Hi
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
CAclubindia
