Service Tax on AC restaurants – Food for Thought

Service Tax on AC restaurants – Food for Thought

PRIOR to 1st April 2013, Service Tax is leviable on air-conditioned restaurants, eating joints, mess having license to serve liquor. However, w.e.f. 1st April, 2013 air-conditioned restaurants, eating joints, mess would be subject to Service Tax irrespective of the fact whether they have licence to serve liquor or not [kindly refer Notfn. no. 3/2013-ST which amends Notification No. 25/2012-ST].

It may be noted that the terms used viz. `restaurant', `eating joint' or `mess' in the Mega exemption Notification No.3 25/2012-ST are not defined therein.

Since the terms used are not defined and the only differentiation that has been put forward for levy of Service Tax is having vis-à-vis not having facility of air-conditioning or central air-heating, it appears that all air-conditioned places serving food may get covered within the ambit of Service Tax.

Thus, the following may get covered under ambit of Service Tax (if they have facility of air-conditioning):

Restaurants

Canteen

Eating joints

Cafeteria

Mess

Eatery

Hotel

Eating house

Café

Permit-rooms

Resto-bars

Tiffin Room

Refreshment house

Soda-house

Ice-crème parlor

Dhaba etc

E ven a modest food counter in a centrally air-conditioned multiplex/theatre serving the following may get covered within its ambit:

- pop corns, samosa, sandwiches, pizzasetc.

- Soft-drink through dispenser, tea, coffee etc.

- Soft-drink bottle, water bottle, chips (MRP printed products)

It may be noted that the `service' element at these food counters in multiplex would be minimal or even absent. However, no clarification in this regard is provided in the Budget documents.

In this regard, we may refer to erstwhile TRU Circular No. TRU Circular F. No. 334/3/2011-TRU, dated 28-2-2011 wherein it was clarified that:

"The new levy is directed at services provided by high-end restaurants that are air conditioned and have license to serve liquor. Such restaurants provide conditions and ambience in a manner that service provided may assume predominance over the food in many situations. It should not be confused with mere sale of food at any eating house, where such services are materially absent or so minimal that it will be difficult to establish that any service in any meaningful way is being provided.

… The levy is intended to be confined to the value of services contained in the composite contract and shall not cover either the meal portion in the composite contract or mere sale of food by way of pick-up or home delivery, as also goods sold at MRP."

Based on the rationale contained in the aforesaid TRU Circular, one may state that while selling food items, soft drinks, water and other edibles at such counters the services are materially absent or minimal. Support can also be drawn from the judgment of Apex Court in the case of K. Damodarasamy Naidu & Bros. - 2002-TIOL-884-SC-CT-CB, The East India Hotels - 2002-TIOL-883-SC-CT-LB and the Delhi High Court judgment in case of Indian Railways Catering &Tourism Corporation Ltd.- 2010-TIOL-517-HC-DEL-ST.

The CBEC should immediately come out with a Circular clarifying the above issues before the D-day dawns.By Pritam Mahure