Tax on tax

According to Commercial tax officials, fleecing of customers on excess VAT could toll up to hundreds of crores, with thousands of hotels, restaurants, eating joints and fast food outlets spread across the length and breadth of the city. Hoteliers who were booked have no option but to forfeit the excess VAT collections that were found in inspections. While, authorities demanded more teeth to the law so that criminal cases could be booked against the violators.

• Excess VAT collections on Service Tax and Service Charges
• Prominent hotels of city exposed in vigilance & enforcement raids
• ‘Regular inspections necessary to keep a tab on irregularities

Every time you go and dine out in a restaurant, the food bill most often turns out to be more than what you had expected. And as you go through the invoice in detail, you realise that you are charged a whole lot of taxes and charges which include VAT (Value Added Tax), Service Tax and Service Charge levied on the food and beverages you have consumed.

Levying VAT on food and consumables is mandatory as per law but some select hoteliers and restaurant owners in the city are collecting VAT on cumulative charges of food consumed, Service Tax as well as Service Charges.

Service Charge must be collected at the rate of five to 20 per cent on the value of the food. Service Tax collections vary from five to 15 per cent in hotels and restaurants but with no uniform slab or rules.

As per AP Sales Tax regulations, hoteliers must not levy VAT on Service Tax and Service Charge components. However, this is not being followed. Although these excess VAT collections are to be remitted to the Department of Commercial Taxes, such practice digs a deep hole in customer’s monthly budget and their trust in these hotels high on hospitality.

Upon complaints from several quarters, the vigilance and enforcement officials of the State Commercial Tax Department swung into action and made inspections in many hotels in jurisdiction of Hyderabad, this week.

They were stunned to know prominent hotels conned customers by collecting extra taxes, and flouted all rules. These prominent hotels included Hotel Kamat (Secunderabad), Taj Tristar (Secunderabad), Taj Krishna (Banjara Hills), Hotel Regenta One (Nanakramguda), Hotel Hyatt (Gachibowli) and Atluri Foods (Himayat Nagar), and all collected a whopping Rs 2.48 crore in an year by levying VAT on Service Tax and Service Charge components.

According to Commercial tax officials, fleecing of customers on excess VAT could toll up to hundreds of crores, with thousands of hotels, restaurants, eating joints and fast food outlets spread across the length and breadth of the city.

Hoteliers who were booked have no option now but to forfeit the excess VAT collections which were found in inspections by department officials. However, the authorities demanded more teeth to the law so that criminal cases could be booked against violators for cheating the public. Recommendations citing these cases were sent to the government by the department officials who are now waiting for a response from government bodies to take up stern action.

Consumer Forum of India convenor Dr KRK Murthy alleged that the hoteliers were looting customers by levying taxes at will and are leaving no stone unturned to burn a hole in their pockets. It is high time, authorities make regular inspections to check the irregularities committed by the hoteliers.

Service Tax and Service Charge in a nutshell

Service Tax: Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year attracts service tax

Service Charge: It is an amount levied purely by the restaurant owner upon consumers for rendering services to them. This charge is optional on the part of the restaurant and it is their choice to collect any amount as service charge after making proper disclosures in the menu card.