08 January 2014
For Example, Value of Goods Rs. 1,000/- Value of services (or service charges) Rs. 100/- Total bill Rs. 1,100/- ST @ 4.944 Rs. 54.34 (on Rs. 1,100/- and not just 100/-) GVAT (as per rules) Say Rs. 50 Total 1204.34/-
Please note ( Value of taxable services - restaurant services = 40% of 12.36% = 4.944%)
09 January 2014
All big restaurants including Pizza Hut are charging in this manner only, but this is wrong. Only service tax @ 12.36% should be charged on Service charges amount of Rs.100/- in your example, as no sale is involved.
Also, regarding the food part of Rs.1000/-, when service tax is charged @ 4.944% after considering abatement of 60%, some abatement mechanism should also be devised by VAT authorities to exclude the service portion of 40% and VAT should be charged only on 60% of Rs.1000/- This wrongly charging of taxes doesn't affect the restaurant owners as they are receiving the same from customers and paying to Govt., but the customers are required to bear the burden of this wrong taxation system of restaurants.
these days there are enough points where gross confusion prevails with regards to service tax, vat etc. With regards to the position that service tax should only be charged on service charges, it has not been accepted by the department as of now. Also to argue that service charges cover for the all the services provided is not correct as the service charge practically cover nothing but the TIP amount!
with regards to VAT, yes it is a valid point but as long as no abatement is announced, the above discussed method of computation is correct and safe.
CAclubindia
