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Service tax on hotels

Pawan Mittal (CA Final) (702 Points)

26 March 2013

In the budget 2013-14, Govt. has levied Service Tax on Hotels, for serving foods.

Please tell me how it will be calculated.

Will it be charged on the whole amount of the bill or the hotel will give two separate bills for services and foods?

What is the rate of VAT in case of hotels?

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8 Replies

CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
Replied 26 March 2013

Go Through This Chart, These Numericals Will Give You Clarity.

Total Food Bill Invoice	1000.00
Service Charges	100.00
Total	1100.00
VAT @ 14.5%	159.50
Total Amount Before Service Tax	1259.50

Service Tax Rate	12.36%
Proportion on Which Service Tax is to be Charged	40%
Net Effective Rate of Service Tax	4.944%
Amt on Which Service Tax is to be Paid	1100.00
	(Rs. 1000 + Rs. 100)
Total Amt of Service Tax	54.384

Total Amt Payable by Customer	1313.884

1 Like

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 26 March 2013

Thanks, Ayush.

Ca k.vinod (Faculty for CA/ICAI(Cost) Hyderabad) (28 Points)
Replied 26 March 2013

In last year’s national budget, only air-conditioned restaurants with licences to serve alcoholic beverages were imposed a service tax of 12.36% applicable on 30% of the bill, which came into effect from 1 April last year.

“In the present budget, the inclusion of all air-conditioned restaurants and cafes more than 2,000 sq. ft to pay service tax will add to the (hospitality sector’s) continued woes. In extreme weather conditions in India during summer and winter, it (air-conditioning) is a basic requirement

Ca.k.Vinod

Manoj Agarwal (Service Tax Consultant Rourkela ServiceTaxExpert@yahoo.com) (3456 Points)
Replied 27 March 2013

Dear Vinod Ji,

Kindly can you give the notification or other souce which prescribes the limit of 2000 sq. ft. for taxabiltiy of restaurant. I havn't come across any such limit. I agree with Ayush but feel that VAT should not be charged on Rs. 1100 (in the above example) but should be charged on value of sale of goods i.e. Rs. 1000/-. In fact, there is double taxation to the extent of 40% of value, first as VAT and then as Service Tax, which should be challenged.

CA Abinash (profession) (42 Points)
Replied 27 March 2013

i totally agreed with manoj sir bcoz above calculation includes double taxation....

CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
Replied 27 March 2013

Originally posted by : abinash
	i totally agreed with manoj sir bcoz above calculation includes double taxation....

But That is What Our Law Says..........

Manoj Agarwal (Service Tax Consultant Rourkela ServiceTaxExpert@yahoo.com) (3456 Points)
Replied 27 March 2013

Originally posted by : CA AYUSH AGRAWAL
	i totally agreed with manoj sir bcoz above calculation includes double taxation.... But That is What Our Law Says..........

Agreed...that's indeed the legal position. But it seems to be ultra vires our Constitution...if someone moves the court and challenges the same...

And regarding VAT on service charges of Rs. 100... is is correct?

CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
Replied 27 March 2013

Originally posted by : Manoj Agarwal

Originally posted by : CA AYUSH AGRAWAL

i totally agreed with manoj sir bcoz above calculation includes double taxation....

But That is What Our Law Says..........

Agreed...that's indeed the legal position. But it seems to be ultra vires our Constitution...if someone moves the court and challenges the same...

And regarding VAT on service charges of Rs. 100... is is correct?

No...I Dont Think so..

Bharat Sanchar Nigam Ltd. Vs. Union of India [(2006) 2-STR-161]

In this case Supreme Court held that value added tax (VAT) and service tax were mutually exclusive and would operate in their respective domains.

SC further held that transaction in its entirely could not be charged to both taxes and that consequently double taxation of a single transaction, comprising both services and transfer of property in goods, was impermissible. This principle is particularly relevant for under standing the treatment of works contract for the purpose of indirect taxes.

In Case of Work Contract

The High Court followed the decision of the Supreme Court in the BSNL case in coming to this conclusion that works contract will now be chargeable to both service tax and VAT, insofar as they are composite contracts with both material and labour elements being present. It is also equally clear that both these taxes can only be applied in their respective domains and cannot apply to the entirety of the contract. It is therefore incumbent on works contractors to ensure that they appropriately discharge their liabilities to the two taxes, as according to the options available under respective statutes.

So Same we Can Relate with Food Restaurent Service Too.