Your favourite restaurant can't pass on you the benefit of confusion anymore as the government clarifies that there is no exemption to takeaways.
In the wake of prevailing uncertainty in the food industry on levying of service tax on home deliveries and takeaways, the ministry of finance has reiterated to the tax officials concerned that the service tax will be applicable to all food formats as there is no difference in food served at restaurants or delivered at home.
Last week, the ministry internally notified the same to the respective departments in service tax and asked the officials to go after all home-delivery food chains to ensure that tax is levied on home deliveries and takeaways as well and the same is passed on to the government, two officials in direct knowledge told dna.
"There is no question of confusion. In 2013, the Central Board of Excise and Customs (CBEC) had given the clear cut instruction to the departments and the National Restaurants Association of India (NRAI) that service tax was applicable to all formats – including home-delivered food and takeaways. If food joints are not levying accordingly, then it's a clear contravention of law," a senior service tax official told dna.
This means consumer will have to pay 14% service tax on the pizza or pasta or on any food items delivered to home or office.
However, tax experts view that such forms do not involve any element of services. Naresh Dharia, an expert in indirect tax, said, "Home delivery of food or a takeaway should not include any service tax element. It's a burden. The industry should urge the government to consider it under the negative list of category of services under service tax net."
According to the tax officials, service tax is charged on 40% of the customer's bill, which at the current tax rate of 14% brings the effective tax rate to 5.6%.
The confusion stemmed from a letter written last month by a deputy commissioner of Central Excise & Service Tax Division at Chandigarh to the owner of Apex Restaurants, clarifying that in case of the transaction involving pick-up or the home deliveries, the dominant nature of transaction is that of sale and not service – as the food is not served at the restaurant, there is no other element of service being offered at the restaurant – be it ambiance, live entertainment, if any, air-conditioning or personalised hospitality. The letter also said service tax can be levied if there is an element of 'service' involved, which would typically be the case when food is served in restaurant.
The letter raised confusion in the food industry, though some restaurants continued to collect tax from customers against food delivered. When the government introduced service tax on restaurants in 2011, it had notified that the service tax levy is intended to be confined to the value of services contained in the composite contract and shall not cover either the meal portion in the composite contract or mere sale of food by way of pick-up or home delivery.
However, since 2013, this criteria was dropped and all restaurants which had air-conditioning or central air heating (even if partial) were required to levy and collect service tax. But last month, when Chandigarh tax official denied levy of said tax, it prompted National Restaurant Association of India (NRAI) to again seek clarification on the applicability of tax on various formats from the finance ministry.
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