HC seeks Centre, Delhi govt responses on levy of VAT by restaurants

Petition claims many eateries in Delhi charge VAT on entire bill, not on portion deemed as 'service' under Service Tax Rules

The Delhi High Court sought responses from the Centre and the Delhi government on Monday, against a petition alleging a continuing practice of restaurants in the national capital overcharging patrons on the VAT (Value Added Tax) component in bills.

The bench of Chief Justice G Rohini and Justice Sangita Dhingra Sehgal were hearing a petition claiming that several restaurants in Delhi are charging VAT on the entire amount of a customer’s bill, even though the Service Tax (Determination of Value) Rules 2006 (the Service Tax Rules) specifically determine the portion that is to be classified as a ‘service’.

VAT is a tax on goods levied by state/union territory governments, whereas service tax amounts are imposed on by the central government alone.

The counsel for the petitioners alleged that the present conduct of the restaurants was a result of the Delhi government allowing the practice, which effectively renders 140 percent of the billed amount subject to taxes. The petitioners’ contend that as Rule 2C of the Service Tax Rules already demarcates 40 percent of a restaurant bill as a service component, this amount cannot be subject to an additional VAT.

No such guidelines exist for the assessment of VAT under the Delhi Value Added Tax Act 2004 or rules framed thereunder.

The petition seek clarifications from the court regarding the portion of a restaurant bill that can be subject to VAT, as well as for appropriate action to be taken by the concerned authorities against restaurants indulging in over-taxation.

The bench has allowed the Union of India and Government of NCT of Delhi four weeks to file their replies, while listing the matter for further consideration on December 7.