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:
- Rs. 1000 for the food consumed;
- Rs. 100 service charges on Rs. 1,000;
- Rs. 54.34 as service tax (@ 4.94% on 1,000+100); and
- Rs. 145 as VAT (@ 14.5%).
- 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.