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About Service Tax ... how restaurants loot your money ... Be aware - Mischievous email/blog/tweet in Circulation

DDT in Limca Book of RecordsTIOL-DDT 1978
07.11.2012
Wednesday

 

 

I got this e-mail a couple of weeks ago:

We had been to several restaurants recently. I observed that "service tax" has been misused and charged to the customers like you and me.

Let me give an example.

Food and Beverage

=

Rs. 1000.00

Service Charges @ 10%

=

Rs. 100.00 (10% on the Food and beverage amount)

Service Tax @ 4.94%

=

Rs. 54.34 (4.94% on F&B + Service Charges)

VAT @14.5%

=

Rs. 145.00

Total

=

Rs. 1299.34

As per the definition - "Service Tax can be charged only for the services provided to the customer".

Now, see what is happening here in the above said example.

Service Tax should be charged only on the Service Charges amount i.eRs.100 and not on the entire amount (1000+100).

In this example, the customer should be charged only Rs 4.94, whereas he has been charged Rs. 49.00 extra.

Where does this money go? Only the restaurant owner and the chartered accountants who work for them know.

So, I have started asking them the questions - and surprised to see the reactions from the famous restaurants. Either they say,Sir we cannot change the format of the bill - so, we will recalculate and tell you the revised amount. You may pay only that.

Sir, you do not need to pay the Service Tax amount itself.

I now have 3 to 4 restaurant bills, for which I have paid only the service tax - on the service charges and not on the total amount.

Every bill must carry the TIN number and Service Tax Number, if they charge it. So, I ask for the Service tax number if it is not available in the receipt that they provide.

We cannot go to any government official and ask them to get this right - because of our system.

Please remember - we cannot change any political leader - but we can change ourselves. If we change ourselves - things will change.

Please do share this with every one of your friends and known people.

Ask for the right tax calculation and pay only the tax, which is supposed to be paid. Verify every bills and receipts that you make payment on.

I ignored the mail as some spam, but now it seems, this mail has been widely circulated through email, Facebook, twitter - and what have you?

And you know what; this mail was forwarded to me by a Service Tax Officer! And in this Internet age people are influenced by such authoritative (and wrong) interpretations. Even the Delhi High Court Bar Association was swayed by this misinformation that they put a notice on their Notice Board to the effect that the hotels are virtually charging you Rs. 49 excess as shown in the above example. The Association has requested its members to note this and educate their family, friends and clients; and rightly refuse to pay the extra tax and see the difference!

What is the Legal Position? Please see Rule 2C of the Service Tax (Determination of Value) Rules, 2006, extracted here:

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, in terms of the following Table, namely:-

Table

Sl. No.

Description

Percentage of the total amount

(1)

(2)

(3)

1.

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

40

2.

Service portion in outdoor catering 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 such outdoor catering

60

So, the Service Tax payable on food served in a restaurant would be 12.36% on 40% (or 4.94%) of the total amount. That is, the Service Tax charged by the restaurant in the example given in the widely circulated mail is absolutely correct. And this blogger believes he is a crusader and the Delhi High Court Bar Association wants the lawyers to advise their clients based on a mischievous mail from an unknown blogger. Lawyers are obviously not the best persons to get legal advice from.

The restaurant was absolutely right and the experts thoroughly wrong. This is the problem with complicated laws which restaurant clerks understand but which experts in the Internet and lawyers don't!

Appointment of Cost Auditor by Companies - Changes in Procedure

IN continuation of the General Circular No. 15/2011 dated 11thApril 2011, Ministry of Corporate Affairs has made the following changes:

1. The company shall, within thirty days from the date of approval by MCA of the application made to the Central Government in the prescribed Form 23C seeking its prior approval for the appointment of cost auditor, issue formal letter of appointment to the cost auditor, as approved by the Board.

2. The cost auditor shall, within thirty days of the date of formal letter of appointment issued by the company, inform the Central Government in the prescribed form 23D, along with a copy of such appointment.

3. In case of change of cost auditor caused by the death of existing cost auditor, companies are allowed to file fresh e-form 23C, without any additional fee, within 90 days of the date of death. The additional fee payable as per the Companies (Fees on Applications) Rules, 1999 [as amended] shall become applicable after expiry of the said 90 days. Accordingly, e-forms 23C and 23D are being modified to capture such details.

4. In case of change of cost auditor for reasons other than death of the existing cost auditor, companies are required to file fresh eform23C with applicable fee & additional fee, clearly specifying the reasons of change.

This will come into force with effect from 1.1.2013

MCA General Circular No. 36/2012, Dated: November 06 2012

Examination of Balance Sheets by RoCs

EVERY company registered under the provisions of the Companies Act, 1956 is required to file its balance sheet annually with the office of the Registrar of Companies within whose jurisdiction the registered office of the company is located. At present, there are more than 8 lakh companies registered with various offices of the RoCs located all over the country. Balance sheets of all the companies who carry out the filing are available for public inspection on the portal of the Ministry (http://www.mca.gov.in). The underlying idea behind the filing of balance sheets and other documents which require similar filings is to publicly disclose information which reflects various aspects of the working of a company so that the company's public accountability is maintained.

It is neither intended nor feasible for the Registrars to scrutinize or verify the contents of filing except on a random basis. Companies and, its Directors and officials are liable to be penalized for any incorrect, false or misleading information that such filing disclose.

In the following cases, however, the Registrars routinely scrutinize balance sheets:

1. of companies against whom there are complaints;

2. of companies which have raised money from the public through public issue of shares/ debentures etc.;

3. in cases where the auditors have qualified their reports.

4. Default in payment of matured deposits and debentures.

5. References received from other regulatory authorities pointing out violations/irregularities calling for action under the Companies Act,1956.

MCA General Circular No. 37/2012, Dated: November 06 2012.

Key Chains Used for Smuggling Drugs

CUSTOMS Authorities in Kuala Lumpur International Airport busted a novel smuggling method when they seized 2500 key chains, each of which contained about 4 grams of drugs. The total drugs seized were7.25kgs. And the key chains reached Kuala Lumpur from Chennai, India!

Customs Inspection without Contact with Importer - The SA Experiment and iPod

THE South African Revenue Services (SARS) has modernised Customs operations with the ultimate aim to have the Customs inspection officer not to have any direct contact with the importer.

SARS' strategy is to move all imports into a pre-clearing situation whereby all the documentation is filed electronically and customs officials can work out at the point of entry if the container should be inspected further. They would use the Apple iPod devices to download the documentation and take a photograph of the container and its barcode. The information is then uploaded into the case file.

The Customs inspector does not make a decision there and then on whether the container can proceed, the decision is made by a customs officer located in a hub in another location who has sight of all the documentation. The system can also tell the customs officer if all the documentation has been completed correctly and if not, the trader can be informed immediately.

All the points of entry have wireless networks that allow the iPod- toting inspectors to move about from one container to another.

Jurisprudentiol Thursday's cases

Legal Corner IconService Tax

Financial difficulty - Nobody can make a claim that investment in equity shares should be kept intact while Service Tax liability should be deferred by exercising the discretion of Tribunal - Pre-deposit ordered of adjudged ST amount: CESTAT

ACCORDING to the Income Tax return, the appellant had invested in equity shares amounting to more than Rs.4.7 lakhs. In view of the fact that the demand of Service Tax is of Rs.2.31 lakhs, it cannot be said that the appellant is in such a financial position that he cannot pay this amount. Nobody can make a claim that the investment in equity shares should be kept intact while the Service Tax liability should be deferred by exercising the discretion of the Tribunal.

Income Tax

Income tax - Whether a developer is liable to pay tax on ALV of unsold flats owned as stock-in-trade under head 'income from house property' even if flats are not actually let out - YES: Delhi HC

THE issues before the Bench are - Whether assessee is liable to pay income tax on the annual letting value of unsold flats owned by it as stock in trade under the head income from house property, even when the same is not actually let out; Whether the levy of income tax in the case of one holding house property is premised not on whether the assessee carries on business, as landlord, but on the ownership; Whether annual letting value method is a permissible method for determination of tax regardless of whether actual income is received or not; Whether existence of an artificial method itself would not mean that levy is impermissible and Whether mere passive occupation of ones own property, amounts to "own occupation" in the course of business, and for the purpose of business, qualifying for exemption from income tax. And the verdict favours Revenue.

Central Excise

Finding that intention of applicant was just to delay decision on their application for waiver of pre-deposit of dues, cost' of Rs.50,000/- imposed: CESTAT

THE application for waiver of pre-deposit was adjourned six times at the request of the appellant and on the 7th time none appeared on behalf of the appellant in spite of notice. No request for adjournment was also made. In such a circumstance, the application for waiver of pre-deposit of dues was dismissed by the Bench for non-prosecution vide stay order dt. 28.12.2011. Subsequently, the appellant filed an application for modification of the stay order and the hearing was adjourned on the request of appellant two times and listed for hearing for the third time on 17.05.2012 and on that day also none appeared for appellant nor any request for adjournment was made. Therefore, the application for modification of stay order was also dismissed for non-prosecution along with appeal as appellant failed to comply with the condition of stay order.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day.

Mail your comments to vijaywrite@taxindiaonline.com


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: Restaurant too is wrong

In the mischievous mail which maligns the restaurants, the bill shows service tax rate as 4.94%. The restaurant ought to show 60% abatement towards value of food and charge 12.36% tax on the 40% value. It would have saved itself the bother. Arithmetically it makes no difference, but practically it has made huge difference. Similarly, entities which pay service tax on GTA service pay 3.09% on full freight, instead of paying 12.36% on 25% of the freight sum. Tinkering with tax rate is never safe. It would have been better for the restaurateur to disclose the abatement, rather than reduce the tax rate.

Posted by Gururaj B N
 
Sub: Service Tax Valuation Rules

Unfortunately, the Explanation 1 to Rule 2 (C) creates the confusion, which explains the meaning of "total amount":

Explanation 1.- For the purposes of this rule, "total amount" means the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink(whether or not intoxicating), whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services, if any; and

(ii) the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.


As per the said Explanation (1), the goods value has to be deducted for computing the total amount charged. Of course, that may not be the intention of the Government as could be evident from the Mega Exemption Notification.



Posted by Siddharth Shah
 
 
 
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