CBEC has not specified on the subject, say hoteliers

The revenue authorities will soon issue a clarification on whether service tax applies to takeaway and home delivery orders from air-conditioned eating joints.

“We are working on that. We will soon issue a circular in this regard,” a service tax department official told Business Line. He, however, refused to elaborate whether this would result in any relief to the food joints.

Food joints and take-away restaurants are seeking this clarification as the indirect tax policy-making body, the Central Board of Excise and Customs, has not specified whether service tax will be levied only on food consumed in air-conditioned restaurants or even on food taken away.

In his Budget speech this year, Finance Minister P. Chidambaram brought all air-conditioned restaurants, irrespective of whether they were serving liquor or not, under the service tax net from April 1.

However, questions were raised whether take-away or home delivery food from restaurants, such as McDonald’s, Domino’s, Pizza Hut would also attract service tax, as most of these have air-conditioned dining space. Some of these outlets have dedicated counters outside air-conditioned halls for take-away orders. Since these outlets do not use the AC facility, these orders should not be taxed, it was felt. However, such joints continue to charge service tax.

Levy now

In May, the Finance Ministry informed Parliament that the tax would be levied. Hectic lobbying soon followed, especially by the Hotel and Restaurants Association, to get an exemption. However, the revenue authorities say that a final decision has yet to be taken.

In the absence of a clarification, AC restaurants are levying service tax on every order, consumed inside or taken away. This tax is calculated on 40 per cent of the total value of the order, which translates to an effective rate of taxation of 4.8 per cent plus education cess, against the general rate of 12 per cent plus service tax.

Hoteliers say imposition of service tax has not impacted their overall sales, but if there is clarity, it will help consumers as well as the tax administration. There have been cases of some food joints collecting the tax on take-aways or home delivery, but not depositing it with the tax department.


(This article was published on September 14, 2013)
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