Service tax on restaurant service

Queries 1244 views 4 replies

AMIT ASHOK JAIN

TAX MANAGER

41 Points Joined February 2010

Facts of the Case:

Mr. A is the owner of two restaurants adjoining to each other i.e. “ABC” without Aircondition Facility (Non AC) and “XYZ” providing Aircondition Facility (AC). Mr. A is registered with Service Tax Department and regularly pays Service Tax under Restaurant Service. Both the restaurants have separate entry but the food is served in both restaurants from the common kitchen. The annual turnover of ABC Restaurant (Non AC) is Rs. 15 Lakhs and that of XYZ Restaurant (AC) is Rs. 5 Lakhs. Currently, currently Mr. A is paying Service Tax on Rs. 20 Lakhs (Rs. 15 Lakhs of Non AC Restaurant +Rs. 5 Lakhs of AC Restaurant).

Recently, a Circular vide No. 173/8/2013 – ST was issued by CBEC giving clarification on doubts and questions about Service Tax on Restaurant Service, wherein it is clarified that “Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year (hereinafter referred as ‘specified restaurant’) attracts service tax. In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in a non air-conditioned or non centrally air- heated restaurant will not be liable to service tax. In such cases, service provided in the non air-conditioned / non-centrally air-heated restaurant will be treated as exempted service and credit entitlement will be as per the Cenvat Credit Rules.”

Query:

1. Is this circular applicable to Mr. A?

2. Whether Mr. A is liable to pay Service Tax on turnover of XYZ Restaurant (AC) only i.e. Rs. 5 Lakhs or on turnover of both the restaurants i.e. Rs. 20 Lakhs?

Replies (4)

CA Ashok Agrawal

Chartered Accountant

60 Points Joined February 2008

Dear Amit,

1. Yes it would be applicable to Mr A. As indicated the name of the AC & Non AC restaurants are seperate.

2. Now he has to pay only on the service provided in AC retaurants treating it taxable service.

CENVAT credit is to be taken as per CC 2044 treating Non AC restaurant as exempt service provider.

CA RAHUL PATEL

PARTNER

57 Points Joined November 2010

I would certainly go with Amit that circular is applicable in this situation. However you must take a note that circular has travelled beyond the scope and language of statutory provision and hence it may be vulnerable to a change any time later by board. Though you can take shelter in decision of Apex court in case of Navnitlal Zaveri and K P Verghees and others but you should appreciate statutory provisions over circulars if there is no ambiguity like case on hand.

Manoj Agarwal

Service Tax Consultant Rourkela Service

3456 Points Joined March 2012

CA Ashok and CA Rahul JI... as far as the question of applicability of the circular to Mr. A is concerned, i agree with both of you. The word 'establishment' has not been defined anywhere in the Act or the Rules, so CBEC has issued circular clarifying the situation when 2 or more restaurants are seperately demarcated and the tax applicability. In my view, the circular has not gone beyond the statutory provision as it has given wider interpretation to a benefecial notification in favor of assessee.

Secondly, even if the entire turnover of Rs. 20 Lac is from AC restaurant (XYZ), there would be no service tax as threshold exemption vide N/N-33/2012 is available for Rs. 10 Lacs. The value of restaurant service as per Rule 2C read with section 67 is only 40% of the turnover. Means only 40% of turnover is declared service within secion 66E. The other 60% is not service value and outside the scope of charging section. Therefore, threshold exemption in case of turnover of AC restaurant is upto 25 Lacs.

Thirdly, the Hon'le High Court of Kerela has declared the levy of sevice tax on restaurants as unconstitutional and the matter is before the apex court for getting finality.