CA Pradeep Jain, CA Preeti Parihar, Shubham Sancheti
Under negative list regime, the service tax was introduced on restaurants, eating joints and mess which have licence to serve the liquor and facility of central heating or Air conditioning at any time during the previous year. However, this budget has removed the condition regarding the licence to serve the liquor. Thus, now the service tax is leviable on all the types of AC restaurants, eating joints or mess. However, some lacuna was there in the language of this levy since its inception which was supposed to be cleared in this budget; but this lacuna still exists even after widening of the scope of this levy. Herein we have looked into this entry as contained in the mega exemption notification prior to and after the amendment.
Vide notification no. 25/2012 ST dated 25.06.2012, Central Government exempted the service 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 license to serve alcoholic beverages.
In this notification the central government exempted only those restaurants, mess who do not have any air conditioner with a license to serve the alcoholic beverages. It means that the restaurants or a mess who have air conditioner with a license to serve alcoholic beverages are liable to pay service tax.
The Hon’ble Finance Minister has announced the Union Budget 2013-14 on 28/02/2013. In this budget, notification no. 03/2013 ST Dt. 01.03.2012 has been issued to amend the above serial no. of the mega exemption notification and now the exemption is applicable in relation to the service 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. This notification has abolished the condition of license to serve the alcoholic beverages along with air conditioner.
It means that restaurants or a mess, not having the license to serve the alcoholic beverages, but having air conditioner in any part of establishment, at any time during the year are liable to pay service tax. Simply speaking, all the AC restaurants or restaurants with central air heating facilities are liable to service tax w.e.f. 1.4.2013.
Lacuna as exists before as well as after the amendment:-
The language of the mega exemption notification uses the words “the service 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. The above language has been disputable since its inception as the department is interpreting the term “establishment” as entire building, not the restaurant itself. The authors of this article have come across a recent case of their client where demand was raised even on the non AC restaurant of the hotel by alleging that since AC is being installed in another restaurant (which is also the part of the establishment, i.e. hotel). It was alleged that due to this, the above condition that “the AC can be installed in any part of the establishment” is fulfilled. This is how the simple language can be mis-interpreted. On the other hand, phrase “by whatever name called, having facility of air conditioning in any part of the establishment” is preceded by the word “restaurant”. As such, the word establishment is also used in context of the restaurant, irrespective of the fact that the restaurant is situated in a large building with a no. of other restaurants therein. The intention of the government is to tax the AC restaurants only and due to this, the above language has been used. However, the word “establishment” has been mis-interpreted by the revenue officers. This lacuna is there right from the beginning; however, even after broadening the scope to this levy, this lacuna has not been removed.
Government is very quick in broadening the scope of any levy as well as the service tax law as whole. However, the quickness is not reflected in bridging the lacunas that still remain ever after some amendment in the same provision. The instant case is the perfect example of this truth. We have to see how long this lacuna continues.