CA, Designated Partner, ACA, M.com
The restaurant industry defines "Service Charge" as a fee that is levied over and above the price of the food and drink for the additionalconvenience of serving inside a restaurant. They also emphasize that it is an internationally accepted best practice.
As per the GST law, GST will be charged on the 'transaction value'. Transaction value is the price actually paid (or payable) for the supply of goods/services between un-related parties (i.e., price is the sole consideration).
Section 15(2)- CGST Act 2017
As per the Clause (c) of Section 15(2) of Central Goods and Services
Tax Act, 2017 provides that "(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;"
The above clause can be divided into two parts i.e.
1. Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply.
2. Any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.
As per the second part of the said clause, any amount which is collected by the hotel/restaurant thus it forms part of price collected by the hotel/restaurant, therefore it has to be included in the transaction value.
Further according to GST law, the value of a supply of goods or services or both will be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related, and the price is the sole consideration for the supply
PRACTICAL SCENARIOS IN THE SIMILAR INDUSTRIES
1. If you order from a food aggregator and if the packing and delivery charges are separate, then GST is payable on that
2. For online travel booking, if you are paying convenience fee toairlines, there is a GST on that fee as well
EXTRACT OF CBIC FAQ
Ques: Will service charge, as charged by some restaurants, be treated as consideration for a supply and hence considered liable for tax?
Reply: There is no distinction between goods or services under GST. Service charge like any other supply will be leviable to GST. It is also clarified that service charge is not a statutory levy. It is not levied by the Government.
RELEVANT CASE LAWS
1. Hon'ble Bombay High Court in the matter of Sun-N-Sand Hotel Private Ltd. v. State of Maharashtra on 2 December, 1968, Held:
Once the service charges are mandatorily payable by the customer then it difficult to dissociate this part of the bill from the total contract which a customer enters with the assessee when ordering any food. Therefore, service charges in such case would be treated as part of transaction value and thus tax would be leviable thereon.
2. Legal decisions for inclusion of service charges in the transaction value:
Sun-N-Sand Hotel (P.) Ltd. v. The State of Maharashtra on 2 December, 1968:-Hon'ble Bombay High Court in the given matter upheld that
Held: "16. In view of the conclusion which we have arrived at that the 10 per cent of the service charges charged to the customers are properly included in the sale price."
3. Madras High Court in the matter of Hotel Ashoka v. The State
of Tamil Nadu on 28 October, 1976 Equivalent citations: 1977 40
STC 347 Mad
Held: "If we may say so, with respect, we entirely agree with the above reasoning and conclusion of the Bombay High Court. In view of this, we are of the opinion that the conclusion of the Tribunal in this case in including the service charges in the taxable turnover of the assessee is correct."
The "Transaction Value" definition in GST is wide enough to cover service charges. GST must be levied on any supply of goods or services which will also include delivery charges, packing charges or services charges, if any. GST should be levied on service charge, if it is part of the total bill, as rules make it clear that any fee or charge, until exempted, will be taxable.
CA, Designated Partner, ACA, M.com
A. GST Implication:
Notification No.12/2017-Central Tax (Rate) dated 28th June 2017 exempts services provided by entity registered under Section 12AA of the Income-tax Act, 1961 by way of charitable activities from whole of GST, vide entry No. 1 of the notification. The charitable trust or NGO must be registered under Section 12AA of the Income Tax Act, and the services provided by the charitable trust or the NGO are exempt from GST if the same are provided for a charitable cause.
B. Definition of Charitable Activities
Charitable activities which has been defined in the notification as “charitable activities” means activities relating to:
1. Public health services
Counseling of terminally ill persons or counseling for physically disabled
Counseling for people affected with HIV or AIDS
Counseling for alcohol-dependent persons
Public awareness of preventive health, family planning or prevention of HIV infection
2. Promoting of religion, spirituality, or yoga
Promoting educational programs or skill development relating to :
i. Physically or mentally abused person
iii. Orphaned, homeless, or abandoned children
iv. Rural area residents over the age of 65
3. Preservation of environment including watershed, forests and wildlife
If any charitable trust or an NGO does not meet at least two of the criteria, then GST will be applicable and the entity must register under GST.
4. List of Services provided by Charitable Trust or NGO- Exempt from GST:
1. Fee or consideration charged in any other form from the participants for participating in a religious, Yoga or meditation programme or camp meant for advancement of religion, spirituality or yoga shall be exempt.
2. Residential programmes or camps or events where the fee charged includes cost of lodging and boarding shall also be exempt as long as the primary and predominant activity, objective and purpose of such residential programmes or camps is advancement of religion, spirituality or yoga.
3. Donation for religious ceremony is received without such instructions.
4. Renting of Religious Place meant for general public (owned and managed by a registered charitable trust under 12AA of the Income Tax Act, 1961). GST will be exempted when: Rent out rooms are charged lesser than Rs.1,000 a day. Kalyanamandapam or an open area is charged lesser than Rs.10,000 a day. Rent out shops and other spaces for business are charged less than Rs.10,000 a
5. Income from Navratri functions, other religious functions, and religious poojas conducted on special
occasions like religious festivals by persons so authorized for this purpose by the charitable or religious trust
5. List of Services provided by Charitable Trust or NGO- Taxable under GST :
1. Sale of Goods that are sold by a charitable trust is taxable.
2. Services other than by way of conduct of religious ceremony which are not considered as charitable activities, as defined above.
3. Renting of premises for rentals above the threshold limits
4. Services of sponsorship, GST will be applicable on Reverse Charge Mechanism.
5. Advertising rights during conduct of events/functions etc.
6. Donation for religious ceremony is received with specific instructions to advertise the name of a donor.