In an important clarification vide Circular No. 173/8/2013 – Service Tax dated October 7, 2013, government has clarified the following queries in respect of exemption provided towards restaurant services vide Notification No. 25/2012 –ST.
|S.No.||Query||Clarification as provided||MGS comment|
|1||In a complex where air conditioned as well as non-air conditioned restaurants are operational but food is sourced from the common kitchen, will service tax arise in the non-air conditioned restaurant?||Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year (hereinafter referred as specified restaurant) attracts service tax. In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in a non air-conditioned or non centrally air- heated restaurant will not be liable to service tax. In such cases, service provided in the non air-conditioned / non-centrally air-heated restaurant will be treated as exempted service and credit entitlement will be as per the Cenvat Credit Rules.||The clarification has been important on two perspective:|
|a. It clarifies that kitchen cannot be treated as restaurant. Thus, even if kitchen is same, or food from the kitchen feeding a restaurant is provided for other purpose, the same would not equate to being provided by the restaurant.|
|b. It further clarifies that the exemption is available to restaurant and not its source per se.|
|2||In a hotel, if services are provided by a specified restaurant in other areas e.g. swimming pool or an open area attached to the restaurant, will service tax arise?||Yes. Services provided by specified restaurant in other areas of the hotel are liable to service tax.||The clarification provides that servicing of food in extended portions of restaurant would also be considered at par with servicing inside the restaurant.|
|3||Whether service tax is leviable on goods sold on MRP basis across the counter as part of the Bill/invoice.||If goods are sold on MRP basis (fixed under the Legal Metrology Act) they have to be excluded from total amount for the determination of value of service portion.||The clarification is in line with excise as preparation of such would amount to manufacture and be exigible to excise . This could be applied to contest no demand on minibar products are they are required to be sold on MRP basis.|
However, the much awaited clarification failed to enlighten assessees on the following issues:
- Sale of food made by Hotels and Restaurants under Take away / home delivery
- Food provided under room service. If not clarified, clarification no.2 can be extended by department for the said purpose to say that provision of food by taxable restaurant in room is also service in restaurant (extended service). However, alternate argument provides that since there is no ambience or service of waiters and other amenities as is provided in restaurant is not available in room services, the equity lies in treating this as sale of food rather than service.
The issues are highly litigative and respite is required in terms of clarification to avoid unnecessary huge demands later on assessees.