Service Tax on Hotel Industry

Charges and taxes levied on the foods served in the Restaurant:

Service Charges:

This is the charges levied by the restaurant as the payment for the services rendered like serving the foods etc. This charge is not levied by the government and is collected by the owner themselves. Levying service charges is entirely at sole discretion of the restaurant and they are free to levy any amount of services charges normally range between 5% to 10%.

VAT:

Value added tax is applicable on sale of good and beverages as per state VAT act. VAT on restaurants serving food and beverages are governed by respective state laws. The rate of VAT may vary from state to state.

Luxury tax:

It is applicable on luxuries and for the matter incidental thereto as per state Luxuries Act. The rate of luxuries tax may vary from state to state.

Service Tax:

1. Restaurant Services

The service tax can’t be levied on the whole amount charged by the restaurant as the Charges for the food served in restaurant is composite for the goods as well as for services.

But while levying the service tax, bifurcation of value of goods and services is very difficult hence the government has announced the abatement scheme for levy of service tax on that kind of services.

Exemption from the Service Tax:

 1. As per the entry 19 of exemption notification 25/2012 dated 20-06-2012 amended by notification no 3/2013-ST dated 01-03-2013, services provided in relation to serving of food or beverage by a restaurant other  than those who have the facility of air-conditioned or central air heating in any part of establishment, at any time during the year. Note-1

2. As per the entry 19A of exemption notification 25/2012 dated 20-06-2012 inserted by notification no 14/2013-ST dated 22-10-2013, services provided in relation to serving of food or beverage by a canteen maintained in a factory covered under the Factories Act, 1948 and having the facility of air-conditioning or central air heating at any time during the year.

3. Exemption notification 33/2012 –ST dated 20-6-2012 provides the exemption from the service tax to small services provider If the value of services provided is below the exemption limit of Rs. 10 Lakh. This notification will not be applicable if the services are provided under the brand name or tarde name, whether registered or not, of another.

Value of Services for levy of Service Tax

As per Rule 2C of Service Tax (Determination of Value) Rules, 2006 value of service portion in an activity where in the goods being food or any other article of human consumption or drinking is supplied in any manner is as follow:

Note-1: Condition of licence to serve the alcoholic liquor has been deleted by notification 03/2013 dated 01.03.2013.

Issue 1: What will form the part of Total Amount

Clarification: As per Explanation 1 of Rule 2C of Service tax (Determination of Value) Rule , 2006. It will exclude the Value added tax and services charges if any charged by the restaurant.

Issue 2: Whether the service tax is leviable on the good sold on MRP basis across the counter as a part of Bill or Invoice?

Clarification: The value of these good will be excluded from total amount for determination of Value. Circular No. 173/8/2013 dated 07-10-2013

Issue 3: Whether the service tax will arise on the services provided in non-air conditioned restaurant if in a complex where the air-conditioned as well as non-air conditioned restaurants are operational but food is sourced from the common kitchen.

Clarification: No, Services provided in non air-conditioned or non centrally air heated restaurant will not be taxable. Circular No. 173/8/2013 dated 07-10-2013

Issue 4: Whether the services tax will arise on the services provided by a specified restaurant in other area attached to the restaurant like swimming pool.

Clarification: Yes, Services provided by a specified restaurant in other area of hotel are liable to service tax. Circular No. 173/8/2013 dated 07-10-2013

Issue 5: Whether the hotel/restaurant/convention centre letting out their halls, rooms etc for social official or business or cultural function is taxable?

Clarification: Yes, hotel/restaurant/convention centre letting out their halls, rooms etc for social official or business or cultural function is taxable

Example of Taxable value on the foods served in the restaurant:

*Exclusive of VAT

2. Restaurant with Banquet

3. Rent

Exemption from service tax on room rent:

1. Entry 18 of the notification 25/2012 –ST dated 20.06.2012 substituted by the notification no 06/2014  provides that no Service tax is required to be paid if the declared tariff of a room or unit of accommodation is below rupee one thousand. Note-2

2. Exemption notification 33/2012 –ST dated 20-6-2012 provides the exemption from the service tax to small services provider If the aggregate value of services provided is below the exemption limit of Rs. 10 Lakh. This notification will not be applicable if the services are provided under the brand name or tarde name, whether registered or not, of another.

Applicability of Service Tax:

As per the Notification 26/2012 –ST dated 20.06.2012 , Service provider has to pay only on 60% of value of rent of room, inn, guest house, clubs or other commercial place meant for residential lodging purpose. But in that case No CENVAT Credit of Input or Capital good used for providing that services has been taken.

Summary:

Note-1 : Definition of Declared Tariff:

Declared Tariff” includes the charges for all amenities provided in the unit of accommodation ( given on rent for stay) like furniture, air – conditioner, refrigerator or any other amenities but without excluding ay discount offered on the published charges for such unit.

Note-2: Tax will be liable to be paid on actual amount charged and not o declared tariff.

For example: if declared tariff of room is Rs. 1200 but actual amount charged is Rs. 900. Then service tax is to be leviable as declared tariff is more than 100. However service tax is required to be paid on actual amount charged.

Important Point regarding the SSI Exemption:

1. Turnover of taxable services in the preceding financial year does not exceeds 10 lakhs for claiming the SSI Exemption.

2. This is an optional scheme. The service provider who does not want to take the benefit may pay the service tax on the value on the value of services provided by him.

3. Assessee availing the benefit of exemption is not eligible for the CEVAT Credit on Input, Input services and Capital goods

4. What will be included in computation of limit of 10lakh for exemption.

Not Included:

Fully Exempted Services
Services under negative list
Services provided outside India
Services with brand name of other person

Included:

Partially exempted services – Fully
Services covered under valuation rule- Only service portion
Advance received for taxable services

For any query
Contact
CA Pooja Gupta