All India Chartered
Accountant’s Society
4th Workshop on Service Tax
(Session XX II)
Date: 23 July, 2011
New Delhi
Dr. Sanjiv Agarwal
FCA, FCS, ACIS(UK)
Jaipur
1
This Session Covers
Accommodation Services
Section 65(105) (zzzzw)
w.e.f. 1 May 2011
Restaurant Services
Section 65 (105) (zzzzv)
w.e.f. 1 May 2011
Health Care (Medical) Services
Section 65 (105) (zzzzo)
upto 30 April 2011
2
Accommodation Services




Introduced by Finance Act, 2011
W.e.f. 1 May, 2011 (Notification No. 29/2011-ST dated 25.4.2011)
Section 65(105) (zzzzw) of Finance Act, 1994
Accommodation- Not defined
 To provide lodging or sufficient space
 Room, group of rooms or buildings in which some one may live
or stay
 Lodgings
 Available space for occupants in a building
 Some where to live; some where to stay ; lodging; housing; room;
space, place (English Dict. UK)
 Dwelling or place of temporary residence (Wikipedia)
3
Accommodation Services

Includes both residential as well as non residential purposes- Prem
Narayan Barchhiha v Hakimuddin Saifi (1999) 6 SCC 381 SC [M P
Accommodation Control Act, 1961].

Means a building or a part of building which is used for residential or non
residential purposes, but not as a factory or for industrial purposes- Sitaram
Shashan v Johrimal (1972) 317 AIR Allahabad [U P (Temporary ) Control
of Rent and Eviction Act, 1947)]

Garage, a permanent roofed structure and which is part of a building would
come within the purview of accommodation.

R.N.Gupta v Sarla Khandelwal AIR 74 Allahabad 377 [UP (Temporary)
Control of Rent and Eviction Act, 1947)]
4
Accommodation Services
Service Provider – Receiver


Service Receiver
Service Provider
-
Any person
To be any of the following Hotel
Inn
Guest house
Club
Campsite
Others, by whatever name called


None of the above defined in statutory provisions
Club or association defined u/s 65(25a)- Any person or body of persons
providing services, facilities or advantages primarily to its members, for a
subscription or any other amount, but does not include …….
5
Accommodation Services
Taxable Service [Section 65(105) (zzzzw)]
Any service provided or to be provided to any person by a
hotel, inn, guest house, club or campsite, by whatever name
called, in relation to providing of accommodation for a
continuous period of less than three months.
Taxability Tests




Service provider
Accommodation
Declared tariff
Period
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Accommodation Services
Basic Ingredients of Taxable Services











accommodation services can be provided to any person
service should be in relation to accommodation
service should be provided by / accommodation must be at any of the
following –
hotel
Inn
guest house
club, or
campsite
Such places may also be known by any other name such as resort,
motel, service apartments etc.
accommodation must be provided for a continuous period of less than
three months.
accommodation for a period of three months or more are not covered in
the scope of taxable services.
7
Accommodation Services
Coverage Criteria
Vide Notification No 31/2011-ST dated 25.4.2011, actual levy of service tax
shall be restricted to cases where the declared accommodation tariff is of
Rs. 1000 per day per room or higher. Once this criteria is met, service tax
would be levied irrespective of trade or tariff discounts given to guests.

Taxability not to be affected when actual amount charged from guest/
customer is less than Rs. 1000 as service tax is levied on actual amount
charged.
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Accommodation Services
Accommodation for continuous period of three months

Cases of continuous period of 3 months or more to be excluded from scope
of tax Service Tax.

‘Continuous stay’ is crucial

Broken period, even if more than > 3 months to be taxable.


Holiday home taken by a bank or organizations for >3 months – not
taxable.
Rooms used as office on monthly may rent not covered.
9
Accommodation Services
What is declared tariff
Relevant in determining liability to pay Service Tax.
 Includes
Charges for all amenities provided in unit of accommodation like –
• furniture
• air conditioner
• refrigerator
• charges for all electronic gadgets installed in room
(TRU Letter dated 25.4.2011)
• any other facility provided by hotel as a part of stay
• cost of meals included in declared tariff.
Does not include
• Any discount offered on published charges for such unit
• Cost of extra bed (TRU Letter dated 25.4.2011)
• Declared Tariff v. Published charges
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Accommodation Services
Valuation
• Gross amount billed to guest
• Optional abatement vide Notification No. 34/2011 Service Tax
dated 25.4.2011 @ 50 percent ; effective rate comes to 5
percent + cess
• Abetment to be taken if, no cenvat credit is availed on inputs
and input services / Benefit of Notification No. 12/2003 not
taken.
• Actual tax to be paid on amount charged ,i.e, declared tariff net
of discount, eg,
Declared tariff
Actual charged
Service Tax to be charged on
Rs. 2000
Rs. 1500
Rs. 1500
11
Accommodation Services
Valuation Issues Clarified (Circular No 139/8/2011-TRU Dated
10.5.2011)




It is possible to levy separate tariff for the same accommodation in
respect of a class of customers which can be recognized as a distinct
class on an intelligible criterion. However, it is not applicable for a
single or few corporate entities.
Where the declared tariff includes the cost of food or beverages,
Service Tax will be charged on the total value of declared tariff. But
where the bill is separately raised for food or beverages, and the
amount is charged in the bill, such amount is not considered as part of
declared tariff.
When the declared tariff is revised as per the tourist season, the liability
to pay Service Tax shall be only on the declared tariff for the
accommodation where the published/printed tariff is above Rupees
1000/-. However, the revision in tariff should be made uniformly
applicable to all customers and declared when such change takes place.
For the purpose of service tax, luxury tax has to be excluded from the
taxable value (or declared tariff).
12
Accommodation Services
Per Kerala High Court Order dated 16.6.2011 in W.P. ( C) No 14054/2011 (E)
Kerala Classified Hotels and Resorts Association & Others v Union of India &
Others
•
Admitted Interim stay against any coercive steps of recovery of service
tax or against any proceedings for imposing penalty for a period of two
months in relation to following taxable services•
Accommodation Services (zzzzw)
•
Restaurant Services (zzzzv)
13
Accommodation Services
Export /Import of Service for Accommodation / Restaurant
Services
Export

Service provided in relation to immovable property situated outside India
Import

Service provided by person from out side India in relation to immovable
property situated in India
14
Accommodation Services
Person Liable

Any hotel, guest house, club etc providing
accommodation services for short term to guests are
liable to pay service tax.
15
Restaurant Services

Introduced by Finance Act, 2011

W.e.f. 1 May 2011 (Notification No. 29/2011-ST dated
25.4.2011)

Section 65(105) (zzzzv) of Finance Act, 1994

Gross amount charged by the restaurants to customer shall
be charged to service tax, subject to abatements/
exemptions.
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Restaurant Services




Not defined in statutory provisions
Literal meaning - a place where people sit and eat meals that are
cooked and served on premises
Restaurant means premises in which is carried on principally or
wholly the business of supplying meals or refreshments to the public
or a class of the public for consumption on the premises but does not
include a restaurant attached to a theatre. [Weekly Holidays Act,1942]
Restaurant means any premises, not being a restaurant situated in a
hotel in which the business of sale of food or drink to the public is
carried on and such premises, at the beginning of any month, are
equipped with, or have access to, facilities for air conditioning.
[Expenditure Tax Act, 1987].
17
Restaurant Services

Food – Any substance / material consumed to provide nutritional support
for the body or for pleasure (Wikipedia)
Nourishing substance that is eaten, drunk or otherwise taken into body to
sustain life, provide energy, promote growth; more or less solid nourishment
distinct from liquid (American Heritage Dictionary).

Beverage – A drink or beverage is a liquid which is specifically prepared for
human consumption, fills basic human need, forms part of culture of human
society (Wikipedia).

Alcoholic beverage – A drink containing ethanol (alcohol) – beer, wine,
spirits; legally consumed world over subject to restrictions.
18
Restaurant Services
Taxable Service [65(105) (zzzzv)]
Any service provided or to be provided to any person, by a restaurant, by
whatever name called, having the facility of air-conditioning in any part of the
establishment, at any time during the financial year, which has licence to serve
alcoholic beverages, in relation to serving of food or beverage, including
alcoholic beverages or both, in its premises.
Tests for Taxability for Service Provider
• Restaurant
• Air Conditioning
• License to serve alcoholic beverages
19
Restaurant Services
Legislative Intent
The new levy is directed at services provided by high-end
restaurants that are air conditioned and have license to serve liquor.
Such restaurants provide conditions and ambience in a manner that
service provided may assume predominance over the food in many
situations. It should not be confused with mere sale of food at any
eating house, where such services are materially absent or so
minimal that it will be difficult to establish that any service in any
meaningful way is being provided. (TRU Letter dated 28.2.2011)
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Restaurant Services
Essential Features for Taxability
Taxable services should have following essential featuresa) services shall be provided by a restaurant or any establishment
rendering such service and called by whatever name (say, a club, a pub,
eating joint fulfilling criteria, coffee houses etc)
b) service can be provided to any person
c) restaurant should have a facility of air conditioning in whole or any part
of the restaurant during any time during the financial year .
d) restaurant should have licence to serve alcoholic beverages, whether
actually serving such beverages or not.
e) eligible restaurants providing services in relation to serving food or
beverages including alcoholic beverage, or both in its premises shall be
liable to service tax.
21
Restaurant Services
Air Conditioning



Whole or any part of the restaurant to be air conditioned
In case of partial air conditioning – Service Tax applicable on whole of
restaurant / services.
Not necessary that facility of air conditioning is available round the year. It
can be for at any time during the year after 1.5.2011.
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Restaurant Services
Following Activities / Services are out of Service Tax net





Amount paid by customer ex gratia (tip to staff member)
Room service
Sole of goods at MRP
Service from non AC / non alcohol licensed restaurants
Services from / at outside restaurant premises (if cost centre /
profit centre is separate).
23
Restaurant Services
CBEC Clarifications (Circular No. 139/8/2011-TRU dated 10.5.2011)

Service Tax is leviable on the service provide by a restaurant which satisfies two conditions:
(i) it should have the facility of air conditioning in any part of the establishment and (ii) it
should have license to serve alcoholic beverages. Within the same entity, if there are more
than one restaurant, which are clearly demarcated and separately named, the ones which
satisfy both the criteria is only liable to service tax.

The taxable services provided by a restaurant in other parts of the hotel e.g. swimming pool,
or an open area attached to the restaurant are also liable to Service Tax as these areas become
extensions of the restaurant.

When the food is served in the room, service tax cannot be charged under the restaurant
service as the service is not provided in the premises of the air-conditioned restaurant with a
licence to serve liquor. Also, the same cannot be charged under the Short Term
Accommodation head if the bill for the food will be raised separately and it does not form part
of the declared tariff.
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Restaurant Services
Valuation

Following exclusions from value allowed –






Service charges meant for staff performance (tips)
State value added tax
Other statutory taxes / duties
Counter sale of goods
Home delivery charges
Abatement @ 70 percent from gross value including service charges, if no
cenvat credit on inputs/ input services availed and benefit of Notification
No 12/2003 not taken (Notification No. 34/2011-ST dated 25.4.2011)
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Health (Medical) Services
Introduced by Finance Act 2010 w.e.f. 1.7.2010 [Section 65 (105)
(zzzzo)]
Vide Notification No. 24/2010-ST dated 22.6.2010
Withdrawn by Finance Act, 2011
Exempted w.e.f. 1.5.2011 vide Notification No 30/2011-ST dated
25.4.2011




Coverage into tax net
Finance Act, 2010 had introduced the levy of service tax on the
following health services-



health check up undertaken by hospitals or medical establishment for the
employees of business entities (corporate health checkup)
health service provided under health insurance schemes offered by insurance
companies.
26
Health (Medical) Services
Business Entity [65(19b)]
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Business entity would include any association of persons
body of individuals
company, or
firm
Individuals excluded from the scope of business entity.
Definition of taxable service cover the employees of
business entity who makes the payment of taxable services.
27
Health (Medical) Services
Taxable Service [Section 65(103) (zzzzo) [prior to 1.5.2011]
Any services provided or to be provided by any hospital,
nursing home or multi-specialty clinic,—
•
to an employee of any business entity, in relation to health
check-up or preventive care, where the payment for such
check-up or preventive care is made by such business entity
directly to such hospital, nursing home or multi-specialty
clinic; or
•
to a person covered by health insurance scheme, for any
health check-up or treatment, where the payment for such
health check-up or treatment is made by the insurance
company directly to such hospital, nursing home or multispecialty clinic.
28
Health (Medical) Services
Essential Conditions for Taxability

•
•
•
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•
•



•
•
•
Services shall be provided by any hospital, or
nursing home, or
multi specialty clinic
Services should be provided to
employees of a business entities, or
to a person covered by health insurance scheme.
In case of service to employees, service may be in relation to health
check up / preventive care.
In case of persons covered under insurance scheme, service may be in
relation to health checkup / treatment
Payment shall be made –
employer being business entity
by directly insurance company, but
not by employee or insured person.
29
Health (Medical) Services
Scope of Services



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corporate health check up schemes
medi -claim insurance policies (cash less polices)
regular check up of employees such as in hotels/ airlines/ IT
industry etc.
health / medical perquisites by employers such as for
employees wherein employees bears the cost.
30
Health (Medical) Services
Services when not taxable
The service shall not be taxable in the following circumstances service provider is not a hospital, nursing home or multi
specialty clinic.
 service provider is an individual doctor or an in-house doctor
 service provider is a hospital belonging to same business entity
whose employee is being provided service
 preventive care in case of insured person
 Payment made by the patient or individuals
 Payment made by the insured person and later reimbursed by
the insurance company
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Health (Medical) Services
Amendments made by Finance Act, 2011
Clinical Establishment (Section 65(25a)]
Clinical establishment means

a hospital, maternity home, nursing home, dispensary, clinic, sanatorium or an institution, by
whatever name called, owned, established, administered or managed by any person or, body
of persons, whether incorporated or not, having in its establishment the facility of central airconditioning either in whole or in part of its premises and having more than twenty-five beds
for in-patient treatment at any time during the financial year, offering services for diagnosis,
treatment ,pr care for illness, disease, injury, deformity, abnormality, or pregnancy in any
system of medicine; or

an entity owned, established, administered or managed by any person or body of persons,
whether incorporated or not, either as an independent entity or as a part of any; clinical
establishment referred to in sub-clause (I), which carries out diagnosis of diseases through
pathological, bacteriological, genetic, radiological, chemical, biological investigations or
other diagnostic or investigative services with the aid of laboratory or other medical
equipment,
But does not include an establishment, owned or controlled by –

the Government; or

a local authority;
32
Health (Medical) Services
Taxable Service [Section 65 (105) (zzzzo)]
Services provided or to be provided to any person, 
by a clinical establishment; or

by a doctor, not being an employee of a clinical establishment, who
provides services from such premises for diagnosis, treatment or care for
illness, disease, injury, deformity, abnormality or pregnancy in any
system of medicine;
Taxable services include
Any service provided by a clinical establishment having the facility of
central air conditioning in any part of the establishment and more than
25 beds for in-patient treatment at any time of the year;

Diagnostic services provided by a clinical establishment with the aid of
laboratory or medical equipment; and

Health-related services provided by doctors, not being employees,
providing health-related services from the premises of a clinical
establishment.
33
Health (Medical) Services
Withdrawal/ specific Exemption


Taxable services provided under clause (zzzzo) shall
be exempt from whole of Service tax w.e.f. 1.5.2011
vide Notification No. 30/2011 – ST dated 25.4.2011.
Service tax not applicable on health (medical )
services w.e.f. 1.5.2011, not even to services covered
under pre Finance Act, 2011 provisions
34
Health (Medical) Services
Legal Position after exemption
 Old provisions of clause zzzzo hold good till 7.4.2011 only as
from 8.4.2011, Finance Act, 2011 was enacted and clause
zzzzo substituted.
 But amended definition is effective from 1.5.2011
 Between 8.4.2011 and 30.4.2011 (both dates included), there is
no taxable service as such under clause zzzzo.
 W.e.f. 1.5.2011, services under clause zzzzo are fully exempt
vide Notification 30/2011-ST dated 25.4.2011
 Will old definition continue till 30.4.2011 – No.
35
THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur
asandco@gmail.com
Sanjivservicetax@gmail.com
36