The Central Board of Excise & Customs has issued a circular giving clarification on the host of queries it has been receiving after the levy of service tax on the two new services, relating to specified restaurants and short-term hotel accommodation, which came into force with effect from May 1, 2011.

In this regard, it said that service tax was leviable on the service provided by a restaurant which had the facility of air conditioning in any part of the establishment and had the license to serve alcoholic beverages.

However, it made clear that when food was served in the hotel room, service tax could not be charged under the restaurant service as the service was not provided in the premises of the air-conditioned restaurant with a licence to serve liquor.

Also, the same could not be charged under the Short Term Accommodation head if the bill for the food was raised separately and it did not form part of the declared tariff.

This clause would certainly be hailed by corporates and travelers who were earlier wary of the increased tax burden announced in the Union Budget this year.

However the taxable services provided by a restaurant in other parts of the hotel, for example, swimming pool, or an open area attached to the restaurant were also liable to service tax as these areas became extensions of the restaurant.

The circular further informed that the state Value Added Tax (VAT) would be excluded from the taxables value.

Within the same entity, if there were more than one restaurant, which were clearly demarcated and separately named, the ones which satisfied both the criteria would only be liable to service tax.