Service Tax on 'Air Conditioned Restaurants'

 Last time when you had visited an air-conditioned restaurant did you notice 4.94% service tax on your food bill apart from the local VAT charges? Well with effect from 1^st April 2013 Service Tax is applicable on sale or supply of food stuff in air-conditioned restaurants whether or not part of any hotel. Even the eating joints in air-conditioned malls and eateries like Pizza Hut, Mc Donald’s, Coffee Cafe day etc are also liable to Service Tax on supply of food in their premises as all of these are air-conditioned.

Let us take a quick look in the history Service Tax on Restaurants in India.

Service tax prior to Negative List

For the first time a new category of taxable service for levy of service tax on restaurants was introduced by insertion of sub-clause (zzzzv) in clause (105) of Section 65 of the Finance Act, 1994.

This made restaurant service a taxable service with effect from 01/05/2011. Since in a restaurant service sale element is also involved, an abatement of 70 per cent was provided for the purposes of valuation vide Notification No. 34/2011-ST. Thus, service tax was levied on 30 per cent of Gross amount charged by the service provider.

Under Negative List regime

With effect from 1^st July 2012, Section 66E was inserted for introducing the new concept of DECLARED SERVICES under the service tax legislature. According to that, restaurant services were held as declared services. However, Mega Exemption Notification No. 25/2012 entry no. 19 provided that restaurants, eating joints or mess other than those having the facility of air conditioning or central air-heating in any part of the establishment, at any time during the year and a license to serve alcoholic beverages shall be exempt from service tax.

Further, for the purpose of valuation, Rule 2C of Service Tax (Determination of Value) Rules, 2006 provided that service tax would be levied on 40% of gross amount charged by the service provider. Thus under negative list, restaurant industry was imposed to additional service tax on 10% of value on gross amount charged as compared to earlier levy. Effectively customers had to shell out additional 4.94% on their food bill.

As service tax is levied only on the service portion involved in a transaction, in this case, we fail to understand, how the service portion involved in a particular  Industry increased (30% to 40%) due to major change in legislation(Introduction of Negative list Regime).

After the Budget of 2013

Subsequently, Notification No. 3/2013 has amended Notification No. 25/2012(Mega exemption) according to which service tax will be levied even on the restaurants which do not have a license to serve alcoholic beverages. This is a major change for the industry as thousands of restaurants and eating joints including small and medium have come within the ambit of Service Tax. The Change was effective from 01/04/13. This change did have a direct impact on the pocket of common man. Due to this change, even a small eating joint having a seating arrangement and the facility of air conditioning in the establishment shall be liable to service tax even if operating in places like hospitals, temples etc.

No specific definition of "Restaurant" has been prescribed under the service tax regulations containing any limitation to any area, number of seats or otherwise. It covers all restaurants, eating joints or a mess. Therefore, it seems to cover almost all the following categories of restaurants, having the facility of air conditioning or central air heating in any part of the establishment at any time during the year:

·       Restaurants

·       Cafes

·       Food Courts

·       Food Kiosks

·       Pubs etc.

Isn’t not strange both Service Tax as well as VAT was charged on the same food? Well that is when The Honourable High Court of Kerala stepped in.

 

Service tax on restaurants and hotels not Constitutional

On 3^rd July 2013, the Kerala High court, in Kerala Classified Hotels and Resorts Association and others vs Union of India and others  (HC-KERALA-WP(C) No.14045 /2011 Dt.3^rd July 2013 ), held the levy of service tax on supply of food and beverages by restaurants and services of lodging provided by hotels as unconstitutional.

The petitions before the high court involved the specific question of whether the central government had the Constitutional right to levy service tax on the service portion involved in the transaction of sale of food and beverages by restaurants.

As per the Constitution of India, the definition of tax on sale or purchase of goods was expanded by the 46th amendment to the Constitution, which inserted the clause 29A to the article 366, to include: "(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),…"

The high court, while adjudging the levy of the service tax on transaction of sale of foods and beverages by the restaurants as unconstitutional, has relied on the judgment of the Constitutional Bench of the apex court, in K Damodarasamy Naidu and Bros vs state of Tamil Nadu (2002-TIOL-884-SC-CT-CB). There, the apex court held that the Article 366(29A)(f) empowers the state government to impose tax on supply of food and beverages whether it is by way of service or as a part of a service. Such transfer delivery or supply is deemed to be a sale of those goods and the provision of service is only incidental to such sale. Accordingly, it was held that the price paid by the customer for supply of foods in a restaurant cannot be split-up.

Thus, levy of service tax by the Centre on your restaurant bill is unconstitutional.

Since the decision is a consequence of a writ petition and as there is no other conflicting high court decision, the favourable Kerala HC decision constitutes law of the land. Restaurants across India can rely on the decision. The ruling also holds good for current provisions, where the service tax ambit has been expanded to cover all air-conditioned restaurants.

However, while the Kerala HC order said the petitioners were entitled to seek refund of service tax collected and paid by them, it may not be practically feasible. "Restaurants merely collect service tax from customers and pass it on to the government. It would be impossible for them in turn to refund each customer from whom service tax has been collected

When Adam Smith wrote about the four important canons of taxation — equity, certainty, convenience and economy — in the book The Wealth of Nations, he would have expected all nations to, by and large, follow them However, it appears that lawmakers in India often ignore these canons while formulating their tax laws. Retrospective amendments — just to show their angst over landmark decisions of the Supreme Court and High Courts — and frequent tinkering with laws are examples of this attitude. Service tax laws follow this pattern as well so it is a matter of time before this Order is challenged. Until then enjoy your Christmas and New Year Parties in your favorite Air Conditioned Restaurant without paying the Service Tax. 

Wish you all Merry Christmas and a Happy New Year 2014.

Deduction for Tuition fees Payment under Section 80-C of the Income Tax Act.

It has been generally noticed that Drawing and disbursing officers (DDO) /Employers are not entertaining the deduction claim of employee regarding payment of Tuition fees for full time education of their children as a whole. They are allowing only the fee which has been shown as with title "Tuition fees” in fees receipt issued by educational institutes. 

Admission fees, Computer fee, Science Class fees ,Practical fees ,exam fees etc are not being generally allowed. In most of the cases even after employees raises the query to DDO that why he has disqualified the other type of fees for the purpose of section 80C, the queries are not being properly addressed. Moreover in few cases DDO raised a cross question where it is written that all type of fees are allowed.

So in this post we will try to resolve this issue .Firstly relevant provision of section 80C has been reproduced here under. Section 80C (2) clause (xvii)

Any sums paid or deposited in the previous year by the assessee

(xvii) As tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter,

(a) to any university, college, school or other educational institution situated within India;

(b) for the purpose of full-time education of any of the persons specified in sub-section (4);

Further clause 80(4)(C) reproduced here under:-

“(c) for the purposes of clause (xvii) of that sub-section, in the case of an individual, any two children of such individual.”

School, colleges are generally charged various types of fees from student like admission fees, practical fees, exam fees, computer class fees, building fund and tuition fees. The tuition fees word used by School/ colleges and word used in section 80C have different meaning. 

Tuition fees used in section 80C have broader meaning and it includes all type of fees payment made to school /colleges etc except following two type of payment or payment of similar nature as suggested below:-

Development fees 

Donation 

The example of above are Building Fund,development fees etc.

So all other type of fees is allowed and eligible under section 80C and should also be allowed by DDO's. This issue has been recently clarified through circular 8/2013 dated 10.10.2013 

Relevant part of circualar 8/2013 has been reproduced here under.

Tuition fees, whether at the time of admission or thereafter, paid to any university, college, school or other educational institution situated in India, for the purpose of full-time education of any two children of the employee.

Full-time education includes any educational course offered by any university, college, school or other educational institution to a student who is enrolled full-time for the said course.

It is also clarified that full-time education includes play-school activities, pre nursery and nursery classes.

It is clarified that the amount allowable as tuition fees shall include any payment of fee to any university, college, school or other educational institution in India except the amount representing payment in the nature of development fees or donation or capitation fees or payment of similar nature. 

In the above circular it has been clarified that "tuition fees shall include any payment of fees" "except the amount representing payment in the nature of development fees or donation or capitation fees or payment of similar nature."

So all type of fees is allowed under section 80C and not only tuition fees as generally understood in common parlance. So if you have following type of fees (examples) in you school /college fees receipt then ask your DDO to allow the deduction under section 80C

Admission fees 

Exam fees

Computer class fees

Practical fees

Smart class fees 

Further CBDT also clarified that full-time education includes play-school activities, pre nursery and nursery classes.

From the above we can summarize the provisions related to deduction of tuition fees payment under section 80C as under.

·         Tuition fees deduction is allowed under section 80C of the income tax act.

·         The overall limit of 1,00,000 is applicable of section 80C ,80CCD(2) ,80CCC for fy 2013-14

·         The tuition fees under section 80C has broader meaning then generally prevails in society as explained above

·         However ,Tuition fees does not include the amount representing payment in the nature of development fees or donation or capitation fees or payment of similar nature

·         Tuition fees deduction allowed for "any two child" of individual. Younger/elder no concept.

·         If a couple have four children then both can claim fees for any two children each.

·         Even fees of one child can be claimed partly by Husband & wife according to amount paid by each of them .However for the sake of practicability they should arrange separate receipts for their own parts. 

·         Tuition fees is allowed only to the individual and not allowed to HUF.

·         Tuition fees paid for education of assessee himself is not allowed.

·         Tuition fees can be claimed for children's education even if child is not depended on person.

·         Tuition fees can be claimed for children's education even if child is Major. 

·         A tuition fee is allowed on payment basis only. So if you have paid fees for FY 2013-14 in March 2013 then it is not allowed in FY 2013-14.

·         Tuition fees paid in advance is to be allowed in the year of payment.

·         Tuition fees for play school ,pre nursery ,nursery classed also allowed  

·         Educational institute must be in situated in India. So fees paid abroad not allowed.

·         The education must time "Full time education”, part time courses not allowed .

·         In of the opinion Transport fees, Hostel fees, Mess charges etc which are not directly associated with education are not allowed u/s 80C.

Reference:-

Section 80-C

http://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2008itact/section80c.htm

Circulars

http://law.incometaxindia.gov.in/DIT/Circulars.aspx

Death penalty

The Indian government is committed to the retention of the death penalty. In December 2007 India was among the minority of countries who voted at the United Nations General Assembly against a moratorium on executions.

India retains the death penalty as punishment for a number of crimes including murder, kidnapping, terrorism, desertion, inducement to suicide of a minor or a mentally-retarded person and has more recently in 2013 come to include the offence of rape in certain circumstances. It is mandatory for second convictions for drug trafficking offences.

Death sentences are carried out by hanging. In 1983 the Supreme Court upheld the constitutionality of this method, stating that it: “involves no barbarity, torture or degradation.”

After observing an unofficial moratorium of 8 years in India, the Indian Government in November 2012 carried out the execution of Ajmal Kasab, convicted in the Mumbai attacks case, without public knowledge. This was followed by the secret execution of Afzal Guru, convicted in the Parliament attack case of 2001, in February 2013, under similar circumstances, without intimating his immediate family or affording a chance of judicial review. In both cases, the executions were carried out under covert operations conducted by the Government immediately upon rejection of their mercy petitions. Before these executions, the last execution to be carried out in India was that of Dhananjoy Chatterjee in 2004 who was convicted of rape and murder and which sentence was carried out after he had spent 13 years in solitary confinement.

Following this, several mercy petitions of death row convicts have come to be rejected. The fear of execution of such convicts is imminent. Bolstered by the Government's unapologetic conduct and public outcry, especially in recent cases of rape and murder reported in the country, the courts are continuing to hand down death sentences at an alarming rate.

There is very little information on the number of people sentenced to death in India. According to the National Crime Records Bureau, 1,455 convicts were awarded the death penalty during the period 2001-2011. The actual figure of sentences originally awarded is much higher considering the death sentences of 4,321 convicts came to be commuted to life imprisonment in the said period.

That the imposition of death penalty is ineffective in controlling crime rate or deterring crimes, is widely known and even accepted on the basis of exhaustive research and statistics. Inherently there are serious flaws in capital sentencing. DNA evidence is not used, death sentences can be given by a majority rather than a unanimous bench and many convictions for death sentences are based entirely on circumstantial evidence. This coupled with a faulty criminal law enforcement system and admittedly high corruption levels in the police force investigating the crime, increases the chances of false convictions. In such a scenario, the correctness of conviction resulting in the ultimate sentence of capital punishment relies on a system of trial and error.

Also, the handing over of the death penalty is dependent on various variable factors such as existing biases amongst law enforcers, social biases, media reports and public outcry, social and financial status of the accused, quality of legal representation and last but not the least, the bent of mind of the judges.

During the 1980s the Supreme Court sought to restrict the use of the death penalty by characterizing it as a punishment reserved only for the “rarest of the rare” cases. The doctrine has not had the desired effect. According to a former chief justice of the Delhi High Court, Rajindar Sachar: “after the rarest of rare doctrine was introduced in 1980, the Supreme Court confirmed death penalty in 40 per cent of cases in the period 1980-90 while it was 37.7 per cent between 1970 and 1980. For the high courts it rose from 59 per cent in 1970-80 to 65 per cent during 1980-90”. Over the past two decades the death penalty has been extended to include more crimes and been handed down with increasing frequency.

Paradoxically, whilst the “rarest of the rare” doctrine has been used to limit and restrict the use of the mandatory death penalty elsewhere in the world, it has often had the opposite effect in India. It has enabled judges to justify imposing sentences of death in an arbitrary manner, reinforcing the deeply flawed character of capital punishment in India today.

Recently in April 2013, in a petition filed by Devender Pal Singh Bhullar in the Supreme Court, delay in deciding his clemency plea was ruled out as a ground to commute his death sentence to life imprisonment. Devender Pal Singh Bhullar had approached the Supreme Court in 2011 after the President rejected his mercy petition after 8 years. The said judgment may have a far reaching effect on similar cases where mercy petitions have remained pending with the President for inordinate periods of time.