAT and Service Tax?

We collected a Sales Tax VAT at the rate of 2% which is Rs. 6,000

We collected Service Tax at the rate of 4.944% which is 14,832

We already paid Sales tax Rs. 5,400 @ 5% while purchase of raw materials. Service Tax Rs. 12,700 @ 12.36% during rent and royalty payments

As per the current rule, what we should pay as Sales Tax and Service Tax?

Please send me the link for the rule what you have mentioned in your earlier reply for my detailed understanding.

Once again thank you for your response.