Service Tax Levy on Restaurant

[Srivatsan Krishnamachari]

Dear Learned Friends,

In 2013 Kerala High court in an Order held the Service Tax levy on Restaurant as 'unconstitutional'. Kindly clarify whether this order of Kerala High court's Order or similar orders from other High courts have been overruled by the Apex court.

Regards,

K.S

[Rajagopalan Ranganathan]

Sir,

I have not come across any such judgment by Kerala High Court. Could you give the citation for the same.

[Mahir S]

During last few years period, no any order passed by the Apex Court pertaining to service tax Levy on restaurant.

[YAGAY andSUN]

Dear All,

For your kind information the judgment pronounced by the Hon'ble Kerala High Court in this regard.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

2013 (7) TMI 431 - KERALA HIGH COURT

Other Citation: (2013) 31 S.T.R. 257, (2013) 40 STT 253, [2013] 64 VST 462 (Ker)

KERALA CLASSIFIED HOTELS AND RESORTS ASSOCIATION and OTHS. Versus UNION OF INDIA and OTHS.

[Srivatsan Krishnamachari]

Dear Learned Friends,

Thanks for the response and my sincere thanks to Mr.Pradeep Khatri of Team Yagay and Sun for providing with us the said Judgment of Kerala High court .Interestlingly the High Court of Judicature Bombay while disposing of a Writ (W.P No:2159/2011 Indian Hotelsand Restaurants Association vs. Union of India and Others vide its Order dated 08/042014 upheld the validity of the legislation of levying service tax on restaurant services there by differing with the position taken by the Kerala High Court. As per my understanding High Courts are Constitutional Courts and their decision on an issue becomes law of the land unless such decision is overruled by the Apex court.In this instance the two High Courts differed from each other and so which of these two views should be taken into cognizance particularly so in cases pertaining to states other than Kerala and Maharashtra. Mr Naveed.S has stated that there has been no Order from Supreme Court in the past few years on the levy of Service tax on Restaurants. It won't be out of context here to recall a recent Judgment of High Court of Uttarakhand in a Sales Tax Revision Application (Revision Application No:2/2014) Valley Hotels and Resorts vs. The Commissioner Commercial Tax Deharadun which held while addressing this important issue of ":double taxation" that VAT cannot be levied on the portion which attracts service tax.If we go by this then the 40% of a bill which is taken into consideration for calculating Service tax should not be taken into for calculating local VAT.But we find most of the restaurants charge local VAT on the full value of the Items' price plus service charges. They raise a bill in the following fashion:

Eatables: ₹ 1000

+ Service Charges( say 10%) ₹ 100= ₹ 1100

VAT say 12.5% on ₹ 1100 = ₹ 137.50 sub total = ₹ 1237.50

Service Tax@12.36% on 40% of ₹ 1100 = Rs.54.38

Hence Total Bill: (Basic 1000+ Service Charge 100+ VAT(@12.5% on 1100) 137.50+

Service Tax (@12.36% on 40% of 1100) 54.38 +) = 1291.88.Where as if we follow the ratio as per the said Uttarakhand High Court's order, then local VAT should be calculated on 60% of 1100 i.e on 660 @12.5% =Rs.82.50. So don't we pay ₹ 55 more. I request my learned friends' views in this regard.

Thanks and With Regards,

K.S

[Ganeshan Kalyani]

The Kerala High Court had held that levy of service tax on hotels is ultravires the Constitution and hence had set aside the same. However, the Bombay High Court has not accepted the same.

Service tax is governed by Central Government and the VAT is levied by the State Government. The service tax is levied on service portion and VAT is levied on the material portion, which the thumb rule. Article 248 of the Constitution of India r/w Entry 97 of List I of the Seventh Schedule enables it to impose a service tax. And Article 366(29A)(f) of the Constitution of India enables to levy VAT.

The Bombay High Court has not accepted the decision of Kerala High Court saying that the Single Judge in the cited case cannot be accepted.

[Srivatsan Krishnamachari]

Dear Ms Ganeshan Kalyani, Thanks for the response.While it goes without saying that the Central Government and the State Governments have the authority to levy Service Tax and Value added Tax respectively I only need clarification with regard to the correctness of levying VAT on the Service portion too particularly so in the light of the Judgment of Uttarakhand High Court in Revision Application No:2/'2014,Valley Hotels and Resorts vs. Commissioner Commercial Taxes Deharadun.

Regards,

K.S

[Ganeshan Kalyani]

Dear K S,

The amendment to Service Tax (Determination of Value) Rules, 2006 by Notification no.24/2012 dated 6th June, 2012 where 40% of billed value to the customer for supply of food or any other article of human consumption or any drink in restaurant was made liable to service tax.

The Uttarakhand High Court has set aside the Order passed by Commissioner of Commercial Tax and the Judgment of Tribunal, Uttarakhand. It implies from the said Order that service tax should be levied on 40% of billed value to customer and VAT should be levied on 60% of billed value. With reference to Bombay High Court Order and Uttarakhand High Court Order it implies that the bill format which you have shared with us in your post is improper with regards service tax to be calculated on 40% of billed value and on balance 60% of billed value VAT to be levied.

regards,

ganesh

AI Summary

Service tax on restaurant services faces conflicting high court views, impacting VAT allocation and restaurant billing compliance. Conflict among High Courts exists on the validity and application of service tax to restaurant services, generating uncertainty. One High Court held the levy unconstitutional while another upheld it. Separately, judicial interpretation and an administrative valuation rule allocate billed value between service and material components, directing service tax on the service portion and VAT on the remaining portion; common billing practices charging VAT on the full bill may therefore be inconsistent with that allocation.