Service Tax on Service Charge or SubTotal?

antifup

Regular
Messages
281
Basically, there has been this post going around on facebook, and it's not your everyday forward chain-msg because it was shared even by Akosha (Consumer Rights organization).

It claims that restaurants often bill you the total amount, charge service CHARGE on it and then charge Service TAX on the whole amount including service charge,
where as it should make sense that service tax should be applicable on service charge since they're already charging you an amount for the services rendered.

So yesterday, a place tried to charge me tax on the whole amount = Rs 51 (the service tax) and I called the manager, explained it to him what they're doing is wrong and he reduced it from Rs 51 to Rs 4. Nice saving.

But as I returned home, I started searching the whole issue to better enlighten myself and for reference in the future.

Code:
http://www.legallyindia.com/201211053231/Bar-Bench-Litigation/dhcba-gets-restaurant-service-tax-calculation-wrong-in-public-interest-notice
Now this is a mind-**** article. On one hand, DHCBA tells me that what I did was right, but then there is another law that says service tax is applicable on 40% of the total billed amount. :/

Code:
https://dkmahant.wordpress.com/2012/11/03/how-few-restaurants-charge-excess-service-tax-do-not-pay/
As you can see here, the 40% contradiction is mentioned here as well. Now, I am confused that when I go out dining the next time, am I supposed to pay Service Tax on 40% of the billed amount or just on the service charge?

Get your suits and lawyer up.
 

Jaymin

A Big Fan of IBF
Messages
10,009
Its nothing as complicated as it appears. Just that Restaurants give u "Service" as well as "Food" (which is of course goods). Trying to simplify as much as i can.....Under the framework, u are required to pay VAT on goods bought within state/CST on outside state & Service tax on service rendered. Conversely, u r required to collect these in case u r the seller of these.The latter part is payable by u to Govt. But, out of that, u have already paid these taxes to ur seller, when u bought Goods/services. So to avoid cascading effect, u claim its credit & pay only the net amount to the Govt.Thats a brief background on the normal functioning. Now if u r a seller of goods, as well as services & it is difficult for u to segregate goods from services, then u r supposed to charge a "Composite" tax on an average amount.So when a hotel charges service charge separately, then they shud be collecting VAT on the food u ate, and a Service Tax on the services u got from them.But if they cant segregate these amounts, an average of the amount is taken & a Service Tax is charged on that. That average, is the 40% u read about.PS: I havent followed the links, but i suppose u have read this only.
 

Sushubh

Administrator
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425,795
Location
Gurugram
service charge has become a nuisance. it started because people do not leave decent tips. so now you are pretty much forced to pay 10% of the bill amount as service charge. and i assume 12% more as service tax on the service charge. i assumed service charge money was distributed to waiters as it is sort of designed to replace the concept of tips. but considering the money is being collected as part of the bill, i am not sure how it works out in the end for the employees of the restaurant.
 


Sushubh

Administrator
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425,795
Location
Gurugram
that looks pretty low. 135 on 3375 is less than 5%! it's actually 4%. a chain like barbeque nation in gurgaon would charge 10% easy which means it would be 337.5 rupees.
 

moindear

Internet addict!
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ಬೆಂಗಳೂರು
what I dont understand is BBq Nation is the only place that has VAT, Sales tax, service Charge & service tax. Donno what that means...
 


Sushubh

Administrator
Messages
425,795
Location
Gurugram
vat and sales tax in the bill are the same thing. they are not added two times. i am confused about the service tax though. it is not 12% of the bill.also to be noted that some invoices have different taxes levied on different items. i mean bottled water might not be taxed at all. alcohol would be taxed differently from food items. so understanding bills like these are rather complicated. and it would be a damn shame if the restaurants get them wrong in the first place because they are billing every single customer of theirs wrong.
 

Sid

Sid
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2,306
Location
BlackHole
This is what i got for booking room in a hotel> (maybe has some resemblance with the current topic)•All taxes levied on rooms by the State Government and the Government of India is exclusive. As per the present tax structure at The Claridges New Delhi, a 10 % Luxury Tax on published tariff & 7.42% Service Tax & 0.625% DVat is applicable on offered special room rates.never googled about what they really mean :tonguesmilie:
 

Jaymin

A Big Fan of IBF
Messages
10,009
what I dont understand is BBq Nation is the only place that has VAT, Sales tax, service Charge & service tax. Donno what that means...

vat and sales tax in the bill are the same thing. they are not added two times.

i am confused about the service tax though. it is not 12% of the bill.

also to be noted that some invoices have different taxes levied on different items.

i mean bottled water might not be taxed at all. alcohol would be taxed differently from food items. so understanding bills like these are rather complicated.

and it would be a damn shame if the restaurants get them wrong in the first place because they are billing every single customer of theirs wrong.

This is what i got for booking room in a hotel> (maybe has some resemblance with the current topic)

•All taxes levied on rooms by the State Government and the Government of India is exclusive. As per the present tax structure at The Claridges New Delhi, a 10 % Luxury Tax on published tariff & 7.42% Service Tax & 0.625% DVat is applicable on offered special room rates.

never googled about what they really mean :tonguesmilie:

C'mon guys, i have took some efforts to demystify some of it in my post......y not read that? Let me know if anything is not clear!
 

ashish

Addicts
Messages
4,267
Location
Mumbai
Today i had dinner at BBQ nation, Mumbai. vat/sales tax was not levied as shown in moin's bill.Only service charge and service tax were levied to the same proportion as in the above bill.
 

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