Hotel Industry

[Guest]

Hello Sir,

I have two queries

1. Whether service tax applicable on dine in or dine out service in hotel.

2. What is Bundle services. We are selling room with breakfast fascility. Should be paid service tax under accomodation service@ 7.61 or in Bundle service @ 8.65.

Thanks,

[Tanvi Aggarwal]

Dear Sir,

On Dine In service the service tax will be on 40% of the total amount. However, in case of Dine Out it seems that no service element is present, therefore, no service tax need to charged. But practically, most of the restaurants are charging the same

‘Bundled service’ means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.

See: "Clarification regarding changes made or proposed in Budget 2012-2013 - Dated 16-3-2012 - Service Tax"

Practically, in these days, Bundled services have no relevance after introduction of negative list. Only for administrative purposes; i.e. for making payment and filing of return, category of service need to be defined.

In your case, you can charge service tax @ 8.65% as bundled service tax till 31st May 2015. However, w.e.f 1st June 2015 service tax on bundled services will be 9.8%.

[Guest]

Hello Tanvi,

Thanks for your advise.

I know practically hotels are charging service tax on dine out also. I wants to know whether it is defined in law somewhere or under litigation now. If under litigation so I would like to charge service tax for safe side.

Regarding Bundle service, If we see from the point if view of tax planning, Can we raise two seperate invoice one for accomodation (7.65%) and one for restaurant service (4.94%) rather than charging 8.65%. If yes then is there any clarification how we'll calculate the value of room service and breakfast service.

Once again thanks for your advise.

[Tanvi Aggarwal]

Dear Sir,

In my opinion, there is no specific clarification by government regarding service tax element on take-away food orders.

Regarding Bundle service, in my opinion you cannot raise separate invoices. Because after raising separate invoices the service will be no more a "bundled service".

For more details please refer Section 66F of Finance Act, 1994.

AI Summary

Service tax on hotel services: dine in generally taxable; takeaway often lacks a service element, bundled treatment affects invoicing. Dine in transactions are treated as containing a taxable service element while dine out/takeaway orders are generally viewed as lacking a service element. Bundled service is a combined supply of multiple services whose classification affects the applicable service category for administrative and return purposes. Issuing separate invoices for accommodation and restaurant components will alter the character of the supply and is inconsistent with treating the transaction as a bundled service.