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Supply of Food or Drink
Supply of Food or Drink [Sec 66E (i)]

Declared Services Page

INTRODUCED: With Effect From 1st July 2012
 
Contents
Definition
Scope
Valuation
Abatement
Exemption
Clarification
Relevant Notifications / Circulars
 
 
DEFINITION:

According to section 66E (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity is a declared service.

 
SCOPE:
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What are the activities covered in this declared list entry?

• Supply of food or drinks in a restaurant;

• Supply of foods and drinks by an outdoor caterer.

 
Valuation:
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Notification No 24/2012 dated 06.06.2012 introduced new Rule 2C in Service Tax (Determination of Value) Rules, 2006 for determination of the value of service portion in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering.

As per this rule, the value of the service portion shall be determined in following manner;

Value of service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner Shall be the following per cent of the TOTAL AMOUNT charged:
In a restaurant 40
As part of outdoor catering 60

The term “total amount” means the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink (whether or not intoxicating), whether or not supplied under the same contract or any other contract, after deducting the amount charged for such goods or services and the value added tax and sales tax levied thereon. The fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles

Whether CENVAT Credit will be available?

The provider of taxable service shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986)

Hence, CENVAT CREDIT of following shall be available;

1. Input Services

2. Capital Goods

3. Inputs classifiable other than under Chapters 1 to 12 of the Central Excise Tariff Act, 1985.

Whether there are any restrictions on availment of CENVAT CREDIT?

1. Any goods meant for human consumption classifiable under chapters 1 – 22 of Central Excise Tariff are not ‘inputs’ for provision of such service and therefore, CENVAT Credit not available on these items.

2. CENVAT Credit of other inputs, input services and capital goods will be available subject to the provisions of the Cenvat Credit Rules, 2004;

Clarification

The sale of food in the restaurant would amount to clearance of exempt goods and thus the provisions of Rule 6 of Cenvat Credit Rules, 2004 will be applicable.

Would Rule 2C of the Valuation Rules also apply to determination of value of service portion in cases of supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function?

No. Rule 2C applies only in cases of restaurants and outdoor catering.

For valuation of service portion where such supplies are made in any other premises like hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function an abatement of 30% has been provided for in exemption Notification No. 26/2012-ST dated 20.06.2012.

Abatement

As per Notification No 26/2012 dated 20.06.2012, abatement is available for bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises

Rate of Abatement : 30 %

Whether CENVAT Credit will be available where Abatement is availed ?

Any goods meant for human consumption classifiable under Chapters 1 to 22 of Central Excise Tariff are not ‘inputs’ for provision of such service. Cenvat Credit is, therefore, not available on these items.

However, CENVAT CREDIT of following shall be available;

1. Input Services

2. Capital Goods

3. Inputs classifiable other than under Chapters 1 to 12 of the Central Excise Tariff Act, 1985.

 

SERVICE TAX EXEMPTIONS:

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Notification No 03/2013 dated 01.03.2013 exempts services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having,

(i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year,

EXPLANATION:

Serving food or beverages by a restaurant is taxable only if such restaurant is

• having facility of air-conditioning in any part of the establishment at any time during the year;

• or central air-heating in any part of the establishment in any part of the establishment;

Hence, with effect from 01.04.2013, all the restaurants having air-conditioning or central air-heating facility comes under the net of Service Tax.

Service Tax Clarifications:

Government has issued Circular No. 173/8/2013-ST dated 07.10.2013 to give certain clarifications with regards to Restaurant Service.

S.r. No.

Doubts

Clarifications

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.

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.

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.

RELEVANT SERVICE TAX NOTIFICATIONS:
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Service Tax Notification No. 24/2012-S.T., dated 06-06-2012 Exemption Notification
Service Tax Notification No. 25/2012-S.T., dated 20-06-2012, Exemption Notification
Service Tax Notification No. 26/2012.S.T., dated 20-06-2012, Exemption Notification
Service Tax Notification No. 03/2013.S.T., dated 01-03-2013, Exemption Notification
 
RELEVANT SERVICE TAX CIRCULARS/INSTRUCTIONS/TRADE NOTICES:

 Taxation of Services - An Education Guide dated 20.06.2012

 

 
 

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