AIR-CONDITIONED RESTAURANTS TO ATTRACT SERVICE TAX

[Dr. Sanjiv Agarwal]

Service tax has been imposed on restaurants or such establishments – by whatever name called – having licence to serve alcoholic beverages for services provided to any person in relation to serving food and beverages including alcoholic beverages, by the Finance Act, 2011 with effect from May 1, 2011 vide Notification No. 29/2011-ST, dated April 25, 2011. The gross amount charged by the restaurants to service recipient shall be charged to service tax, subject to abatement or exemption as per Notification No 34/2011-ST dated 25.4.2011.

Meaning of Restaurant

The term “restaurant” has not been defined in the Finance Act, 1997. Oxford English Dictionary defines “restaurant” as a place where people pay to sit and eat meals that are cooked and served on the premises. This word has a French origin “restaurer” which means “provide food for”. A restaurateur is a person who owns and manages a restaurant.

We find definition of restaurant in the following statutes -

“Restaurant” means premises in which is carried on principally or wholly the business of supplying meals or refreshments to the public or a class of the public for consumption on the premises but does not include a restaurant attached to a theatre. [Weekly Holidays Act (18 of 1942), s. 2(c)].

“Restaurant” means any premises, not being a restaurant situated in a hotel referred to in clause (1) of section 3, in which the business of sale of food or drink to the public is carried on and such premises, at the beginning of any month, are equipped with, or have access to, facilities for air conditioning. [Expenditure Tax Act (35 to 1987), s. 2 (9A)].

It may, however, be noted that the afore mentioned definitions hold good in the respective statutes only  but do not hold good for the purpose of levy of Service Tax. As such, we will have to go by general meaning of restaurant or establishments from where such restaurants are run. The restaurant may be called by any name and not necessarily as restaurant. Even an establishment will be covered from where such services would be provided.

Taxable Services

Section 65(105)(zzzzv) defines “taxable services” as under:

“Any service provided or to be provided to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises”.

The Finance Act, 2011 seeks to levy service tax on services provided by air conditioned restaurants also having licence to serve alcoholic beverages in relation to serving food and/or beverages.

Thus, taxable services should have following essential features:

(a) services shall be provided by a restaurant or any establishment rendering such service and called by whatever name (say, a club, a eating joint fulfilling criteria, coffee-houses, etc.);

(b) service can be provided to any person;

(c) restaurant should have a facility of air conditioning in whole or any part of the restaurant during any time during the financial year;

(d) restaurant should have licence to serve alcoholic beverages, whether actually serving such beverages or not;

e) only eligible restaurants providing services in relation to serving food or beverages including alcoholic beverage, or both in its premises shall be liable to service tax.

If there are, for example, three restaurants in a hotel, say, A restaurant which is air conditions but serving  only vegetarian meals, B Restaurant which is non- air  conditioned and C restaurant which serves  liquor  and is air conditioned, then service tax will be levied on services provided by ‘C’ restaurant only.

There could be situations where food/ meals/ snacks/ beverages are  served outside the restaurant (such as garden or swimming pool area) are served from a separate kitchen (like room service) and also billed by a different unit of hotel which is not a ‘restaurant’, in such case, service tax may not be leviable.

Taxability of Restaurant Services

S.No.	Criteria / Service	Taxability
1.	Air conditioned Fully Partly For whole year For part of year	Yes (with 2)
2.	Licence to serve Liquor /alcoholic beverages	Yes (with 1)
3.	No licence to service liquor /alcoholic beverages but air conditioned	No
4.	Non air- conditioned but licence to serve alcoholic beverages	No
5.	Non air- conditioned and no licence to serve alcoholic beverages	No
6.	Food/ meals/ beverages served in rooms	No
7.	Food/ meals./ beverages served outside restaurant by the restaurant	Yes
8.	Food/ meals / beverages service outside restaurant by unit not known as restaurant	No
9.	Invoice  value – VAT component	No
10.	Service charges included in invoice	Yes
11.	Saleof packed food/ beverages as take away service or at MPR	No

Value of Taxable Service

Value of taxable services shall not include sale of goods at MRP and sale of food at the counter or home-delivery services. An abatement of 70 per cent. shall be allowed to allow for deemed sale of food and other costs (vide Notification No. 34/2011-ST, dated April 25, 2011) which amends Notification No. 1/2006-ST with effect from May 1, 2011.

The exemption shall be available on the gross price/amount charged by the restaurant for the taxable services provided and it shall include any amount shown separately in the break up of gross amount such as service charges or service surcharge or special cover charges. However, following amounts shall be excluded from the gross value–

a) amount paid by the customer as ex gratia, generally called as tip meant for staff members.

b) local taxes including entertainment tax.

c) sales tax or VAT charged on food sale.

d) sale value of goods sold at MRP.

e) delivery charges (for home delivery service)

CBEC Circular No 139 dated 10 May, 2011 has also clarified that for the purpose of service tax, state value added tax has to be excluded from the taxable value.

Many restaurants charge event charges and special prices on occasions such as on Christmas eve, new year eve, various functions/programmes/ food festivals or during live screening of matches, etc. Such amounts shall also be liable to service tax.

Specific Exemption

An abatement of 70 per cent. shall be allowed to service provider for the taxable services rendered (vide Notification No. 1/2006-ST dated March 1, 2006 as amended by Notification No. 34/2011-ST dated April 25, 2011) by insertion of Entry No. 13 in the said notification. Thus, service tax would be levied only on 30 percent of the invoice  value on all invoices , whether for food or for alcoholic or non-alcoholic beverages. This exemption is optional on the part of assessee. If the invoice  charge service charges separately , service tax will be levied on such charges also. The only component of the invoice on which service tax will not be charged is value added tax. (VAT) which is a state tax.

Person liable

Any restaurant, by whatever name called, any part of which is air-conditioned and has licence to serve alcoholic beverages shall be liable to pay service tax.

= = = = = = =