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Tax relief on goods sold at maximum retail price basis by air-conditioned restaurant
October, 08th 2013

The government on Monday clarified that any goods sold by an air-conditioned restaurant on maximum retail price (MRP) basis will not attract any service tax. This means that a bottle of water or cold drink purchased while dining in an air-conditioned restaurant will not be included in the bill while levying the service tax.

The budget for 2013-14 had brought under the service tax net services provided in restaurants with air-conditioning or central air heating in any part of the establishment at any time of the year. "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," the Central Board of Excise and Customs (CBEC) said in a clarification on Monday.

Services provided by specified restaurant in other areas of the hotel are also liable to service tax. This means that food served by the swimming pool or an open area attached to the restaurant will also attract service tax. CBEC has given relief to nonair-conditioned restaurants that source food from a common kitchen that serves air-conditioned restaurants as well.

"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," the department said.

However, there is no respite for ice-cream parlours, but retail vendors of packaged ice-cream sold on MRP basis would not have to levy a service tax.

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