Clarification on rate of service tax on restaurant service

The CBEC vide Circular No. 184/3/2015-ST dated June 3, 2015 has clarified that Budget, 2015 has not made any change in abatement for determining valuation of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air-conditioning or central air-heating in any part of the establishment which is determined in accordance with Rule 2C of the Service Tax Valuation Rules.

Pursuant to increase in rate of Service tax from 12.36% to 14% (Subsuming Education Cess and Secondary & Higher Education Cess) effective from June 1, 2015, effective rate of Service tax on said service would be 5.6% (i.e. 40% of 14%) of total amount charged. It is further clarified that exemption from Service tax still continues to services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, not having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year.

Full text of the Circular is as follows :-

CBEC vide Circular No. 184/3/2015-ST, Dated: June 3, 2015 has clarified that with increase of service tax rate to 14% with effect from 1st June 2015 and no change in abatement provisions with regard to services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, effective service tax rate would be 5.6% (14% of 40%) of the total amount charged for such services.

Circular No. 184/3/2015-ST Dated the 3^rd June, 2015

F. No. 334 / 5 /2015-TRU (Pt.)
Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
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Dated the 3^rd June, 2015.

Subject: Clarification on rate of service tax on restaurant service – regarding.

The Service Tax rate has been increased to 14% with effect from 1^st June, 2015. Certain doubts have been raised in regard to abatement on value of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year.

2. Matter has been examined. Valuation of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess having the facility of air-conditioning or central air-heating in any part of the establishment, is determined as provided in rule 2C of the Service Tax (Determination of Value) Rules, 2006. In the said rule, service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant has been specified as 40 percentage of the total amount charged for such supply. In Budget, 2015, no change has been made in abatement and the rate of service tax on the abated value has been increased to 14% with effect from 1^st June, 2015. Therefore, effective service tax rate would be 5.6% (14% of 40%) of the total amount charged.

Hence, with the increase in the applicable rate of service tax from 12.36% (including education cesses) to 14%, the effective rate on such establishments has increased from 4.9% to 5.6% of the total amount charged.

3. It is further clarified that exemption from service tax still continues to 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.

4. All concerned are requested to acknowledge the receipt of this circular.

5. Trade Notice/ Public Notice to be issued. Wide publicity through local news media including vernacular press may be given. Hindi version shall follow.

Yours faithfully,

(Akshay Joshi)

Under Secretary to Government of India

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