Owners of middle and small segment eateries decide to remove airconditioners

From Monday, your neighbourhood restaurant could become a sweltering ‘hotspot’, with many hoteliers deciding to disconnect and remove their airconditioners.

This decision comes after the Central government refused to withdraw its decision to levy a 4.94 per cent service tax on fully and partially airconditioned restaurants.

Middle- and small-segment eateries, hotels and restaurants in the city have now decided to remove their airconditioners.

“In partially airconditioned restaurants, even customers seated in non-airconditioned dining halls would have to pay this service tax. Such eateries cannot afford to pass on the increase to their customers at a time when people are thinking twice before spending on eating outside. Families will rather get parcels from non-a/c hotels and eat at home. Already mobile fast-food eateries are eating into the share of small hotels,” said K.T. Srinivasa Raja, president, Chennai Hotels Association.

Of the 15,000 ‘non-star’ category hotels in the State, at least 75 per cent are airconditioned and of these nearly 11,000 hotels, 8,000 are in and around the city. There are 150 ‘star’ category hotels.

M. Venkadasubbu, president of the Tamil Nadu Hotels Association, said hotels have been asked to put up boards informing the public about the new tax.

“It is very unfortunate that this order comes into force in peak summer. In this sweltering heat, people who do not have airconditioners at home usually come to restaurants to cool off; they will be disappointed,” he said.

Tamil Nadu Hotels Association secretary, R. Srinivasan said this new tax would amount to double taxation as already VAT is being levied by the State government on the sale of food. “There is only one transaction happening, we cannot be taxed twice for that. In 1991, an expenditure tax of 12 per cent was levied by the then Union finance minister Manmohan Singh, but that was rolled back. At that time too we had removed airconditioners,” he recalled.

Sources in the associations said members were planning to approach the court for remedy.

B. Sriram, executive director, Tax and Regulatory Services, PwC, said while courts would generally be unwilling to test the validity of the [service] tax, however, they will be open to rule on the mutual exclusiveness of the two taxes. 

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