Service Tax Applicability on Service Provided by A Hotel

Dear All,

By Notificated dated April 26, 2011 two new services has been introduced wef from May 1

Clarifications on new services specified in clauses (zzzzv) and (zzzzw) of section 65(105) of the Finance Act, 1994 and amendments to existing clauses of same section

LETTER D.O.F. NO. 334/3/2011-TRU

DATED 25-4-2011

The new services specified in clauses (zzzzv) and (zzzzw) of section 65(105) of the Finance Act, 1994 and amendments to the existing clauses of the same section are being operationalized w.e.f. May 1, 2011. The scope of these services was explained in my D.O. letter of even number dated February 28, 2011. In accordance with the budget announcements certain changes are necessitated and the related clarifications are given as follows:

Services provided by a Restaurant

2. An exemption @ 70% of the gross value i.e. the total price charged by the restaurant has been given by amending the notification No. 1/2006-ST, dated 1-3-2006 vide notification No. 34/2011-ST, dated April 25, 2011. The exemption is available provided no Cenvat credit is availed either of inputs or input services. It is clarified that the exemption is available on the gross price charged by the restaurant for the taxable service, including any portion shown separately e.g. service charge. However the amount paid by the customer ex gratia e.g. as tip to any member of the staff doesn't constitute consideration paid to the restaurant and shall remain outside this levy.

Short Term Accommodation

3. In accordance with the budget announcement, the levy will be applicable on short-term accommodation with a declared tariff of1,000 per day or above. A suitable exemption has been given below this amount vide notification No. 31/2011-ST, dated April 25, 2011. Declared tariff has been defined within the notification as charges for all amenities provided in the unit of accommodation. Thus it will include cost of all electronic gadgets installed in the room and any other facility normally provided by a hotel as part of the stay. Cost of extra bed will not form a part of the declared tariff. No further exclusions are provided from the declared tariff e.g. on account of breakfast or any other meal whose cost is included in the declared tariff including any discount given to the customer. However an exemption @ 50% has been given by amending the notification No. 1/2006-ST, dated 1-3-2006 vide notification No. 34/2011-ST, dated April 25, 2011 provided no Cenvat credit is availed either of inputs or input services.

Query 1.

VAT is applicable on the food items that is being served to customers. Whether service tax will be applicable

even on the VAT amount. Again whether the same will not amount to double taxation.

vat is charged on sale of foods only, where after sales the service is provided by resturent, by serving it on table, cleaning and maintainance of resturent etc, department assumed that 70% is value of foods and 30% is for service, also the service tax is not imposed on all resturents , only specified catagory of resturents have been imposed with service tax, where the diff between actual food value and billed value has big gap. also the wine part is there, where they composite the wine in food bills, stating that its duty and tax paid, and in retail sale bill they composite the same under vat only, but wine resale itself has taxation more than vat, to plug such leakage of revenue, department has taken such steps, lets see how much % it get implemented.