Booze in high end restaurant – An intaxicating experience

By Santosh Hatwar

GOVERNMENT has proposed to bring into the purview of service tax net high end restaurants (air conditioned) which also serve liquor and other services – in the words of TRU – personalized services like asking for e.g. salt, chillies, onions, garlic or oil.

In its introduction to the clarification issued for this intaxicating levy, TRU says that restaurants are engaged in providing a number of services normally in combination with the meal and/or beverage for a consolidated charge. That these services relate to the use of restaurant space and furniture, air-conditioning, well-trained waiters, linen, cutlery and crockery, music, live or otherwise (read dance bars), or a dance floor.

Now by introduction of clause (zzzzv) in sub-section 105 of section 65 of the Finance Act, 1994, services 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' will be liable to service tax.

While explaining the nature of activities, the TRU has listed out various scenarios and the reasons why high end restaurants charge you more and leave you high and dry.

It is pertinent to note that sub-clause (f) of clause (29A) of Article 366 of the Constitution states that ‘tax on sale or purchase of goods' includes (f) a tax on the 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. Therefore, sale of food & drink in restaurants is subject to levy of VAT as well.

So, to offset the dispute regarding the Constitutional validity of this levy, TRU clarifies that this levy is intended to be confined only 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, as also goods sold at MRP.

TRU further clarifies that the Finance Minister has announced in his budget speech an abatement of 70% on this service which is meant to separate such portion of the bill relating to the deemed sale of meals and beverages. It is further clarified that a specific notification will be issued when the levy becomes operational after the enactment of Finance Bill, 2011.

According to TRU, it is not necessary that the facility of air-conditioning is available round the year. If the facility is available at any time during the financial year the conditions for the levy shall be met. So irrespective of whether you enjoy the air-conditioned facility or not (usually air-conditioners are turned off during winter season) you end up shelling out service tax for your booze. Intaxicating indeed!