SERVICE TAX ---- RESTAURANT SERVICES

INTRODUCTION

Service Tax on restaurant service was introduced on 1.5.2011 (Notification No. 29/2011-ST dated.25.4.2011). 

Service Tax on Restaurant Service

The levy of Service tax on services provided by restaurants, in relation to serving of food and beverages within the said premises, was imposed in May 2011 and was restricted to just air-conditioned restaurants serving alcohol at that time. With the introduction of the negative list regime in July 2012, the ambit of Service tax was extended beyond restaurants to include even eating joints & messes.

There was no distinction made while levying service tax between premium restaurants and eating joints with self service.  

Q. What was the definition of Restaurant services before introduction of Negative list ?

Taxable service means the service provided in relation to serving of food or beverages by a restaurant, eating joint or mess, other than those having:

I) the facility of air conditioning or central air heating in any part of the establishment, at any time during the year and

II) a license to serve alcoholic beverages.

Change in Definition

However in the budget 2013, P. Chidambaram removed the 2^nd condition and now Service Tax would be levied on all restaurants which are air conditioned.

Q. Exemption as mentioned in Mega Notification?

The Finance Act, 2013 vide Notification No.3/2013-ST dated   1-3-2013 with effect from 1-4-2013.

Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverages were exempted from service tax.

However, this has been modified and now exemption will be available only to non air conditioned (non centrally air heated) restaurants. The dual requirement earlier that it should also have a license to serve alcohol is being done away with it.

Q. Meaning of Establishment

Establishment means a hotel, restaurant, or any eating joint or mess like Pizza hut or Mc donalds etc, which provides the facility of air conditioning or central air heating at any time during the year.

Q. Does service tax levy on both air conditioned & non air conditioned restaurant ?

No. If the complex having more than one restaurant which are clearly demarcated and separately named and food is provided from the common kitchen, only the service provided in air conditioned restaurant is liable to Service Tax, service provided in a non air conditioned restaurant or non centrally air heated restaurant will not liable to service tax and is treated as seprate exempt service.

Service tax on food served in restaurant

The Charges for the Food served in a Restaurant is a composite charge for the food as well as for the Services. As it is a composite charge, Service tax cannot be levied on the whole amount. As per service tax rules Service tax should be charged only on 40% of the food bill (including service charge) and not on the total bill.         

Or in other words only 4.94% Service tax on Restaurant (i.e 40% of 12.36%) shall be chargeable.   

 

Service tax and Vat both levied on restaurants

As per the Service Tax Rules, Service Tax on food served in Restaurants is chargeable on only 40% of the Food bill as they’ve estimated that out of the Total Food Bill - 40% is for the Services provided and 60% is for the items sold. Now as per the logic, Vat should be charged only on 60% of the Food bill as Service Tax has already been charged on 40% of the Food bill. The vat laws specifically state that Vat rate is to be applied on the Total Food bill (including of Service Charge).