Service tax exemption for factory canteen Needs Immediate further clarification

Notification No.14/2013 Dated 22/10/2013: Service tax exemption for factory canteen Needs Immediate further clarification:

INTRODUCTION:

CBEC issued a notification No.14/2013 dated 22 October 2013 in which exemption given from service tax for Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.” By this notification inserting a new entry 19A in the mega exemption Notification No.25/2012-Service Tax, dated the 20th June, 2012. This notification creates a lot of confusion/anomaly in the mind of assessee which needs immediate clarification from CBEC.

RELEVANT EXRACTS OF NOTIFICATION/DRAFT CIRCULARS ISSUED ON SUBJECT MATTER:

Notification No.25/2012-Service Tax, dated the 20th June, 2012

“19 Services provided in relation to serving of food or beverages by a restaurant, eating joint or a  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 licence to serve alcoholic beverages;”

Draft circular of CBE& C Para 11 of draft circular F. No 354/127/2012-TRU dated 27-7-2012

‘Moreover, it would need to be seen whether the services provided by the employer are otherwise covered by the Negative List or exempt. For example, the services of food and catering provided by the employer in a canteen would normally fall outside the tax net unless such canteen has both the facility of air-conditioning as well as license to serve liquor (S. No. 19 of the Mega exemption)’.

Notification No. 03/2013-ST dated March 1, 2013 (Amendment of Notification 25/2012)

 “19. 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;”

NOTIFICATION NO 14/2013 – ST., Dated: October 22, 2013

“19A. Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.”.

Ways for providing services at canteen:

1)    Services provided by canteen contractor to employees:

If the canteen contractor did not provide service to the person owning the factory, the provision of service tax was not apply. if the canteen contractor provides food to employees, it is falls under sales not under service and Vat should apply, if State law so provides.

2)    Services provided by canteen contractor to employers:

In case of canteens at factory and this place is given on hire or free to the canteen contractor,  In this situation the canteen contractor provides service to the employer. In this case service would be subject to service tax.

3)     Services provided by Manufacturer directly to employees at factory canteen:

A Canteen at factory  is maintained  by a Manufacturer himself, with his own Staff, are not liable for  any Service Tax, because  it is operated in terms of the Contract of employment between the Employer and Employee with requirement of factories act. the service was not taxable it is falls under sales not under service and Vat should apply, if State law so provides.

CLARIFICATION REQUIRED FOR FOLLOWING DOUBT/CONFUSION/ANAMOLY:

1)New Entry 19A of notification 14/2013 provides exemption to Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year. It means that Non Air conditioning canteen was already exempted under entry 19 in Notification 25/2012 dated 20.06.2012. In this notification, canteen word was not mentioned. “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;” here clarification required that Canteen is eating joint or mess or not. if this was not so then question arises that in new entry 19A exemption given only A.C. canteens and no exemption was for Non A.C. canteen in entry 19.Clarification essential in this regards due to non accepted this view by audit teams during the course of audit that eating joints/mess means canteen and exemption is available in absence of clear wordings.

2)  Another important clarification required that “Whether Exemption given in New entry 19A to Services provided in places (factory Canteen) having the facility of air-conditioning or central air-heating at any time during the year. if it is so then outdoor caterer and manufacturer both are provided service at canteen are exempt to pay service tax due to exemption is for place (canteen).

Another view taken in this respect that since Canteen Contractor provides Outdoor catering service which chargeable to service tax under direct charge @12.36% on 60%of gross amount as per Rule 2 C of Service tax (Determination of Value) Rules, 2006, so canteen maintained by employer is only exempt from service tax and services provided by canteen outside contractor continue chargeable for service tax.

3) Another anomaly we can see in New entry 19A which provides exemption to Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948. Now Exemption given only for manufacturer who registered under factory act and not for service provider for example a large trading house or corporate office of multinational company/banks maintaining canteen in their premises are liable for service tax. this creates difference between manufacturer and service providers.

Conclusion:

Dilemma of assessee increased substantially after coming this Notification No.14/2013.Immediate clarification required for doubt/confusion/anomalies discussed above. In my personal view if canteen have a A.C or Non A.C maintained by manufacturer registered under factory act or services provided by outdoor caterer(Canteen Contractor) to manufacturer who is registered under factories act is outside the preview of service tax. If we think logically very few employers/manufacturer maintained a canteen at their own. Here question arises that Is this was Intention of Notification to exempt only those manufacturer who operate canteen them self or given exemption to services provided in places (canteen) with air conditioning/central air-heating system and registered under factories act 1948. Transparent clarification required immediate for assessee as well as the field formation officer/Audit team so litigation will not arises on this issue.

(Shailendra Saxena, B.Com, CS, FCMA, FCA, DISA (ICAI) , OM P. Maheshwari & Associates, Chartered Accountants, Cell:09377410260, Email: omp20535@gmail.com)

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