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CBEC: No service tax on food to rooms from hotel restaurants
May, 11th 2011

Food served in hotel rooms from their air conditioned restaurants with liquor licences will not attract service tax, the revenue department today said.

"When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor," a Central Board of Excise and Customs (CBEC) circular said.

While clarifying the provisions of service tax to be levied on services provided by air conditioned restaurants with licence to serve liquor, the CBEC said the Value Added Tax (VAT) excluded from the taxable value.

Similarly, luxury tax would be excluded in case of short term accommodation service.

Presenting the Budget for 2011-12, Finance Minister Pranab Mukherjee had announced that a 10% tax on services provided by air-conditioned restaurants that have licence to serve liquor, with an abatement of 70%. Thus, the effective burden will be 3% of the bill.

Besides, bills for short-term accommodation provided by hotels, inns, guest houses, clubs or campsites went up by 5%.

The clarification comes a week after the new provisions on Service Tax came into effect from May 1.

In the circular, CBEC said the tax also cannot be charged under the provision of short-term accommodation if the bill for the food is raised separately and does not form part of the declared tariff.

Regarding Value Added Tax (VAT), it said: "For the purpose of service tax, state VAT has to be excluded from the taxable value".

In its circular, the department said service tax is leviable on services provided by a restaurant if it has facility of air-conditioning in any part of the establishment and has licence to serve alcoholic beverages.

"Within the same entity, if there are more than one restaurant, which are clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax," it added.

Besides, services provided by a restaurant in other parts of the hotel like swimming pool or an open area attached to the restaurant are also liable to taxation as these areas become extensions of the restaurant.

In case of short term accommodation service, the circular said the actual tax will be liable to be paid on the amount charged which means the declared tariff plus subtraction of any discount.

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