Almost all of us go for family outings every now and then and one of the most important activities, without which an outing is not complete, is having a meal at a nice Restaurant.

However, it’s the ‘RESTAURANT’S BILL’ which acts as a party spoiler due to the respective taxes and charges applied therein.

Thus, for having food worth INR 1,000/- in Delhi, we end up paying INR 1,175/- approximately, due to 17.5% Taxes being applied on INR 1,000/-. The breakup of 17.5% involves 12.5% VAT and 4.95% Service Tax. In case if you end up having liquor along with food then be prepared for paying an even higher rate of VAT on liquor part of the Bill, it feels as if the Government is penalising you for having a nice time by making you pay a higher rate of VAT on liquor part.

VAT is a State levy and Service Tax is a Central levy and we are almost like sitting Ducks on which these levys are levied!!!!

VAT is on sale of goods and Service Tax is on providing services. Now, Service Tax department (CBEC), via its Notifications and Circulars issued till date, says that Service Tax is applicable on Restaurants having Air Conditioned premises/dining areas. It presumes that 40% of the total Restaurant Bill, excluding VAT, is Service and thus, levys Service Tax on the entire Bill @4.95% (40% of 12.36%) whereas VAT department presumes the entire Bill, excluding Service Tax, to be sale of goods.

Hence we end up paying almost 25% Tax on 40% of the Bill because VAT is levied on the entire Bill @12.5% and Service Tax is levied on 40% of the Bill @12.36%.

NOTE: Service Tax on 40% of the Bill @12.36% is equal to 4.95% on the entire Bill.

All this because Central Government wants more Service Tax and the State Government does not want to lessen its VAT collection. As a result wherein one department (Service Tax) presumes 40% of the Bill as Services rendered the other department (VAT) does not agree with the same and presumes the entire Bill to be sale of goods by levying VAT on the Total Bill amount (excluding Service Tax), thus, we end up bearing the brunt of the conflict between Central and State Governments.

Another issue which crops up is that Air Conditioner has been taken as the sole criteria for determining the applicability of Service Tax so does that mean that dine-in Restaurants, having Coolers and Fans installed, do not render any Service????

One more issue which quite some number of us must have experienced is that some of the Restaurants levy Service Charge ranging between 5% to 10% of the total Bill (excluding Service Tax and VAT). Now, what they do is that they compute VAT on total Bill (excluding Service Tax and Service Charge) @12.5% in Delhi and compute Service Tax on total Bill (including Service charge and excluding VAT) @4.95%. Let me explain the same with an example:

Total Bill amount         INR 1,000/-

Service Charge @10% INR 100/-

VAT will be @12.5%   INR 125/-

Service Tax @4.95%   INR 55/- approx.(computed on 1,000 Bill amount+100 Service Charge)

My question is, though the Service Charge charged by Restaurants is in lieu of TIP, if the Service Charge is separately mentioned in a Restaurants Bill then why should the Government not charge 12.36% on the Service Charge amount only rather than charging 4.95% on the entire Bill (including Service charge and excluding VAT)????

If the abovementioned view is taken and Service Tax is charged @12.36% only on the Service Charge amount then the amount of Service Tax in the above example will turn out to be only INR 12.36/- instead of INR 55/-.

Thus, a proper synchronisation between the Central and State Governments is necessary in order to do justice to the Tax payers. Plus, based on the above, I have serious doubts w.r.t. the upcoming GST regime as to whether will it be able to make things better or would we continue to be the sitting Ducks with Governments fighting as to who will draw the maximum out of our hard earned money, via Taxes, irrespective of whether it is justified or unjustified????

(Author Details- CA Sahil Jolly – Jolly & Co. Chartered Accountants, Contact: +91-9999830077, Email : casahiljolly@gmail.com)

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