ST & DVAT on Food Part-3

SERVICE TAX ND DVAT ON FOOD & BEVERAGES SERVED IN RESTAURANT, BANQUET ETC.   

PART-3

Purpose of this blog

In this blog we'll discuss various aspects of taxation (Service Tax and DVAT) and case laws in relation to serving/supply of food or/and beverages in restaurant etc. to casual customers without providing lodging and boarding facility i.e. only food etc. is provided and no residential facility.

A brief about the nature of activity of serving of food in restaurant

When we are going to any restaurant for eating the food etc. then we are not just purchasing the food but also utilising various services like use of furniture, use of Air Conditioner, serving facility by waiter etc. Now the question which always been a matter of conflicts is "Is this a contract of supply of food and services are incidental thereto or this a composite contract for supply of food and providing of services ?" and reason for this is that on supply of food etc. VAT/Sales tax is applicable and on Service portion Service tax is applicable.

By 46th amendment to the constitution serving of food is considered as deemed sale. Relevant text of Article 366 (29A)  is " tax on sale or purchase of goods includes- ..............(f) a tax on supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration.... and such transfer, delivery or supply of any goods shall be deemed to be a sale of goods by the person making the transfer, delivery or supply and such a purchase of those goods by the person to whom such transfer, delivery or supply is made".  So as per constitution of India transfer, delivery or supply of any goods shall be deemed to be sale and consequently vat/sale tax will be charged on value of goods ( food etc.) transferred, delivered etc. A point to be noted that only value of goods transferred etc will be deemed to be sale and not service part. So if value of goods and value of service part can be determined separately then vat/sales tax will be levied on value of goods only.

First this activity is taxed under Service tax by Finance Act,2011 by inserting clause (zzzzv) under in Section 65 (105) of Finance Act,1994. As per this clause "taxable service means any service provided or to be provided to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has license to serve alcoholic beverages, in relation to serving of food or beverages, including alcoholic beverages or both, in its premises."

Now under new negative list concept of Service tax, this type of activities are covered under "Declared Service". As per Section 66E (i) of Finance Act,1994  "The following shall constitute declared services, namely......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 as a part of the activity". 

There are many case laws to analysing constitutional validity of levying service tax on this activity, which we'll discuss in brief at last of this blog. First let us go through various provisions of DVAT and Service Tax on this.

DVAT provisions regarding activity of serving of food etc. in restaurant

Applicability of DVAT on serving of food: as per Sec 2 (zc) (vii) of DVAT Act sale includes this activity hence DVAT is leviable on this. Other than this there is no provisions for valuation etc. specifically for this activity. So normal provisions will apply. DVAT will be charged on value of goods ( and if separate value can't be determined then on total value) at the rates mentioned in the schedules and if composition scheme is opted then as per composition scheme.

Service Tax provisions ( under negative list approach)regarding activity of serving of food etc. in restaurant

Applicability of Service Tax on serving of food: Now under new negative list concept of Service tax, this type of activities are covered under "Declared Service". As per Section 66E (i) of Finance Act,1994  "The following shall constitute declared services, namely......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 as a part of the activity". 

Taxable value for Service Tax: As per Section 67 of the Finance Act,1994 Service Tax will be charged on gross value received in money plus fair market value of consideration received in kind, and if consideration is not ascertainable then value will be determined in prescribed manner. As per Rule 2C ( as amended wef 01.07.2012) of the Service Tax ( Determination of Value) Rules, 2006 Value of service portion in this activity will be 40% of the total amount charged for such supply. So if value of service portion is ascertainable service tax will be charged on such value otherwise on 40% of gross value charged for supply of food etc.

Exemption under Service tax - Exemption for this activity has been provided in serial No.19 of Notification No.25/2012 dated 20.06.2012 . 

Till 31.03.2013- exempt if restaurant, eating joint or mess, do not have AC or central heating in any part of the establishment at any time during the financial year and/or license to serve alcoholic beverages.

From 01.04.2013- exempt if restaurant, eating joint or mess, do not have AC or central heating in any part of the establishment at any time during the financial year .

So upto 31.03.2013 service tax is applicable only if any restaurant etc. have both - AC or central heating facility and license to serve alcohol. From 01.04.2013 service is applicable if any restaurant having AC or central air-heating. ( condition of license to serve alcohol has been removed/deleted wef 01.04.2013).

  

ST & DVAT on Food Part-2

SERVICE TAX AND DVAT ON FOOD & BEVERAGES SERVED IN RESTAURANT, BANQUET ETC.   

PART-2  

Purpose of this blog

Objective of this blog is to discuss and have better understanding about the applicability, provisions etc. of Notification No.F.3(393)/Policy/VAT/2013/1086-1096 dated 19.12.2013 according to which now owners/lessee/custodian of the venue for functions/ programmes to be organised are required to file fortnightly return in advance for details of bookings for next fortnight. Link for the Notification, FAQ etc. here below

1. Notification No.F.3(393)/Policy/VAT/2013/1086-1096 dated 19.12.2013

2. Notification No.F.3(393)/Policy/VAT/2013/1137-1147 dated 27.12.2013

3. FAQ issued by DVAT deptt. on DVAT website

In this post :

ACT means Delhi Value Added Tax Act, 2004. 

Rules means Delhi Value Added Tax Rules, 2005. 

CST Act means Central Sales Tax Act,1956.

CST-Rules means Central Sales Tax (R&T) Rules,1957

CST-Delhi Rules means Central Sales Tax (Delhi) Rules,2005

Provisions under DVAT regarding Food & Beverages served in restaurant, banquet etc.

Let us first go through the various definitions, provisions under DVAT relating to serving of Food etc.

Sec 2 (zc) (vii) of DVAT Act-      sale......includes.....supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink ( whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration.

As per Rule 4A of DVAT Rules in case of "residential hotels charging a composite sum for lodging and boarding with breakfast/lunch/dinner" if the dealer do not have sufficient documentary evidence to prove component of taxable turnover of sales in composite sum then taxable turnover will as follows:(a)  Where  the  composite  charges  include  the                                  5%  of  composite charges

       the charges for breakfast.                                                             

(b)  Where  the  composite  charges  include  the                                  10%  of  composite charges

       charges for lunch.                      

(c)  Where  the  composite  charges  include  the                                  15%  of  composite charges 

      the charges for dinner

(d)  Where  the  composite  charges  include  the                                  15%  of  composite charges 

      the charges for breakfast and lunch

(e)  Where  the  composite  charges  include  the                                  20%  of  composite charges 

      the charges for breakfast and dinner

(f)  Where  the  composite  charges  include  the                                  25%  of  composite charges 

      the charges for lunch and dinner

(g)  Where  the  composite  charges  include  the                                  30%  of  composite charges 

      the charges for breakfast, lunch and dinner

other then above there are no specific provisions under DVAT in relation to serving of food and beverages. So normal provisions will apply.

Now we'll analyse each and every aspect of the Notification dated 19.12.2013 as amended by notification dated 27.12.2013.

Who is required to file return

Owner/lessee/custodian of the venue is required to file the return .

What are the conditions when return need to be filed

(i) a programme/ function to be organised in a banquet hall, Farm house, Marriage/Party hall, Hotel, Open ground etc.; and

(ii) food and/or liquar items are to be supplied/ provided; and

(ii) cost of booking exceeds rupees one lakh per function 

So all the 3 conditions must be fulfilled then only return in BE-2 need to be filed.

Any exemption for small functions

Yes, return need to be filed for programme/ fuctions whos booking value exceeds rupees one lakh.

When return to be filed and for which period

Return to be filed 3 days before the fortnight. For example return for the period 01.02.2013 to 15.02.2013 to be filed till 28.01.2013 for for period 16.02.2013 to 28.02.2013 be filed till 12.02.2013. So here a point to be noted that due date filing the return for the 2nd fortnight of the month will be 12 of that month, but for the first fortnight due date will be not 28th of every month as in case of 1st fortnight of March due date will 25 February and for first fortnight of May due date will be 27 of April.

What is the first tax period for which return to be filed

As per Notification No..F.3(393)/Policy/VAT/2013/1086-1096 dated 19.12.2013 this is applicable from first fortnight of January,2014 . But it has been amended by Notification No.F.3(393)/Policy/ VAT/ 2013/ 1137-1147 dated 27.12.2013 and now it is applicable from second fortnight of January,2014. Hence first return need to be filed till 12.01.2014.

What is the procedure for registration for owner/lessee/custodian

Owner/lessee/Custodian has to get them enrolled with the DVAT department by filing information in Form BE-1. After that department will issue a enrollment number which will be used for all filing purposes etc. There is no last date has been specified for filing BE-1 so it can be filed within a reasonable time so that department can issue enrollment number and return can be filed till due date. It is important to note that even if such owner/lessee/custodian is registered under DVAT Act and having TIN, still he need to get enrollment number for this purpose.

What are forms provided for registration and return

Information for enrollment to be filed in Form BE-1 and return to be filed in Form BE-2.

Below is FAQ issued by DVAT department ( available on website of the department)

1 Queries: Advance Information about booking from Banquet Halls, Farm Houses,
Marriage/ Party Halls, Hotels, Open Grounds, in Form BE-1 & BE-2

1. What shall be the due date to file BE-1?
BE-1 form is meant for enrolment of owner/ custodian of the venue. The scheme is
being implemented w.e.f. 1st January, 2014. As such, the eligible persons are required
to file the information 3 days before. Hence enrolment should be done on or before
that date. For the first return, the enrolment should be done by 27th December, 2013.
A unique enrolment number shall be given by the Department once the form BE-1 is
submitted to the Department.

2. Whether any electronic receipt shall be issued for filing BE-1 and BE-2?
No. To begin with, the eligible persons have to file both BE-1 & BE-2 manually and get
the duplicate copy stamped from the office of concerned Zonal Addl. /Jt.
Commissioner of the Department. In future, online facility would be provided for the
same.

3. Shall the Department issue an enrolment number immediately on submission, or a
separate certificate shall be given later on?
An enrolment number may be obtained on the next working day of filing manual BE-
1. The concerned zonal in-charge shall take this unique number from Addl.
Commissioner (System) and pass on to the applicant on the next working day (to be
recorded on the duplicate copy of BE-1). Later on, after switching over to electronic
mode, an enrolment certificate would be issued and delivered to all eligible entities.

4. Whether it will be mandatory to mention this enrolment number (if any) on any
stationery?
Yes. It will be mandatory to mention the enrolment number on return form BE-2 and
for all future correspondence with the Department.

5. Whether any separate certificate shall be issued on submission of BE-1?
As replied at (iii) above, the separate certificate would be issued later.

6. When revising BE-2
(a) How to mention whether it is revised or original?
No need to mention any word on the original. However, on revised return, word –
'Revise' may be mentioned. In the electronic mode, facility of drop down shall be
provided.
(b) Where to mention change of information (No column exists for intimating
cancellation)?
May not be required as separate sheet has to be attached for each function. The
latest information shall be treated as final for a period.
(c) How shall the Department differentiate between Original and revised
information about same program.
The latest filed information shall be treated as final.

(vii) While filing original BE-2, how would “Total value of food sold (excluding
VAT)” and “Total value of liquor sold (excluding VAT)” would be disclosed in
advance, when these values can only be known once the program is over.
Estimated value of food and liquor to be sold has to be provided.

Now let us discuss Form BE-1 and BE-2

In Form BE-1 some basic information is asked like - Name, PAN., Address ( principal and additional), TIN ( if having), Phone/Mobile, email, bank details.

In Form BE-2 is actually in 2 parts. Point 1-6 and point-8 are to be mentioned once and details in point 7 to be provided for each programme/function. For example if there are 12 functions in a fortnight then details in point-7 to be provided for all 12 functions. Some important points in BE-2 are:

(a) In point 7(vi) details of number of persons/plate to be provided separately for breakfast, lunch, evening snacks, dinner.

(b) In point 7(ix) particulars of the caterers to be provided- Name, TIN, address

(c) In point 7(x) rate per person/plate to be mentioned. In my view rate to be provided separately for breakfast, lunch, evening snacks and dinner if agreed separately. As number of person booked may be differ for each time.

(d) in point 7 (xi) total value of food (not liquor) sold to be mentioned. In FAQ deptt has clarified that it is on estimated basis.

(e) in point 7 (xii) total value of liquor (not food) sold to be mentioned. In FAQ deptt has clarified that it is on estimated basis.

in next blog we'll discuss in details about taxation of food etc. served in restaurant etc.

suggestion and comments are welcome.

ST & DVAT on Food Part-1

SERVICE TAX ND DVAT ON FOOD & BEVERAGES SERVED IN RESTAURANT, BANQUET ETC.   

PART-1  

Purpose of this blog

Objective of this blog is to discuss and have better understanding about the applicability, provisions etc. of Service tax and DVAT on food and beverages served in a restaurant, banquet, hotels etc. Discussion on DVAT provisions is important because of Notification No.F.3(393)/Policy/VAT/2013/1086-1096 dated 19.12.2013 according to which now owners/lessee/custodian of the venue for functions/ programmes to be organised are required to file fortnightly return in advance for details of bookings for next fortnight.

We'll try to cover all relevant topics/provisions etc. in parts as follows:

1. Part-1- Preamble,different category for serving of foods, like-in restaurant, hotels, banquets, open-ground etc. and nature.
2. Part-2 - Discussion on provisions and formalities of Notification No..F.3(393)/Policy/VAT/2013/1086-1096 dated 19.12.2013 of DVAT.
3. Part-3-  Case laws, DVAT and Service Tax provisions for foods etc. served in restaurant, hotels etc. when no lodging/boarding is provided;
4. Part-4-  Case laws, DVAT and Service Tax provisions for foods etc. served in restaurant, hotels etc. when lodging/boarding is provided and charges are including breakfast, lunch, dinner etc.

5. Part-5-  Case laws, DVAT and Service Tax provisions for food etc. served by caterers when a lump sum prices are charged for all like rent of premises, crockery etc.
6. Part-6-  Case laws, DVAT and Service Tax provisions for food etc. provided by Railway/ Airlines during journey.

7. Part-7-  Case laws, DVAT and Service Tax provisions for food etc.supplied by employer to their employees by canteen in business premises for full charges/ concession/ free of cost and  food etc. supplied by caters having canteen in a factory, college etc.

8. Part-8-  Summary of valuation and other provisions of DVAT and service tax on all above categories.
9. Part-9-  Summary of some important relevant case laws.

Preamble

Taxability of foods and beverages served in a restaurant, banquet, hotels etc. has always been a controversial issue under both Service Tax and VAT/Sales Tax and reason is indivisibility of value of materials and value of service element.

By 46th amendment to the constitution serving of food is considered as deemed sale. Relevant text of Article 366 (29A)  is " tax on sale or purchase of goods includes- ..............(f) a tax on supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration.... and such transfer, delivery or supply of any goods shall be deemed to be a sale of goods by the person making the transfer, delivery or supply and such a purchase of those goods by the person to whom such transfer, delivery or supply is made".  Similar provision has been incorporated in almost all states's vat laws. For DVAT we'll discuss in details in later paragraphs.

Under new negative list concept of Service tax, this type of activities are covered under "Declared Service". As per 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 as a part of the activity" then is a declared service. We'll discuss various service tax provisions in this relation in detail in coming paragraphs.

Different categories (types) of serving of foods etc.

There are many activities where foods etc is served for human consumption like in restaurant, hotels, lodges, functions (like marriage, party). But some of them have different nature of activity, like when food is served in restaurant to casual visitors then primary activity is serving of food and other facilities like furniture, AC etc. are additional features/facilities for comfort of the consumer. But in case of hotels or lodges etc. primary activity is renting of space and serving of food is additional features/facilities for comfort of the consumer. So first of all we'll bifurcate these activities in following 3 types as below:

(i) foods etc. served in restaurant, hotels etc. when no lodging/boarding is provided;
(ii) foods etc. served in restaurant, hotels etc. when lodging/boarding is provided and charges are including breakfast, lunch, dinner etc.
(iii) food etc. served by caterers when a lump sum prices are charged for all like rent of premises, crockery etc.
(iv) food etc. supplied in railways/airlines etc.
(v) food etc. supplied by employer (himself or by caterers) to their employees by canteen in business premises for full charges/ concession/ free of cost;

(i) Food etc. served in restaurant without lodging/boarding

When a person goes to a restaurant, he is served food etc. with some facilities like furniture for sitting, AC for cooling, service of serving food etc. There is not doubt that prices for food would be differ in a well maintained decent AC restaurant and in a average/low maintained non AC restaurant. The charges/cost of facilities are normally included in prices of food and the problem is that normally it is not possible to divide total value into value for food and value for facility/ service. We'll discuss case laws, provisions of Service Tax and DVAT in detail in Part-3.

(ii) Food etc. served in hotel/lodge with lodging/boarding

When a person stay in a hotel/lodge (we'll call hotel in this and all of our future discussions), primary objective is staying/ residential facility. Normally prices are charges on the basis of days, hours of staying and those charges includes breakfast, lunch, dinner etc. as per tariff of the hotel. Value of the food is included in the tariff value of staying. Now the question is - "Is VAT is applicable on the food provided by the hotel or it is incidental to the activity of staying ?" and "Is service is applicable on this and if yes on what value ( including value of food or without value of food) ?". We'll discuss case laws, provisions of Service Tax and DVAT in detail in Part-4.

(iii) Food etc. provided by caterers etc.

Now a days it is common that caterers are providing food, decoration, venue for function, crockery etc and other facilities required for any function and charging a limp sum amount normally based on per plate. In such cases it is a composite contract for services and supply of food. Now the question is how the value of the food and services would be bifurcated.We'll discuss case laws, provisions of Service Tax and DVAT in detail in Part-5.

(iv) Food etc. provided by railway/ airlines during journey

In today competitive environment all the service provider are trying to provide all the facilities to the customer's door. On of the example is meal provided by the railways/ airlines during journey. Railway/airlines companies charging amount for food ( included in ticket or separately) while booking the ticket. Work of providing meal is outsourced to some outside agencies and sometimes these outside agency also outsourcing some part or complete work to other agency. So there is a loop and we need to analyse taxation provisions applicable in such case.We'll discuss case laws, provisions of Service Tax and DVAT in detail in Part-6.

(v) Food etc. provided by employer to employee in canteen.

Now a days it is common that every organisation having a couple of employees is providing canteen facility in organisation premises. It is provided for welfare of staff and sometimes also required by law. Sometimes employer running and maintaining himself and sometimes outsourcing it to some outsiders. Normally food etc. is provided on concessional rate but it can be differ organisation to organisation. We'll discuss case laws, provisions of Service Tax and DVAT in detail in Part-7.