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New service tax from April 1; ambiguous on host of entities like home-delivery chains, take-away joints
April, 01st 2013

From Monday, you may have to pay more not just to eat out but also for the pizza delivered at your doorstep, or a burger you have picked up to have in your car or even the lunch in your office canteen.

In the absence of proper clarity on a service tax provision, most home-delivery chains, takeaway joints, food & beverage outlets at theatres, self-service outlets and a clutch of air-conditioned entities are likely to play safe and impose the tax .

The budget 2013-14 had extended service tax to all air-conditioned restaurants, without distinguishing between a restaurant, eating joint, canteen or a mess, leading to confusion on whether service tax should be imposed on these entities or not from April 1.

Tax experts, however, say that service tax can be levied only if there's a component of service involved.

"Service tax can only be levied if there's an element of 'service' involved which would typically be the case when one goes to a high-end restaurant. In case where food is just bought as 'takeaways' or in case of home deliveries, there's no service or it is incidental to the actual sale of food," said Pratik Jain, partner, KPMG India.
What's added to the confusion is a missive sent out by the finance ministry when the levy was first introduced in 2012 on air-conditioned restaurants serving alcohol. The letter had stated that the levy is directed at high-end restaurants and is not to be confused with sale of goods at an eatery, where service is materially absent or, at best, minimal.

The valuation rules put out by the Central Board of Excise and Customs for valuing service part of the activity of a restaurant also do not provide any method for valuing the service portion for eating joint or a mess.

The rule provides that value of service portion, where goods being food or any other article of human consumption or any drink, is supplied as part of the activity at a restaurant would be 40% of the total amount.

Industry feels that these entities should not be taxed as they do not provide any restaurant service and has petitioned the finance ministry, which is examining the matter and could issue a clarification soon.

"We are looking at the matter...will soon issue a clarification," said an official.

Industry is pitching for deferment of the tax itself. Samir Kukreja, president of the National Restaurant Association of India (NRAI), which represents all organised restaurants, said the industry has been discussing the issue with the finance ministry.

"We have requested the ministry either for deferment or different slabs for implementation," he said, adding that the tax issue could negatively impact consumption. At takeaways or kiosks, consumers don't avail of any service, so these should be exempt from tax, says Kukreja.

But, with industry unlikely to take chances, consumers may end up paying more. McDonald's, which also has kiosks and takeaways, has decided to impose tax across all segments.

 
 
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