The Central government levy on air conditioning is driving restaurants to switch off their ACs. Eating out now comes with an additional price tag.

Customers are charged a service tax at the rate of 4.94 per cent of the bill amount. This is on top of the Value Added Tax of 2 per cent already levied by the State government.

R. Srinivasan, secretary, Tamil Nadu Hotels Association, says that the levy of service tax even on those who choose to eat in non air-conditioned areas in partly air-conditioned restaurants is punitive.

He recalls that in 2011 the Centre introduced service tax on restaurants possessing licences to serve liquor, which spawned litigation initiated by restaurant owners’ associations in various States, including Tamil Nadu, Kerala, Karnataka, Gujarat and Delhi.

They contended that only the State government and not the Centre had the Constitutional right to levy tax on restaurant sales. Disposing of one of the cases in July this year, a single judge of the Kerala High Court ruled that such levy, introduced through the Union budget (2011-12), was beyond the legislative competence of Parliament.

“I am told that the Centre decided to take the judgement on appeal before a Division Bench,” Mr. Srinivasan says.

However, even before the judgement was passed, the Centre expanded the scope of service tax this year and extended it to cover all restaurants with an air-conditioning facility, even if they did not possess licences to serve liquor.

“As far as our understanding goes, we think that the Centre’s intention is to levy service tax only on those who choose to eat in air-conditioned cubicles. But the Central Excise officers bestowed with the responsibility of collecting service tax do not think so.

“The officers have been demanding that service tax be paid, once in three months, on the entire sale proceeds of restaurants, without restricting the demand to services provided by air-conditioned outlets alone.

They are forcing us to pay tax for services rendered in non air-conditioned premises as well as take- away sales of food items across the counters,” the secretary adds.

K.L. Kumar, president of the Madurai district hotel owners’ association, has noted that many hotels in the district have closed down their air-conditioning facilities to avoid paying service tax.

“I too have shut down the air-conditioning in two of my hotels and merged the area with the non air-conditioned section.

Following suit, many other hotels have closed down their air-conditioned cubicles in our district. What else can we do?

“We are already burdened by high input costs due to the steep increase in the prices of essential commodities like rice, wheat, milk and sugar.

Added to this is the ever- fluctuating price of gas cylinders, rise in staff salaries and so on. Now, a new burden has been imposed by way of service tax,” he laments.

Speaking on condition of anonymity, a Central Excise officer says that as per a notification issued by the Centre, his department is dutybound to collect service tax from every restaurant, food outlet or mess that has either air conditioning or central air-heating in any part of the establishment.

“The words ‘in any part of the establishment’ must be read carefully because they mean that the mere existence of an air-conditioning facility even in a corner of a restaurant would make the management liable to pay service tax on the entire sales of the restaurant. We cannot relax this rule unless we receive appropriate orders from the government,” he points out.

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