Service Tax on Food and Beverages

Recently, there's been lot of talk around levy of Service tax on food and beverages with all sorts of interpretation doing rounds. One such wrong interpretation has been issued by Delhi High Court Bar Association - DHCBA, as per their notice dated 3rd November 2012 .. One is required to pay Service tax only on service charge portion and not on any other amount, which is incorrect.

The correct position is - One has to pay 4.94% of bill value (Excluding VAT) as Service Tax. Service Charges shall be liable to Service tax was clarified by Ministry of Finance - Tax Research Unit vide circular no. - 334/3/2011. Please refer below extract from notification number - 24/2012.

Determination of value of  service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering.- Subject to the provisions of section 67, the value of  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 or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely:-

Table

Sl. No.	Description	Percentage of  the total amount
(1)	(2)	(3)
1.	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	40
2.	Service portion in outdoor catering 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 such outdoor catering	60

Another important question is - Are all restaurants liable to charge Service Tax ? The answer is NO - Only those restaurants which are centrally AC / have AC and also possess license to serve liquor can are liable to charge Service tax. In other words, if a restaurant does not have AC or does not possess license to serve liquor, it can not charge Service Tax.

Many restaurants, who do not serve liquor or are not AC, charge Service Tax which is a wrong practice.

Refer to below example from Education Guide issued by Tax Research Unit, Ministry of Finance -

Question - I am running a hotel having the facility of central air-conditioning. There are number of restaurants in the hotel. Am I liable to pay service tax on to serving of food

or beverages in these restaurants?

 Answer - Serving of food or beverages in a centrally air-conditioned premise will be taxed if its restaurant has a license to serve alcoholic beverages. However, those restaurants which do not have license to serve alcoholic beverages will be exempt from service tax. Serving of food or beverages outside the restaurant, say near the swimming pool, will be taxed if service is from a restaurant having license to serve alcoholic beverages.