According to financial act ,1994 , section 66E(i) , Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner is DECLARED SERVICE.
What is taxable?
Service portion while supplying the food is taxable under service tax act.Value of food on which vat is levied is not taxable under the act.
Services provided for serving of food or beverages by restaurant, eating joint or mess which has no air conditioning or central heating facility are exempt from service tax. w.e.f. 1/4/13.
Services to an educational institution by way of catering under mid day meals scheme sponsored by government are exempt. Notification no 25/2012 , sr no 9 (a).
there were two conditions for taxability under food related services
- The restaurant should have AC or central heating And
- The restaurant serves alcoholic beverages.
The second condition is removed with effect from 1/4/13. So now all the restaurant which has AC or heater are liable to pay service tax. In spite of this, small service provider exemption is available to them.
Service Tax on 40% value:
The restaurants with AC or central heating are required to pay service tax on 40% of the value of services. So rate will be 4.944%.
CBEC circular no 139/8/2011
- Sometimes service provider has more than one restaurant in the same premises and one has AC and another has not. In that situation, service provider can avail exemption for non air conditioned restaurant if they are clearly different restaurants and separately named. . But it is advisable to inform department if assessee does not levy service tax on non-AC part.
- We can see big restaurant with swimming pool and open area attached to restaurant. In this case, If food is served at open area , service tax will be payable on it also.
Outdoor catering services:
“outdoor caterer” means a caterer engaged in providing services in connection with catering at a place other than his own but including a place provided by way of tenancy or otherwise by the person receiving such services. as per section 65(76a) of finance act, 1994.
This definition is not effective from 1/7/12.Outdoor catering has not defined in any rules so we can understand it in common parlance test.
Outdoor caterer means service provider does not provide service at his place but he goes outside to provide service.
If service provider provides service in canteen of office or factory and owner of office receives the services. It is outdoor catering.Canteen is not place of business of service provider. If services are provided at place where there is no AC or heater, the service will be exempt.
Tax will be payable on 60% of the total amount.
If service provider provides food service as bundled service (hotel, convention center, club, pandal, shamiana ) , tax rate will be 70% of the total amount.
Service provider can avail credit of input services, capital goods and input goods other than food items. service provider has to take proportional cenvat creidt for common input services as per rule 6(3)