Service tax on resturants (complete guide)

Others 4147 views 6 replies

Harshit

Executive

32 Points Joined August 2009

Service Tax Applicability on Restaurants, Hotels

Applicabilty before 1^st April 2013

All kind of restaurant whether big ,small should pay service tax only if :

-Services Provided in relation to serving of food restaurant or beverages by a restaurant, eating joint or a mess having the facility of air conditioning or central air heating in any part of establishment, at any time during the year

AND

-Which has the license to serve alcoholic beverages.

Applicabilty from 1^st April 2013

Services provided in relation to serving of food or beverages or other article of human consumption(whether intoxicating or not) by a restaurant, eating joint or a mess,having:

(i) The facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year

Supplied in Any Manner, as a part of the acitivity

Analysis

From 1^st April 2013, now service tax is applicable only if the restaurant has the facility of air-conditioning or central air heating in any part of the establishment at any time during the year . If the restaurant does not have any of these, no service tax will be applicable. Hence it is irrelevant whether the food restaurant have the liquor license or not.

It is important to note that serving of food in a restaurant is a composite transaction involving sale and service. While food is sold, services relate to the use of restaurant space and furniture, air-conditioning, waiters, linen, cutlery and crockery, music etc which are included in the Bill.

Having recognized serving food in a restaurant as a composite transaction, the question arises as to how to identify the service component. For arriving at the service component, an abatement of 60% has been provided for food sold under Rule 2C of Service Tax (Determination of Value) Rules, 2006 and the rest of the bill amount (i.e 40%) relates to services provided by restaurant on which restaurant is liable to pay service tax. Hence from now on KFC ,Nirulas,Haldiram, Bikaner, Mc Donald etc will be liable to pay tax.However service tax would not be applicable for Home Delivery.

Taxable Value-

*Cost*	*Amount*
Food Items	A
Beverages	B
Service Charge(5% to 10%)	C[% of (A+B)]
Total Amount*	A+B+C
*Service Tax on Total Amount-4.94% ie.12.36% of 40% of Total Amount*	4.94% of (A+B+C)

*Exclusive of VAT

Replies (6)

Jyoti Malik

ACCOUNTANT

2644 Points Joined December 2008

Thanks for sharing...

Sunil

Trader

2616 Points Joined August 2009

Service tax will be levied for home delivery as that even though it will be outside the a/c portion of the restaurant, part of the restaurant is air conditioned. The levy is on food served by any restaurant where even a part of it is air conditioned. The tax is levied even if the food is served in the lawn. It will be levied even if served to you in your house. Even if you take away food yourself, part of the restaurant is still a/c and it does not matter where your food is consumed. You may go and eat in the kitchen also. If the provide food to staff at subsidised rate that too will be taxed.

Manoj Agarwal

Service Tax Consultant Rourkela Service

3456 Points Joined March 2012

In my view, home delivery is also taxable. So organisations like DOMINO'S, which has major sales in the home delivery system, need to un-install there AC's upto 31-03-2013, in order to escape the service tax liability. They may install Air Coolers or other forms of cooling for in-house customers.

The exemption notification says that if the AC restaurant is providing the service, then it must pay service tax and it has no reference to the place where the service has been provided. Means, if the AC restaurant is billing for services provided for food or beverages, and the customer is carrying away the food as parcel, or if the food is served outside the restaurant, say at swimming pool side, or home delivery of food, then also service tax is levied.

ashishkumardaga

ca final

23 Points Joined February 2010

Is there any criteria regarding the area (space) for applicabiltiy of Service tax on restaurants.

Is it true that area should be more than 2000 sq.feet for service tax applicability on a/c restaurants which donot serve liquor.

Sunil

Trader

2616 Points Joined August 2009

I am not able to read any area in the notifications recently issued. Therefore I have to interpret it as of any size. Only what is not clear is whether each restaurant if not registered as a centralised billing unit and opts for individual registration would be treated collectively to have a/c or not. Eg., If Dominos has 5 a/c restaurants in different premises and 10 take away joints and say 5 non a/c restaurants. If each a/c restaurant takes an independent service tax number, will those that are not airconditioned be exempt?