Clarification of Service tax on short term accomodation and restraurants

Short Term Accommodation Service:

Sl.No	Queries	Clarification
1.	What is the relevance of declared tariff? Is the tax required to be paid on declared tariff or actual amount charged?	"Declared tariff" includes charges for all amenities provided in the unit of accommodation like furniture, air-conditioner, refrigerators etc., but does not include any discount offered on the published charges for such unit. The relevance of 'declared tariff' is in determining the liability to pay service tax as far as short term accommodation is concerned. However, the actual tax will be liable to be paid on the amount charged i.e. declared tariff minus any discount offered. Thus if the declared tariff is Rs 1100/-, but actual room rent charged is Rs 800/-, tax will be required to be paid @ 5% on Rs 800/-.
2.	Is it possible to levy separate tariff for the same accommodation in respect of corporate/privileged customers and other normal customers?	It is possible to levy separate tariff for the same accommodation in respect of a class of customers which can be recognized as a distinct class on an intelligible criterion. However, it is not applicable for a single or few corporate entities.
3.	Is the declared tariff supposed to include cost of meals or beverages?	Where the declared tariff includes the cost of food or beverages, Service Tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff.
4.	What is the position relating to off-season prices? Will they be considered as declared tariff?	When the declared tariff is revised as per the tourist season, the liability to pay Service Tax shall be only on the declared tariff for the accommodation where the published/printed tariff is above Rupees 1000/-. However, the revision in tariff should be made uniformly applicable to all customers and declared when such change takes place.
5.	Is the luxury tax imposed by States required to be included for the purpose of determining either the declared tariff or the actual room rent?	For the purpose of service tax luxury tax has to be excluded from the taxable value.

Services Provided by Restaurants:

1.	If there are more than one restaurants belonging to the same entity in a complex, out of which only one or more satisfy both the criteria relating to air-conditioning and licence to serve liquor, will the other restaurant(s) be also liable to pay Service Tax?	Service Tax is leviable on the service provide by a restaurant which satisfies two conditions: (i) it should have the facility of air conditioning in any part of the establishment and (ii) it should have license to serve alcoholic beverages. Within the same entity, if there are more than one restaurant, which are clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax.
2.	Will the services provided by taxable restaurant in other parts of the hotel e.g. swimming pool, or an open area attached to a restaurant be also liable to Service Tax?	The taxable services provided by a restaurant in other parts of the hotel e.g. swimming pool, or an open area attached to the restaurant are also liable to Service Tax as these areas become extensions of the restaurant.
3.	Is the serving of food and/or beverages by way of room service liable to service tax?	When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor. Also, the same cannot be charged under the Short Term Accommodation head if the bill for the food will be raised separately and it does not form part of the declared tariff.
4.	Is the value added tax imposed by States required to be included for the purpose of service tax?	For the purpose of service tax, State Value Added Tax (VAT) has to be excluded from the taxable value.

All service tax returns electronically

As per notification no. 43/2011 issued on 25/8/2011, All assesses are liable to file their service tax returns electronically. Even though the amount of tax and credit availed is less than Rs.10 Lacs.

The official draft is as under

G.S.R. 642 (E).- In exercise of the powers conferred by sub-section (1) read with sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Service Tax Rules, 1994, namely :-
1.      (1) These rules may be called the Service Tax (Fourth Amendment) Rules, 2011.
(2) They shall come into force on the 1st day of October, 2011.

2. In the Service Tax Rules, 1994, in rule 7, -
(a) in sub-rule (2), the proviso shall be omitted;
(b) after sub-rule (2) as so amended, the following sub-rule shall be inserted, namely:-
“(3) Every assessee shall submit the half-yearly return electronically”.
F. No. 137/99/2011 – Service Tax
(Deepankar Aron)
Director (Service Tax)

Note.- The principal rules were notified vide notification No. 2/1994 – Service Tax dated the 28th June 1994, published in the Gazette of India, Extraordinary, Part II, section 3, Sub-section (i), vide number G.S.R. 546(E), dated the 28th June, 1994 and were last amended by Notification No. 35/2011 - Service Tax, dated the 25th April, 2011, vide number G.S.R. 343 (E), dated the 25th April, 2011.

Point Of Taxation Rules as amended

1. Short title and commencement: -

       (1)    These rules shall be called the Point of Taxation Rules, 2011.

       (2)    They shall come into force on the 1^st day of April, 2011.

2. Definitions.- In these rules, unless the context otherwise requires,-

a.                      “Act” means the Finance Act, 1994 (32 of 1994);

b.         “associated enterprises” shall have the meaning assigned to it in section 92A of the Income Tax   Act,                        1961 (43 of 1961);

c.        “continuous supply of service” means any service which is provided, or to be provided continuously,   under a contract, for a period exceeding three months, or where the Central Government, by a notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition;

d.      “invoice” means the invoice referred to in rule 4A of the Service Tax Rules, 1994 and shall include any document as referred to in the said rule;

e.       “point of taxation” means the point in time when a service shall  be deemed to have been  provided;

f.       “taxable service” means a service which is subjected to service tax, whether or not the same is fully exempt by the Central Government under Section 93 of the Act; 

3. Determination of point of taxation: - (After amendments)

a)      Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service. (If payments are made in advance then point of taxation will be the date of receipt of payment even if invoice not issued within 14 days of completion- Additional analysis)

b)      Date of completion of the provision of service or payment, if the invoice is not issued within the prescribed period 14 days.

The applicability of rule will be further cleared by the below given table:

S. No.	Date of completion of service	Date of invoice	Date on which payment recd.	Point of Taxation	Remarks
1.	April 10, 2011	April 20, 2011	April 30, 2011	April 20, 2011	Invoice issued in 14 days and before receipt of payment
2.	April 10, 2011	April 26, 2011	April 30, 2011	April 10, 2011	Invoice not issued within 14 days and payment received after completion of service
3.	April 10, 2011	April 20, 2011	April 15, 2011	April 15, 2011	Invoice issued in 14 days but payment received before invoice
4.	April 10, 2011	April 26, 2011	April 5, 2011 (part) and April 25, 2011 (remaining)	April 5, 2011 and April 10, 2011 for respective amounts	Invoice not issued in 14 days. Part payment before completion, remaining later

4. Determination of point of taxation in case of change of rate of tax: - Notwithstanding anything

Contained in rule 3, the point of taxation in cases where there is a change of rate of tax in respect of

a service, shall be determined in the following manner, namely:-

(a) in case a taxable service has been provided before the change of rate,-

·          where the invoice for the same has been issued and the payment received after the   change of rate, the point of taxation shall be date of payment or issuing of invoice,  whichever is earlier; or

·          where the invoice has also been issued prior to change in tax rate but the payment is  received after the change of rate, the point of taxation shall be the date of issuing of  invoice; or

·          where the payment is also received before the change of rate, but the invoice for the  same has been issued after the change of rate, the point of taxation shall be the date  of payment;

(b) in case a taxable service has been provided after the change of rate,-

·         where the payment for the invoice is also made after the change in tax rate but the  invoice has been        issued prior to the change of tax rate, the point of taxation shall be  the date of payment; or

·         where the invoice has been issued and the payment for the invoice received before  the change of     tax rate, the point of taxation shall be the date of receipt of payment or  date of issuance of invoice, whichever is earlier; or

·         where the invoice has also been raised after the change of rate but the payment has been received before the change of rate, the point of taxation shall be date of issuing of invoice.

“Explanation:- For the purposes of this rule, “change in effective rate of tax” shall include a change in the portion of value on which tax is payable in terms of a notification issued under the provisions of Finance Act, 1994 or rules made there under.”

Further, the terms ‘change in rate of tax’ or ‘change of rate’, ‘change in tax rate’, have been substituted with “change in effective rate of tax”.(This Explanation has been inserted via amendments)

5. Payment of tax in cases of new services: - Where a service, not being a service covered by rule 6, is taxed for the first time, then, –

(a)        No tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;

(b)        no tax shall be payable if the payment has been received before the service becomes taxable  and invoice has been issued within the period referred to in rule 4A of the Service Tax Rules,  1994.

6. Determination of point of taxation in case of continuous supply of service: - (After amendments this rule is aligned to Rule3)

Notwithstanding anything contained in rules 3, 4 or 8, in case of continuous supply of service, the `point of taxation shall be,-

(a)        Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service. (If payments are made in advance then point of taxation will be the date of receipt of payment even if invoice not issued within 14 days of completion- Additional analysis)

(b)        Date of completion of the provision of service or payment, if the invoice is not issued within the prescribed period 14 days.

Explanation1: - For the purposes of this rule, wherever any advance, by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.

Explanation 2: - Where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.(For example, in the case of construction services if the payments are linked to stage-by-stage completion of construction, the provision of service shall be deemed to be completed in part when each such stage of construction is completed. Moreover, it has been provided that this rule will have primacy over rules 3, 4 and 8. )

Moreover, the following services have been notified as "continuous supply of services" in terms of clause 2(c) of the rules vide notification No. 28/ST-2011 dated 01.04.2011

·         Commercial or industrial construction [65(105)(zzq)]

·         Construction of residential complex [65(105)(zzzh)]

·         Internet Telecommunication Service [65(105)(zzzu)]

·         Works contract service [65(105)(zzzza)]

·         Telecommunication service [65(105)(zzzx)]

Thus these services will constitute "continuous supply of services" irrespective of the period for
which they are provided or agreed to be provided. Other services will be considered
continuous supply only if they are provided or agreed to be provided continuously for a period
exceeding three months.

7. Determination of point of taxation in case of associated enterprises: (After amendments this rule has been deleted. Now date of completion of service is important criteria in determination of point of taxation, It shall take care of most dealings between associated enterprises. It has been replaced by a new provision give below)

7. Notwithstanding anything contained in the rules, point of taxation in the following cases shall be the date on which payment is received or made, as the case may be

1.   Export of services;

2.  The persons required to pay tax as recipients under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Finance Act, 1994

(I think you have forgotten Section 68 (2), If Yes please visit

www.taxclubindia.com/simple/service%20tax%20procedures%202010%20e%20book.pdf)

3.   Following services provided by individuals or proprietary firms or partnership firms:

·         Architect’s service;

·         Chartered accountant’s service;

·         Cost accountant’s service;

·         Interior decorator service

·         Company secretary’s service

·         Scientific or technical consultancy service;

·         Legal services;
·     Consulting Engineers service (Added via amendment on 27/6/2011)

(This means these services if provided by above mentioned entities will be taxed in the same way as they were taxed before introduction of these rules)

8. Determination of point of taxation in case of copyrights, etc: - In respect of royalties and  payments pertaining to copyrights, trademarks, designs or patents, where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the service shall be treated as having been provided each time when a payment in respect of such use or the benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier.

9. Savings (This rule is amended to provide)

  Transitional Provisions: - Nothing contained in this sub-rule shall be applicable,-

(i)                  Where the  provision of service is completed; or

(ii)        Where invoices are issued prior to the date on which these rules come into force.

Provided that services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued up to the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the payment is received or made as the case may be.

Other Changes Related to Point Of Taxation Rules: -

1.      Changes have also been made in the Service Tax Rules, 1994 vide notification No. 26/2011-ST dated 31.03.2011 and have a close relationship with the Point of Taxation Rules as follows:

ü    The obligation to issue invoice shall be within 14 days of completion of service and not provision of service.

ü     If the amount of invoice is renegotiated due to deficient provision or in any other way changed in terms of conditions of the contract (e.g. contingent on the happening or non-happening of a future event), the tax will be payable on the revised amount provided the excess amount is either refunded or a suitable credit note is issued to the service receiver. However, concession is not available for bad debts.

2.      The credit of input services under rule 4 (7) of the Cenvat Credit Rules has also been liberalized vide notification No. 13/2011-CE (NT) dated 31.03.2011 and the same shall be available on receipt of invoice (except in cases of reverse charge) as long as the payment is made within three months. Even specified persons required to pay tax on cash basis will be able to avail credit on receipt of invoice. Suitable changes have also been made for reversal of credit or payment when the value of service is renegotiated or altered for any reason by refund or issue of a credit note by the service provider. Amendment has also been made in Rule 9 of Cenvat Credit Rules, 2004 by allowing credit on supplementary invoice, except in non-bonafide cases, which may become necessary in certain situations e.g. where the point of tax is the date of payment while the invoice had already been issued e.g. rule 4(b)(i) of Point of Taxation Rules.

It is hoped that with these changes and clarifications all representations on the subject have been dealt with. It is requested that all officers may be advised to explain and clarify the new provisions to taxpayers and assist them in every possible manner in transition to revised rules. Any difficulty experienced in this regard may be brought to the notice by writing your comments.

Thank You for Reading

Amendment in Point of taxation Rules

As per notification 41/2011, the services of engineering consultant referred in section 65 (105) (g) will be taxable on payment basis rather than accrual basis. So there are total 8 services taxable on payment basis if provided by individual, proprietorship firm or a partner ship firm and those are referred in sub clause (g), (p), (q), (s), (t), (u), (za), (zzzzm) of section 65 (105)

Sevice Tax on restaurants and short term Accomodation service

In the Budget 2011, it was proposed to levy Service Tax on Hotels & restaurants. Vide Notification 29/2011 dated 25.04.2011, 1^st May of 2011 has been declared as the appointed day on which these provisions will come into effect. Thus these services are taxable with effect from 01.05.2011.

Restaurant Service:

Restaurant Service has been defined in clause (zzzzv) of Section 65(105) which reads as, 

“(zzzzv) to any person, by a restaurant, by whatever name called, having facility of air-conditioning in any part of the establishment, at any time during the financial year, which have license to serve alcoholic beverages, in relation to serving of food or beverages, including alcoholic beverages or both, in its premises.”

The definition results in following prepositions of law;

A. A restaurant having air-conditioning facilities and license to serve alcoholic beverages have been covered under the Service Tax net. Both the conditions must be satisfied. If the restaurant is not air-conditioned or it does not have license to serve alcoholic beverages, there is no service tax.

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. The levy 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.

B. The taxable event is “serving of food and beverages in its premises”. Thus home delivery services, food pick up joints shall not be covered.

C. Vide Notification 34/2011-ST dated 25.04.2011, service tax is leviable on 30% of the gross amount charged if the assessee is not availing Cenvat Credit/benefit of notification 12/2003-ST dated 20.06.2003.

(i.e. Notification No. 12/2003-Service Tax:- In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do,hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.)

Though an abatement of 70% is provided, the fact remains that, 100% of the most of the items sold by a restaurant including food and non-alcoholic beverages are subjected to the VAT levy and to this extent, the levy of service tax would result in a double levy.

Short term accommodation Service:

Short term accommodation Service has been defined in clause (zzzzw) of Section 65(105) which reads as,

“to any person by a hotel, inn, guest house, club or campsite, by whatever name called, for providing of accommodation for a continuous period of less than three months.”

A. The service proposes to tax short term accommodation is provided by hotels, inns, guest houses, clubs and others and at camp-sites. This service is proposed to be taxed where the continuous period of stay is less than 3 months.

B This service have been exempted if the declared tariff is less than Rs. 1000/- per day. Thus actual levy will be restricted to accommodation with declared tariff of Rs. 1,000 per day or higher. Once this requirement is met, tax will be chargeable irrespective of the fact that actually the amount charged from a particular customer is less than Rs. 1,000. The tax will also be charged on the gross amount paid or payable for the value of the service. (Now days it is difficult to find accommodation which charges less than Rs 1000)

C. Vide Notification 34/2011-ST dated 25.04.2011, service tax is leviable on 50% of the gross amount charged if the assessee is not availing Cenvat Credit/benefit of notification 12/2003-ST dated 20.06.2003. (Same as above)

Both of above services are liable for luxury tax so now your dinner will be more costlier...

For any doubts and suggestions please leave comments.

Service Tax Latest Amendments

In the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, in rule 3, after sub-rule (2), the following sub-rule (2A) shall be inserted, namely:-

“(2A) The CENVAT credit of tax paid on taxable services as referred to under sub-clauses (zzd) i.e. Erection Commissioning and installation service , (zzq) i.e. Business Support Service and (zzzh)i.e. Construction of Residential Complex Service ,of clause (105) of section 65 of the Finance Act, 1994, shall be available only to the extent of 40% of the service tax paid when such tax has been paid on the full value of the service after availing CENVAT credit on inputs.”

For all other Works contract services still sub rule (2) of Rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 shall continue to apply i.e. The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.

For Transport of passengers by Air

Words “rupees one hundred” and “in any class”, the words “rupees one hundred fifty” and “economy class” shall respectively be substituted;

Words “rupees five hundred”, the words “rupees seven hundred fifty” shall be substituted’

Exempts the taxable service referred to in sub-clause (zzzzo) of clause (105) of section 65 (i.e. Health Services) of the Finance Act, from the whole of the service tax leviable thereon under section 66 of the said Act.

 Exempts the taxable service as referred to in sub-clause (zzzzw) of clause (105) of section 65 (i.e Service provided by a hotel guest house or club to any person for less that 3 months) of the said Act, when the declared tariff for providing of such  accommodation is less than rupees 1000 per day from the whole of the service tax leviable thereon under section 66 of the said Act.

In the Service Tax (Determination of Value) Rules, 2006(hereinafter referred to as the said rules),- after rule 2A, the following shall be inserted, namely :-

“2B. Determination of value of service in  relation to money changing.-

Subject to the provisions of section 67, the value of taxable service provided for the services referred to in sub-clause (zm) and (zzk) of clause (105) of section 65 of the Act, so far as it pertains to purchase or sale of foreign currency, including money changing, shall be determined by the service provider in the following manner:-  

For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency for that day, multiplied by the total units of currency.

Example I: US$100 are sold by a customer at the rate of Rupees 45 per US$.

RBI reference rate for US$ is Rupees 45.50 for that day.

The taxable value shall be Rupees 500.

Example II: INR70000 is changed into Great Britain Pound (GBP) and the exchange rate offered

is Rupees 70, thereby giving GBP 1000.

RBI reference rate for that day for GBP is Rupees 69.

The taxable value shall be Rupees 1000.

Provided that in case where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money:

Provided further that in case where neither of the currencies exchanged is Indian Rupee, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI;”

 In the said rules, in rule 5, after sub-rule (1), the following „Explanation‟ shall be inserted, with effect from the 1^st day of March, 2011 namely:-

“Explanation.- For the removal of doubts, it is hereby clarified that for the services specified in subclause (zzzx) of clause (105) of section 65 of the Finance Act, 1994, the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority”

Service Tax Rules, 1994

Rule 4A. Taxable service to be provided or credit to be distributed on invoice, bill or challan - Every person providing taxable service shall, not later than fourteen days from the date of Provision of (As amended in place of “completion of”) such taxable service or receipt of any payment towards the value of such taxable Service, whichever is earlier issue an invoice….

In the said rules, after rule 5A, the following shall be inserted, namely:-

“5B. Date for determination of rate.- The rate of tax in case of services provided, or to be provided, shall be the rate prevailing at the time when the services are deemed to have been provided under the rules made in this regard.”. ( Rule 5B is inserted after amendment, - Where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.)

In the said rules, in rule 6 Payment of Service Tax

(i) in sub-rule (1),-

(a) for the words, “payments are received, towards the value of taxable services”, the words “service         is deemed to be provided as per the rules framed in this regard” shall be substituted; (Therefore now date of deposit of service tax 5 day of month immediately following calendar moth in which service is deemed to be provided as per the rules framed in this regard”)

Similarly in case of individual, proprietary firm or partnership firm the service tax is to be deposited by 5 day of month immediately following quarter in which “service is deemed to be provided as per the rules framed in this regard”

(b) for the third proviso, the following shall be substituted, namely:-

“Provided also that the service tax on the service deemed to be provided in the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31^st day of March of the calendar year.”;

(ii) for sub-rule (3), the following shall be substituted, namely:-

“(3) Where an assessee has issued an invoice, or received any payment, (As amended, earlier if assessee had paid service tax to government then it could be refunded as earlier service tax was paid when payments received) against a service to be provided which is not so provided by him either wholly or partially for any reason, the assessee may take the credit of such excess service tax paid by him, if the assessee.-

(a) Has refunded the payment or part thereof, so received along with the service tax payable thereon for the service to be provided by him to the person from whom it was received; or

(b) Has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued.”;(This condition is introduced after introduction of Point of Taxation Rules.)

(iii) In sub-rule (4B), in clause (iii), for the words, “one lakh rupees”, the words “two lakh rupees” shall be substituted;(This is for adjustment that was allowed to be made in case excess amount is paid for reason other than specified ones)

(iv) after sub-rule (6), the following shall be inserted, namely:-

“(6A) Where an amount of service tax payable has been self-assessed under sub-section (1) of section 70 of the Act, but not paid, either in full or part, the same, shall be recoverable along with interest in the manner prescribed under section 87 of the Act.”.

(v) in sub-rule (7B),-

a) for the figures and words “0.25 per cent. of the gross amount”, the figures and words “0.1 per cent. of the gross amount” shall be substituted; (This is for persons engaged in purchase and sale of foreign currency)