No Service tax on free Pick-up/Home delivery of food, being ‘Sale’ in nature – Chandigarh Commissionerate

[Bimal jain]

Dear Professional Colleagues,

No Service tax on free Pick-up/Home delivery of food, being ‘Sale’ in nature – Chandigarh Commissionerate

Background:

The Government vide Entry No. 19 of the Mega Exemption Notification No. 25/2012-ST dated June 20, 2012 (“the Mega Exemption Notification”) granted exemption from payment of Service tax to Restaurants, eating joint or a mess providing service in relation to food or beverages, other than those having:

1. Facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and
2. License to serve alcoholic beverages.

Thus all AC Restaurants having license to serve liquor were exigible to Service tax.

Subsequently w.e.f April 1, 2013, Entry No. 19 of the Mega Exemption Notification was amended by Notification No. 3/2013-ST dated March 1, 2013 which deleted the point (ii) thereof. Accordingly, after such amendment, Service tax is levied even on the Restaurants which do not have a license to serve alcoholic beverages. This was a major change for the Industry as thousands of Restaurants and eating joints including small and medium came within the ambit of Service tax by such amendment.

However, questions were raised whether Take-away or Home delivery of food from Restaurants, such as McDonald’s, Domino’s, Pizza Hut etc., would also attract Service tax, as most of these have air-conditioned dining space and some of these outlets have dedicated counters outside air-conditioned halls for Take-away orders. A view was entertained that Take-away or Home-delivery Orders should not be taxed since no services, amenities etc. of the Restaurants were being offered to the customers in case of Take-away or Home delivery of food. But, in the absence of any clarification, the Restaurants continue to levy Service tax on the same.

Clarification by Chandigarh Commissionerate:

The Service Tax Department of Chandigarh vide its letter C.No. ST-20/STD/Misc./Sevottam/62/12/4693 dated August 13, 2015 (“the Clarification”) has clarified that free Home delivery/ Pick-up of food is not liable to Service tax.

The Department explained the matter further by stating that the dominant intention of such transaction is that of ‘Sale’ as food is not served at Restaurant and no other element of service such as ambience, live entertainment (if any), air conditioning or personalised hospitality is offered. It is further stated that Service tax can be levied if there’s an element of ‘Service’ involved which would typically be the case where food is served in Restaurant.

However, the Department has further clarified that the above transaction is not liable to Service tax, being sale in nature, only if no amount is charged for such free delivery of food.

Our Comments:

Similar Clarification on the stated matter is much needed from the Central Board of Excise and Customs (“CBEC”), so that it could be made applicable uniformly throughout, irrespective of the jurisdiction of particular Department.

To view the compete Clarification, please click on the link below:

http://www.a2ztaxcorp.com/wp-content/uploads/2015/08/notification-by-comissionerat.jpg

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

Discussions to this article

[CS SANJAY MALHOTRA]

Dear Mr. Jain,

Non levy of Service Tax on Home Delivery of food is exempt since the inception. The need of clarification arises earlier at national level as service providers are following varying practices as on date, some charging service tax and some are availing exemption.

In case of service providers availing exemption following the intention of CBEC vide their Budget 2011 extracts and Notifications issued for service tax on Restaurants. These service providers are never objected by way of any SCN by the department since levy of service tax on Restaurants.

Refer to Para 1.6 of Finance Budget Letter (http://indiabudget.nic.in/ub2011-12/cen/dojstru2.pdf) as extracted below:

1.6 The 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, as also goods sold at MRP.

CBEC intention is very clear i.e. not to include the meal portion by way of pick up or Home Delivery.

Clarification given by Chandigarh Excise & Service Tax Office is reiterating the intentions of CBEC i.e. extracting views what has been placed in statue by way of Budget Letter / Notification on Restaurant Service.

Service Tax is chargeable on the food supply in the Restaurant and not the Home Delivery, as amounts to sale of food and attracts VAT under the State Act. CBEC has further clarified that when the food is served in the Room in the Hotel, service tax is not leviable as the Hotel room is not classified as "restaurant".

Hence it is evident that delivery in Hotel Room and Home Delivery stands on equal footing and both are out of purview of Service Tax.

Am sure that even the CBEC can't back out from its intention of service tax exemption on home delivery of food if the same does not include the element of service charge.

regards

Sanjay Malhotra

[CA.Tarun Agarwalla]

dear sir.

the reply mentioned is meant for a specific assesses and also clarified by a commissionerate of chandigarh.

can this letter be used across the contrary or other wise can it be deemed as the view of CBEC?

please through some lite on it.

[jai prakash]

Thanks Sir for sharing the views. Yes it is correct some AC restaurants are charging service tax on Home delivery & Take away orders.

My doubt is taxability on the same can be covered under Rule 2C. Please advice:-

Rule 2 C of SERVICE TAX (DETERMINATION OF VALUE) RULES, 2006, is given below for your reference

2C. Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering

Subject to the provisions of section 67, the value of 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 at a restaurant or as outdoor catering, shall be the specified percentage of the total amount charged for such supply