The practice of charging value-added tax (VAT) and service tax on the entire bill amount by hotels and restaurants has come under the scanner of the Punjab and Haryana high court.

On the basis of a public interest litigation (PIL) filed by Sukhmani Foundation, Sector 33, a division bench of the high court on Wednesday issued a notice to the central government, UT administration, Punjab and Haryana, Chandigarh service tax commissioner, excise and taxation commissioner of Punjab and Haryana as well as Chandigarh Hotel and Restaurant Owners’ Association.

The PIL challenged the practice of charging both VAT and service tax on 100% of the bill amount. It accused hoteliers and restaurant owners in Chandigarh, Punjab and Haryana of “fleecing innocent customers and citizens”.

The petition pointed out that customers were being taxed twice on the same amount – for sale of goods and for provision of service.

Making the submission on behalf of the petitioner, advocate Munish Kapila pointed that as per norms service tax should be charged on 40% of the bill, while VAT should be levied on 60%. But, the current practice lead to double taxation, he said.

The petitioner also attached bills to prove that a customer was charged both taxes on the entire amount.

Kapila submitted before the bench that excise and taxation authorities of Chandigarh, Punjab and Haryana, as well as service tax authorities at Delhi failed to address the issue.

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Based on a complaint by city-based social activist Ajay Jagga about charging of Value Added Tax (VAT) and illegal levying of service charges by city restaurants and hotels, UT finance secretary Sarvjit Singh on September 6, asked officials to get the issue legally examined and submit a report in a week.

Jagga had raised the issue of applicability of VAT and service tax under the Finance Act, 1994. The central government had fixed that the service component of a bill is 40%, and goods component is 60%. But, currently VAT is being charged on the entire bill. He alleged that customers were additionally taxed.