Queries on taxation and service tax liabilities, addressed by Saloni Roy & Jayanta Kalita of Ernst & Young
We are a service provider in the hospitality sector. We own a hotel having two restaurants. Our accountant has informed us that the negative list regime has been introduced under which all services would be taxable unless included in the negative list. Would we have to charge service tax on room dining services also. Further, what would be the value on which service tax would be required to be charged?
Prior to July 1, services provided by a restaurant having an air conditioned facility and a license to serve liquor in its premises attracted service tax. Further, it was clarified in Circular 139/8/2011—TRU, dated May 10, 2011 that food served in a room would not be liable to Service Tax under ‘accommodation services’ or ‘restaurant services’.
However, from July 1, the negative list regime has been introduced under which any service would be liable to service tax unless included in the negative list or notified as an exempt service.
Further, nine ‘declared services’ have been specifically notified on which service tax would be applicable. The list of such declared services specifically includes service portion of activities wherein goods (being food or any drink) are supplied in any manner as a part of the activity.
We understand that post the negative list regime, all activities where service is provided along with provision of food would be specifically covered as a service. Hence, under the negative list regime, room dining should also qualify as a taxable service and would attract service tax.
Further, as per Rule 2C of the Service Tax (Determination of Value) Rules, 2006 the value of service portion in any activity involving supply of food, drink, etc. in a restaurant would be 40% of the total amount charged.
Hence, for services provided in a restaurant, service tax needs to be paid at 40% of the total amount charged. However, it needs to be determined whether such abatement would be applicable on room dining services also. A clarification may be obtained by the Central Board of Excise and Customs on the same to obtain clarity.
Tax on architect services
We are a firm of architects based in India. We provide services to many Indian clients in respect of their properties located in middle-east countries. Please advise whether we need to pay service tax on such activities under the new service tax law.
Prior to July 1, as per the Export of Service Rules, 2005 (Export Rules) architect services qualified as exports if the immovable property was situated outside India (subject to fulfillment of other conditions). Hence, architect services in relation to immovable property located outside India could qualify as exports even if both service provider and service recipient were located in the India.
From July 1, the Export Rules has been replaced with the Place of Provision of Service Rules 2012 (PoS). The PoS Rules determine the place where a service is deemed to be provided.
Rule 5 of the PoS Rules provides that in case of services directly related to an immovable property, the place of provision would be the location of the immovable property. However, Rule 8 specifies that in cases where both the service provider and service recipient are located in India, the place of provision of the service would be the location of the service recipient. Further, where the place of provision of a service is determinable by more than one Rule, the latter Rule would apply.
Accordingly, in the present case, Rule 8 would apply to your case. Since both the service provider and service recipient are located in India, the place of provision of the service would be the location of the service recipient. In the present case, since the service recipient is located in India, the place of provision of service would be in India even though immovable property in relation to which such service is being provided is situated outside India.
Tax on old assets
We are a service provider providing manpower supply services in Delhi. We are not engaged in trading of goods. In the course of shifting our office to another place in Delhi itself, we would be selling old assets like furniture, computers etc. Please advise whether we need to pay VAT.
We assume that you would sell the assets within Delhi. Hence, the provisions of the Delhi VAT Act, 2004 (DVAT Act) would be applicable. Under the DVAT Act, the liability to pay VAT is on a ‘registered dealer’ or a person required to be registered under the DVAT Act. A ‘dealer’ has been defined to mean any person who in the course of his ‘business’ buys or sells goods. For this purpose, business has been defined to include provision of any service. Hence, you should qualify as a dealer liable to pay VAT. However, it needs to be examined whether you are required to be registered under the DVAT Act.
A dealer is required to obtain registration under the DVAT Act if the dealer’s turnover exceeds the ‘taxable quantum’ (which is R10 lakh). However, please note that the DVAT Act specifically excludes sale of capital assets to qualify as taxable quantum. Therefore, in case of sale of capital assets, such assets would not be included in the taxable turnover for the purpose of VAT.
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