How few restaurants charge service tax. Double check! (Revised)

With the routine increase of number of services in the ambit of service tax regime, it is paramount that we, as taxpayers, are informed about the incidence of tax. The concept of service tax is applicable to a wide variety of services–including legal services in some cases as per the notification by the Government the blog post can be accessed here.

The instant post, which is influenced from the recent queries I received from many people on Twitter and Linkedin and also a notice issued by the Delhi High Court Bar Association (DHCBA) to educate on incidence of service tax, shall examine the practice which many eating joints have adopted in charging service tax.

Following is an example how various eating joints are levying service tax:

  1. Rs. 1000 for the food consumed;
  2. Rs. 100 service charges on Rs. 1,000;
  3. Rs. 54.34 as service tax (@ 4.94% on 1,000+100); and
  4. Rs. 145 as VAT (@ 14.5%).
  5. Rs. 1,299.34 is the final bill.

As per DHCBA’s notice, the 3rd entry is flawed and instead of Rs. 54.34, the restaurant should have charged only Rs. 4.94 (4.94% on service charge of Rs. 100).

This understanding is contrary to the Notification No. 24/2012 released on June 6, 2012 which can be accessed here. Per the Notification, not only the food and beverages are in the ambit of service tax regime, the abatement of 60% is provided to a restaurant and of 40% to outdoor catering.

Meaning thereby, in the given illustration, on the gross bill of Rs. 1,100 the Service tax will be charged on Rs. 440–after deducting 60% abatement.

However, there have been instances where Service Tax is still charged on take away items, like a pastry for instance. This is an area which needs clarification and DHCBA should indeed release a notice and / circular about such incidence where Service Tax is still charged when not required.

The owner alone can elaborate on the final usage of this excess amount charged. However, the customers need to be careful and scrutinise the bill as well. I really hope that the Tax Department makes sure to tally the figure in entry of service tax corresponding with the service tax deposited by these restaurants.

Most consumers, including your truly, do not pay specific attention to the calculation of the tax and charges. We start calculating the tip amount and leave the joint. It is our right to bring it to the attention of the restaurant that the invoice is flawed and needs rectification. The restaurant cannot refuse correcting the bill and please make sure you point out this mistake to the eating joint.

All the best. Thanks to the Delhi High Court Bar Association in taking this initiative of releasing a notice about this practice.

Thanks to those who commented and helped me revise the post.

42 Comments

Filed under Consumer Complaint, In Accordance With Law, Negligence, Uncategorized

42 responses to “How few restaurants charge service tax. Double check! (Revised)

  1. vidhe

    (G) Exemption & Exclusion:
    1. Exemption to services provided or to be provided, to any person, by
    a restaurant, by whatever name called, having the facility of airconditioning
    in any part of the establishment, at any time during the
    financial year, which has licence to service alcoholic beverages, in relation
    to serving of food or beverage, including alcoholic beverages or both, in its
    premises.
    Exempts this taxable service from so much of the Service Tax leviabnle
    thereon as is in exces of the Service Tax calculated on a value which is
    equivalent to 30 percentage of the gross amount charged by such service
    provider for providing the taxable service subject to the condition in the
    notification.
    (Notification No. 1/2006 ST dated 1/3/2006 as amended by Notfn. No.34/2011
    ST dated 25/4/2011)

  2. “Meaning thereby, in the given illustration, on the gross bill of Rs. 1,100 the Service tax will be charged on Rs. 440–after deducting 60% abatement.”

    Sir! What you mean to say that the service tax of 4.94% would be applicable on 40% of the bill amount, i.e Rs. 440. As per my understanding and study of the service tax regulation, the service tax rate is 12.36% and this rate of 12.36% is applicable on 40% of the bill amount. This is equivalent to saying that service tax of 4.94% is applicable on the total bill amount (amount+service charge).

    You may want to read this:
    http://www.legallyindia.com/201211053231/Bar-Bench-Litigation/dhcba-gets-restaurant-service-tax-calculation-wrong-in-public-interest-notice

  3. Bharat reddy

    Hi dushyanth,
    I’m frm Hyderabad, last week ive been to ohris food court, nd my bill was 2470/- , service charge is 247/- , my service tax is 134/- and vat is 282/- – total 3134/- … I later had Gone through this post… Was the billing which was made against me is correct or does it include any fraud?? If yes?? Wat can I do now?? Please let me know
    Thank you

    • Aayushman

      Yes its correct

      • Sarita Thomas

        im sorry, but how can that be correct? I thought as per the article he was definitely charged more on service tax..am i wrong?

        • The Service Tax shall be charged on the gross amount. 2470+247=2,717. Seems to be correct.

          • Rohan Rathod

            Sir i am really confused..!!

            The Service Tax shall be charged on the gross amount. 2470+247=2,717.

            AND

            Rs. 54.34 as service tax (@ 4.94% on 1,000+100
            As per DHCBA’s notice, the 3rd entry is flawed and instead of Rs. 54.34, the restaurant should have charged only Rs. 4.94 (4.94% on service charge of Rs. 100).

            So In bharats case service tax should have been only charged on 247 right..??
            Please correct me if em wrong..!!

          • ur calculation seems to be contradicting ur blog

  4. Shivendra

    Dushyantt,
    Any comment on below? Where actually can we find a trusted govt source/notice which clearly explains on this issue?

    http://www.legallyindia.com/201211053231/Bar-Bench-Litigation/dhcba-gets-restaurant-service-tax-calculation-wrong-in-public-interest-notice

  5. hitesh

    hi, i just went to restaurant, and they charged me the all the taxes as shown in your model. is there any place i can complaint, without taking my case to consumer court.

  6. Saurabh Apte

    Hi,
    I had been to a restaurant and after dinner i saw the bill was charged higher. I was charged Service Tax on the complete amount (i.e the bill and service charge both) and upon that the service tax was calculated at the rate of 4.94%. When questioned I was informed that any restaurant serving alcohol has the right to charge us with the Service Tax on the whole amount.
    Is this right? if not, what should i be doing now?

  7. coolmaddyworld

    Dude according to ” http://www.legallyindia.com/201211053231/Bar-Bench-Litigation/dhcba-gets-restaurant-service-tax-calculation-wrong-in-public-interest-notice ” link, your post is showing the wrong calculation…….

    Now i am confused which is the right calculation… Yours or below mentioned link …
    http://www.arkayandarkay.com/service-tax-on-restaurants-debunking-myths/

  8. ANIL CHAUDHARY

    if some resturants charging excess service tax then where to complain

  9. P K MUKHERJEE

    Complaints can be lodged, inter alia, with the Superintendent / Assistant Commissioner of Service Tax, mostly located in the Central Excise Commissionerate having jurisdiction over the restaurant.

  10. abhey

    thanks 4 enlightening
    .

  11. Sarita Thomas

    im sorry, but how can that be correct? I thought as per the article he was definitely charged more on service tax..am i wrong?

  12. Aditya

    Should a takeaway, say a McDonald’s in a food court in an A/C mall, charge service tax? The food court does have a common seating area. And the mall is A/C too. But the service that you get in this case is not even close to what you get in a restaurant. What do the rules say? And if the rules are not clear, what is the standard practise currently in such cases?

  13. Arun

    Dushtant,
    I found an article (the link)
    http://www.legallyindia.com/201211053231/Bar-Bench-Litigation/dhcba-gets-restaurant-service-tax-calculation-wrong-in-public-interest-notice

    Now I’m really confused cos wat they say if different from wat u’ve said .Pls take a look at this article and the image in it and clarify,

    • Dear Arun,

      If you go through the article, you will find that LI mentioned my post also bringing out the error. After reading my post, you will also see that the understanding of the circular is not in consonance with the notification.

      Cheers!
      DK.

  14. thanks for such a meanigful information. I live in India and has been paying the service tax on the total bill given by the restaurant. I hope I will be now able to save many rupess from onwards.

  15. khushboo

    Dear Sir,
    Is der any update regarding service tax on the snacks bar outside the multiplex etc. ?

  16. sandeep khanna

    hello everyone, i was charged service tax and VAT by one of the restaurant in Delhi. TIN is available in invoice bur service tax no is not there, that means restaurant did not deposit the service tax which i had paid?if yes, where should I write without going any where?

  17. Devesg

    It is very sad to see that there is such a negative feel among the diners about the “service charge”. People dont realise that when a restaurant calls a certain charge as a service charge, it does not refer to just the service that is being offered to you on the table.

    A service a cummulative package which includes amenities like options to pay by credit card (which attracts a fee on the merchant), the service in the form of mainting the hygine of the restaurant and the most essential rest rooms, the service offered in the form of a warm welcome at the entrance by the security guard, and many more areas of the similar sort which get ignore most of the times.

    Also another point that most people miss is that showing a seperate service charge is only an internal billing system of the restaurnat you are dining at. If an item is priced at Rs. 100 and an additional service charge of 10% is put, your basic taxable amount is Rs.110/-. Now this bifurcation only helps a restaurant to start budgeting for its certain heads of expenses right at the billing stage itself. So if you as a diner has an issue about this small management thing a restaurnat is doing, they’ll very well then rather price the item directly at Rs.110 and then collect taxes on that.

    SO PEOPLE STOP MAKING SUCH A FUSS ABOUT “SERVICE CHARGE”.

    When you enjoying the convenienvce, rather pay for it.

    No business would ever do anything to loose a customer. And every business knows that if it overcharges, it only looses customers.

  18. brij

    On an average a user pays from 20-30% tax for the bill. depending on restaurant some charge service charge(for internal billing system or not) separately others are all inclusive. But one this is sure eating out or taking any service has become hell lot expensive.
    Mr Lungibaram has covered everything under the sun in service tax because they simply cannot directly tax the rich(Did i hear BCCI-IPL ring in my ear).
    Though some services are unavoidable and you will have to pay service tax. Boycott things which can be boycotted. Use restaurants only when absolutely necessary.

  19. Rahul lumb

    I went to striker pub & kitchen,VASANT KUNJ,with a few friends on 07/06/13,and as mentioned in the blog was charged wrongly under the ambit of service tax.

    After an argument with the manager named RAJESH KUMAR OJHA,STAFF NO T23 on the service tax issued,i was told i m wronh n it is 4.94% of the total bill amount.

  20. I went for dinner to Barbeque Nation and they have charged the service tax on the complete bill amount ( 3200 for food + 128 service charge) whereas it should have been only on service charge. After a 20 minutes conversation, they did not agree to my point and I had to pay the entire bill amount. What can be done now?

  21. What is the VAT rate in restaurant bills in Maharashtra, my understanding is 12.5% on food, 5%on hard liquor, and 20% on wines, is this correct?

  22. premsurat

    we want to pay service tax for takeway

  23. SANCHIT AGRAWAL

    Items Amount
    Bill of food item 900
    Service charge (assuming 6%) 54
    Sum Total 954
    Service tax to be levied on (40% of sub-total) 381.6
    Service tax (at the rate of 12.36%) 47.16576
    VAT @ 12.5% of the sub-total 119.25
    Total amount to be paid 1120.416
    https://in.finance.yahoo.com/news/charges-taxes-restaurants-121637590.html

    SIR BUT THIS IS SAYING DIFFERENT THING. WHICH ONE IS RIGHT?
    PLEASE CLEAR IT.

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