Restaurants are allowed by law to impose GST on service fees, the Finance Ministry stated in the Lok Sabha on Monday. This statement comes as the Delhi High Court is now debating the validity of service fees.
The GST Council and the Government were questioned by AKP Chinraj, a member of parliament from Tamil Nadu, on whether restaurants were permitted to levy Tax on service fees that were willingly paid by patrons.
In response, Pankaj Chaudhary, Minister of State for Finance, stated that Section 9 of the Central Goods and Services Tax Act, 2017 (CGST Act) mandates that GST be charged on the delivery of goods or services based on the value defined by Section 15 of the CGST Act, 2017.
Further, he noted that service charges may be subject to GST, using Section 15 of the CGST Act, 2017, as justification. “Any amount charged by the supplier for anything done by the supplier in relation to the provision of goods or services forms part of the value of service,”
The minister stated that the supply of restaurant service other than at hotels/premises having room tariff above Rs 7500, is taxed at the rate of 5% without Input Tax Credit (ITC) and the supply of restaurant service at hotels having room tariff above Rs 7500 per day is taxed at 18% with Input Tax Credit (ITC).
Service fees have been a source of contention because many clients consider them to be taxes. Yet, the cash box of restaurants receives money from service fees, which they claim is dispersed to all employees as part of welfare programmes. Restaurants claim to list the service fee rate on the menu and to post a board indicating when the charge is applicable.
According to rules from the Central Consumer Protection Authority (CCPA), service charges are frequently disguised as other fees or charges and are added on top of the total cost of the food items shown on the menu and any applicable taxes.
Also, it should be noted that the cost of the food and drinks that the restaurant or hotel offers include a portion of the service. So, the price of the product includes both the components of products and services.
The Delhi High Court stayed the order on July 20 when the guidelines were contested, allowing different restaurants to collect service fees in accordance with a structure created by the Court.
The government submitted a request to end the temporary injunction. In the most recent hearing on February 15, the Court stated that the Bench will examine applications to vacate the temporary injunction if the main matter was not heard by the next date, April 12.
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