Service charge: UT produces notice issued to eateries before High Court

Saurabh Malik

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Tribune News Service

Chandigarh, February 27

The Chandigarh Administration has produced before the Punjab and Haryana High Court a letter asking hotels and restaurants to show cause why service charges levied and collected by them from the consumers over and above the bill be not included in gross turnover and taxed. The letter is in supersession of an earlier letter by the Administration prohibiting the charge of service tax.

The development is significant as it indicates that service charge will once again be levied on foodstuff. The development before the Division Bench of Justice Rajive Bhalla and Justice Amol Rattan Singh took place during the hearing of a petition by Premier Restaurant Private Limited against the Union Territory of Chandigarh and other respondents through senior advocate DS Patwalia and Sahil Sabhlok.

The letter has been written by UT Excise &Taxation Commissioner to the chairman of Hotel Restaurants Association and all the hotels and restaurants in Chandigarh. The letter on levying service charges says it is in supersession of earlier memo dated October 31, 2014.

It adds the charges levied by the restaurants and eateries as payment for services rendered for serving the food, by mentioning it as service charge, is not a government levy. It is collected by the restaurants themselves. Different restaurants levy different service charges ranging between 5 per cent and 10 per cent over and above the bill.

As per definition of sale price in Punjab Value Added Tax Act 2005, applicable to Chandigarh, “any sum charged for anything done by the person in respect of the goods at the time of or before the delivery thereof constitutes a part of sale price”.

But on the amount of the service charges levied and collected by the restaurants and eateries, tax was neither being paid, nor included in the gross turnover. The amount of service charges has to be included in the gross turnover of the dealers.

“In view of the aforesaid, all concerned dealers doing the business of restaurants/eateries are directed to show cause as to why the service charges levied and collected by them from the consumers over and above the bill for food etc. be not included in the gross turnover and taxed and penalised.”

The High Court, on a previous date of hearing, had asserted, “Counsel for the petitioners states that the petitioners are not and shall not levy service charges on the price of food and beverages offered by the petitioners in their restaurants during the pendency of the writ petition. The Chandigarh Administration shall not take any coercive steps vis-a-vis the petitioners arising from the impugned order.”