Service Tax Scope widened in Budget 2013
Budget 2013 has not only failed to bring smile on the faces of the Common Men but it also spread some sadness by expanding the scope of service tax. With the summer is on the verge Finance Minister P.Chidambaram has played his trick to collect more taxes indirectly from common man by levying service tax on every restaurant even if it has no license to serve alcoholic beverages. Let’s see how the changes made in scope of service tax can put extra weight on Common Man’s Pocket.
Applicability before 1st April 2013
All kind of restaurants, irrespective of their size, are liable pay service tax only if:
– Services Provided in relation to serving of food restaurant or beverages by a restaurant, eating joint or a mess having the facility of air conditioning or central air heating in any part of establishment, at any time during the year
– Which has the license to serve alcoholic beverages.
Applicability with effect from 1st April 2013
Services provided in relation to serving of food or beverages or other article of human consumption (whether intoxicating or not) by a restaurant, eating joint or a mess, having:
(i) The facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year
Supplied in Any Manner, as a part of the activity
Analysis of Amended Service Tax Scope
From 1st April 2013, service tax is applicable only if the restaurant has the facility of air-conditioning or central air heating in any part of the establishment at any time during the year. If the restaurant does not have any of these, no service tax will be applicable. Hence it is irrelevant whether the food restaurant have the liquor license or not.
It is important to note that serving of food in a restaurant is a composite transaction involving sale and service. While food is sold, services relate to the use of restaurant space and furniture, air-conditioning, waiters, linen, cutlery and crockery, music etc are also included in the Bill.
Having recognized serving food in a restaurant as a composite transaction, the question arises as to how to identify the service component.
For arriving at the service component, an abatement of 60% has been provided for food sold under Rule 2C of Service Tax (Determination of Value) Rules, 2006 and the rest of the bill amount (i.e 40%) relates to services provided by restaurant on which restaurant is liable to pay service tax. Hence from now on Dominoz, Pizza-Hut, KFC, Mc-Donald etc will be liable to pay tax. However service tax would not be applicable for Home Delivery.
|Service Chargea||C[% of (A+B)]|
|Service Tax on Total Amount-4.94% ie.12.36% of 40% of Total Amount||4.94% of (A+B+C)|
*Exclusive of VAT
So now after the Budget 2013 it is better to avail home delivery option rather than going out and dine.