TAXABLE SERVICE FOR SUPPLY OF FOOD
in supply of food any other articles of human consumption of drinks is taxable
under section 66E(i) of the Finance Act 1994 as amended by Finance Act, 2012
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 as a part of the activity is a declared service.
It may be noted
that definition of service in section 65B(44) contains an exclusion in clause
(1A) in relation to transfer, delivery or supply of goods which are deemed to
be sale under clause 29A of Article 366 of the Constitution.
SERVICES COVERED / EXEMPTED
services provided by any kind of restaurant are covered in this entry, the
emphasis is to levy tax on services provided by only such restaurants where the
service portion in the total supply is substantial and discernible. Thus, the
following category of restaurants are exempted-
Services provided in relation to serving
of food or beverages by a restaurant, eating joint or a mess, other than those
having the facility of air-conditioning or central air-heating in any part of
the establishment, at any time during the year, and which has a license to
serve alcoholic beverage. The condition of bar license has been omitted w.e.f.
Below the threshold exemption
The following activities are illustrations of activities covered in this
Supply of food or drinks in a restaurant;
Supply of foods and drinks by an outdoor
In order to ensure transparency and standardization in the manner of
determination of the value of such service provided in a restaurant or as
outdoor catering a new rule 2C has been inserted in the Service Tax
(Determination of Value) Rules, 2006 w.e.f. 1.7.2012 by the amendment rules of
The value of
service in this case shall be determined as per Rule 2C of the Service Tax
(Determination of Value) Rules, 2006. In terms of the said rule, value of the
service portion shall be determined in the following manner:-
Value of service portion…..
Shall be ….. percentage of the total
By an outdoor
(referred to in the second column of the table above) means the sum total of
gross amount charged and the fair market value of all goods and services
supplied by the service receiver in or in relation to the supply of food or any
other article of human consumption or any drink (whether or not intoxicating),
under the same contract or any other contract, less (i) the amount charged for
such goods or services provided by the service receiver; and (ii) the value
added tax or sales tax, if any, levied to the extent they form part of the
gross amount or the total amount, as the case may be.
Scandic Gasaback AB v. Riksskatteverket 2005 (1) – EUROPEAN COURT OF JUSTICE,
where the assessee was running hotel/restaurant and providing meals at
concessional rate to its employees, it was held that taxable amount for supply
of services is consideration actually received. It is irrelevant whether price
paid is higher or lower than cost price.
Notification No. 26/2012-ST dated 20-6-2012, w.e.f. 1.7.2012, abatement @ 30
per cent is available from value of taxable service in respect of supply of
food or any other article of human consumption or any drink, in a premises
together with renting of such premises, including hotel, convention center,
club, pandal, shamiana or any other place specially arranged for organizing a
function together with renting of such premises provided that cenvat credit on
any goods classifiable under Chapter 1 to 22 of Central Excise Tariff Act, 1985
used for providing taxable service has not been taken.
EXEMPTION FROM SERVICE TAX
services are exempt from levy of Service Tax vide Notification No. 25/2012-ST
dated 20-6-2012 –
a). serving of
food or beverages by a restaurant without bar license and without facility of
air conditioning. (The condition of bar licence has been withdrawn w.e.f.
provided to educational institutions by way of catering under a Government sponsored
centrally assisted mid-day meal scheme.
provided is relation to serving of food or beverages by a canteen maintained in
a factory covered under the Factories Act, 1948, having the facility of
air-conditioning or central air heating at any time during the year (w.e.f.
Vide Order No.
1/1/2013 dated 17.09.2013, Central Government has granted an ad-hoc exemption
to following services provided in the State of Uttrakhand from whole of Service
(i) Services by
way of renting of a room in a hotel, inn, guest house, club, campsite or other
commercial place meant for residential or lodging purposes;
provided in relation to serving of food or beverages by a restaurant, eating
joint or mess.
However, it may
be noted that this exemption was in force for the period from 17/09/2013 to
So far as
Cenvat Credit is concerned, in terms of the Explanation 2 to Rule 2C of the
valuation rules, any goods meant for human consumption classifiable under
Chapter 1 to 22 of Central Excise Tariff Act, 1985 are not ‘inputs’ for
provision of such service. Cenvat Credit is, therefore, not available on these
item. Availability of Cenvat Credit on other inputs, input services and capital
goods would be subject to the provisions of the Cenvat Credit Rules, 2004
including the provisions relating to reversal of credits contained in Rule 6.
It may be noted the sale of food in the restaurant would amount to clearance of
exempt goods and thus the provisions of Rule 6 of the CENVAT Credit Rules, 2004
will not applicable.