Jagoinvestor

April 3, 2017

I refused to pay service tax at this restaurant – Guess what happened next?

Yesterday I went to watch a movie late night at Amanora town center in Pune. I and my wife had our dinner at a small Italian restaurant and the food there was quite good.

When it was time to pay the bill, I went to the counter and paid the bill. When I got the bill in my hand, I realized that there is a problem. They had charged me a “service tax”. However, the main issue was that there was no service tax number mentioned on the bill.

illegal service tax charged

Charging Service Tax without Service tax number is Illegal

Yes, you heard it right.

The Bill copy did not have any service tax number mentioned on it, but the restaurant had put a service tax charge on the bill. This is Illegal and can’t be done. Hence I told the staff that I can’t pay that service tax unless they give me the service tax number.

The staff, as usual, was ignorant about this and told me that I should talk to “owner” and tried to give me his number. However I told them, it’s not what I will deal with and I will not leave unless they give me service tax number because they are illegally charging service tax.

Finally, after 5 minutes, the staff told me that the Owner is not reachable and they will give me a service tax number later. But I refused to budge and demanded them to pay me service tax amount back and not repeat this, as its illegal.

Finally, they had to refund me back and I took the money. Here is what another CA has to say about this on Quora

service tax rules

I realized that not more than 1 out of 1000 people know this rule, and this needs to be spread among people. Many restaurants are misusing the fact that now people know that service tax is an unavoidable tax and has to be paid, however many do not know the rules and conditions under which any business can charge it. Even Service charge is now an optional thing and you decline to pay it.

Note that many restaurants will tell you that they have applied for the service tax number and are awaiting it, but this is mostly a trick to fool you and to save themselves out of the situation and embarrassment. However even in that case, it’s not right, and you should demand to see the proof for that.

The service tax number is mandatory to charge Service Tax

As per service tax rules, service tax can be charged only if you applied and got your service tax number. This service tax number has to be written on the invoice copy. Without that, you cannot charge service tax from your customers.

In the case of restaurants, the service tax has to be charged only on 40% of the FOOD bill and beverages. So if you eat for Rs 1,000 (food + beverages), then only 6% on the total bill is to be charged, which will be Rs 1060.

Here is a sample of a correct bill that mentions the service tax number on the bill itself.

service tax mentioned on bill invoice copy

How to verify whether the service tax number is valid or fake?

Few people ask me, how to verify that the service tax number mentioned on the bill is not fake? Because the hotel guy can just randomly put some number, which looks like the service tax number.

The simple solution is to check the name of the person/company under whose name the service tax number is registered. It just take 1 min to verify that.

  • Step 1: Go to this link
  • Step 2: Enter the 15 digit Service tax code (also called Assessee code)
  • Step 3: Enter the captcha

Once you do this, the page will show you the

How to check if the service tax number of the bill is real or not?

Non Bailable Offence under sec 89 of service tax

If service tax is charged without a service tax number, then how will it be paid to the government? Because you need the service tax number to pay the tax to govt. Sec 89 of finance Act tells that incase an offense is done like this, then the person can be jailed for up to 1 yrs (and up to 2-3 yrs in case the amount involved is above Rs 50 lacs).

Below is a snapshot is taken from Taxguru website which writes about tax-related topics.

illegal service tax rules

Do you need to pay a service tax if you don’t sit in AC?

This is very interesting.

One of the biggest questions people raise is that if a restaurant has AC in one part, but not in other parts and if you are seating in a non-AC section and dined, still do you have to pay the service tax?

Or imagine is AC was not working at that time, even then will you be charged the service tax?

The answer to that is YES.

Sorry, but the service tax rules clearly state that. The service tax rules simply say that if the establishment (the hotel or restaurant) has the facility of air conditioning or central air-heating in any part of the establishment, then they have to charge the service tax in their bill.

It does not matter if you got the benefit of the AC at the time of eating. All that matters is that they have AC anywhere on the premises.

This itself is enough for a restaurant to charge the service tax. However, if an establishment is divided into two parts with the two different names and entities, then the non-ac part can’t charge the service tax (where the service was given), even if the food was prepared in the AC part. Here are the exact wordings from the service tax notification on this issue

Can restaurant charge service tax even if customer does not enjoy the AC

3 things to remember when you visit a restaurant next time

When you visit the restaurant next time, make sure you keep in mind the following 3 points.

  • Check if service tax number is mentioned on the bill or not, if they are charging service tax on the bill
  • Make sure the service tax is charged @6% on the food + non-alcoholic bill and 15% on the alcoholic charges
  • Make sure there is AC in the restaurant if you are charged service tax.

Spread this Information

There are thousands of restaurants that might be charging service tax illegally without having a service tax number and millions of customers on a daily basis are paying that as they are not aware of the exact rule. This is practiced by many restaurants, small hotels, and many other businesses.

So spread and share this article as much as you can so that more and more people can know about this. Also, share your experience with this.

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205 Comments
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Sumit Das
Sumit Das
6 years ago

Great and helpful blog to everyone thanks a lot for sharing.

Jagoinvestor
Jagoinvestor
Reply to  Sumit Das
6 years ago

Thanks for your comment Sumit Das .. Please keep sharing your views like this..

Manish

A
A
7 years ago

Hi

Thanks for such an informative article.

One thing which I always wanted to know.
Why should a Retail Customer be presented with different types of taxes and charges in the bill of restaurant? The only thing a Retail Customer is interested in, is the final price of each food item he/she is buying from the restaurant. Why doesn’t the govt. make it mandatory for the restaurants to show the net price of each food item in the Menu Card as well as in the bill.

When we buy a packaged commodity, we only get to see the M.R.P. of the commodity. The same should happen in case of food items served in the restaurants. These restaurants must display only ACTUAL FINAL SALE PRICE(Which should include all the taxes, service charges etc.) in the Menu Card as well as in the bill.

Thanks
A

puneet
puneet
7 years ago

You are doing great job, I get idea to save money with your blog thanks.

Bhanu Pratap Singh
Bhanu Pratap Singh
7 years ago

Hi, I regularly follow the topics on Jagoinvestor.com and this one is an eye opener for me, I wasn’t aware of the fact, infact I talked to some of the friends about this and most of them were unaware.
Thank you Manish for sharing this interesting fact with us.
Keep Sharing.

Regards
Bhanu

sameer
sameer
7 years ago

Very Good Article… Eye opener….

shan
shan
7 years ago

Hi,
I have one query on service tax.
Recently i resigned from a company where they had 3 months notice period, i could only give them one month notice. I agreed to buy the remaining two months notice. On this amount they charged a 15% service tax.
Is this legal? The amount was around few thousands.

Balaji
Balaji
7 years ago

Service tax @ 4.94% should be charged on the Service Charges only and Not on the full bill amount.
For Ex :
1. Food & Beverages : Rs 1000.00
2. Service Charge : Rs 100.00
3. Service Tax @4.94% : Rs 4.94 (4.94% of Rs 100)
4. VAT @14.5% : Rs 145.00

But what some Restaurants do for Pt 3 above Service Tax is 4.94% of Rs 1100 = 54.34 which is Rs 49.40 extra (54.34 – 4.94).

Hope this is clear. Watch out guys and always question the restaurant if they over charge you because it is our RIGHT !

Balaji
Balaji
Reply to  Jagoinvestor
7 years ago

hi Manish,
I don’t recall where I read it, but I think what I mentioned earlier is wrong. The below is correct.

Service tax is a tax levied by the government. This is 14 per cent and is payable on 40 per cent of your total bill. The bill is inclusive of food, drinks, service charge and other services such as the ambience.

Ankur
Ankur
7 years ago

Good article. I had read somewhere that service tax is only applicable on service charge. Can, you clarify ?

Pavan
Pavan
7 years ago

Hi,

I regularly follow the topics in Jagoinvestor and this is an eye opener.

So yesterday (23-Apr-2017) I went to a restaurant in Bangalore and they charged service tax without mentioning service tax number on the bill. Then I remembered reading this topic and immediately spoke to the restaurant manager and he said that TIN number is already mentioned and it is applicable for both VAT and service tax. I clearly told him that TIN is for collecting VAT and you need a service tax number for collecting service tax. I said I will not pay the service tax but they didn’t budged and said that I have to pay service tax. As I could not do much there I quietly paid service tax and came out of restaurant. Is there anyway I can raise complaint against this restaurant.

Sushant
Sushant
7 years ago

Eye opener. Interesting fact. Will surely keep an eye on this next time I dine in a restaurant.

Pallav
Pallav
7 years ago

According to the Supreme Court guideline 2017 nobady can force to pay the service tax .Its uppon customer are they wish to pay it or not ?If some one force you can immediatly call police,licence may be cancelled or sealed for that as a punishment.

ashok
ashok
7 years ago

Very informative one. Thanks.

Sireesha
Sireesha
7 years ago

Thnq..It’s very informative

Yogesh Salgaonkar
Yogesh Salgaonkar
7 years ago

Thank you very much Sirji. This article is very informative. Were getting fooled. Looking forward for such information on other issues too. Thanks again.

Sarthak
Sarthak
7 years ago

I visited a restaurant and they had Service charge and Service tax. So which one can i deny to pay?And do the service charge also have to have a no.

pawan agrawal
pawan agrawal
7 years ago

I visited a restaurant for food. It was having only 2 coolers. AC was in rooms only. They charged service tax on the bill. I resist on the plea No AC- No Service Tax. They show me a letter that if AC is installed in any part of the unit, Service Tax can be charged. ” for exemption from service tax on restaurant services, the establishment should not have the facility of air conditioning in any part”.
What to do now.

pawan agrawal
pawan agrawal
Reply to  Jagoinvestor
7 years ago

Thank you Manish Ji
I read the concerned para only. But AC is installed in the rooms of hotel only not in the restaurant.
I understand rooms and restaurant are part of hotel and thus service tax is levied.
Thanks

Pulkit
Pulkit
7 years ago

Can you make it clear..If restaurant has AC facility and it is charging service tax but the service tax number is not mentioned on the bill. Can we refuse to pay the service tax in this case?

Milind Ganbawale
Milind Ganbawale
7 years ago

Yes I am totally agree denied to pay illegal service tax and Government need to action on such restaurants ” Jago Grahak Jago”

Radha
Radha
7 years ago

Can service tax be charged for take out order ? I recenty purchased some donuts from a dunkin donuts shop in bangalore. They charged 6% aervice tax. I did not sit in AC or something. Just ordered, paid using CC and walked out

Jo
Jo
Reply to  Jagoinvestor
7 years ago

If you could update this comment here, after you find out, we would all be grateful. Thanks for the info as I wasn’t aware of it.

Uday
Uday
7 years ago

In the above bill the restaurant has charged service tax on food plus service charge is that correct?