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.