Question

My friend is running A.C. Restaurant. He provides serving of food in A.C. Hall/Restauran for which he has ST registration and was paying applicable Service Taxt. He also sale packed food parcel from the reception counter ( situated in front and do not have any A.C. facility). During the period prior to 30.06.2017, he had sold out take away parcel of food from front counter on payment of applicable VAT and no service tax was paid by him on this income. He has been served with a notice from Deptt. proposing of Service tax on sale of Parcel food on value arrrived after deducting applicable abatement. Question: Is he liable to pay service tax on sale value of Parcel food? is sale of food in parcel covered under taxable service? Should he to pay due service tax demanded under SCN along with interest and penalty @15% on S.T. under provision of Section 78 of FA, 1994.

Answer
Facts of the case: A restaurant provides serving of food within air-conditioned premises and also sells food as goods under takeaway orders. Takeaway food is not served within the restaurant but is taken away and consumed outside the premises.

Law Applicable:
As per Rule 2C of Service Tax (Determination of Value) rules;

"Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant
shall be 40% of the total amount"


Interpretation:
Restaurant providing any service within the premises is considered as a service + goods and therefore abatement is given on the approximate goods portion of the transaction. For this abatement rate has been given and finally service tax is charged only on the service portion of the transaction.
But when a restaurant works as a point of sale only and provides food under takeaway orders then no service element is involved only sale of goods is involved and this attracts VAT under old tax regime.

Conclusion:
Takeaway orders do not attract service tax. Only VAT is attract and if the same is paid duly then no demand shall be raised. (Reply dt.09/04/2019)