Indirect tax issues in the Hotel and Tourism Industry Parind Mehta 10 December 2011
Contents 1 2 Background Issues for consideration under Service tax laws 3 4 Issues for consideration under VAT laws Likely issues under the Goods and Services Tax
Background
Background Legislation Transaction Service by air-conditioned restaurants having license to serve liquor Short term accommodations in hotels/ inns/ guest houses, etc. Service tax Franchise of foreign hotel brands Gymnasium/ Spa/ Beauty treatment for guests/ outsiders Renting of shops, spaces, etc. inside hotel premises Internet/ Telephone/ Fax services
Background Legislation Transaction Provision of cabs and sight seeing arrangements Dry cleaning services for guests Money changer facilities at the hotel Service tax Provision of space for Business Conferences / Convention halls along with facilities like video conferencing, etc. Renting of Banquet halls and other spaces Catering services outside the premises of hotel viz food supplied to airlines, companies, etc.
Background Legislation Transaction Booking of passage for travel Services in relation to a tour, including planning, scheduling, organising arrangements for accommodation, sight seeing, etc Service tax Scheduled or non-scheduled air transport of passenger embarking in India by an aircraft operator Transport of person embarking from any port or other port in India by a cruise ship Services of non resident professionals like architect, interior decorator, consulting engineer etc.
Background Legislation Transaction Value Added Tax Sale of food, beverages, etc. Sale of used goods inside the state Central Sales tax Inter-state procurement of goods under contract for construction of premises, furniture, etc. Catering services outside the state Sale of used goods outside the state
Background Legislation Transaction Excise Duty Manufacture of food, pastries, cakes, etc. Manufacture of furniture, window panels, doors, etc. Customs Duty Import of goods, vehicles, etc. Luxury Tax Provision of residential accommodation and lodging Provision of luxuries like air-conditioning, telephone, radio, music, extra beds, etc.
Issues for consideration under Service tax laws
Issues for consideration under Service tax laws Hotel - Room Rent New category introduced with effect from 1 May 2011 Hotel, inn, guest house, club or campsite, by whatever name called, for providing of accommodation for a continuous period of less than three months covered Levy restricted to accommodation with declared tariff of Rs 1,000 per day Abatement of 50 percent subject to input credit restrictions Issues: Tariff packages including free breakfast / food / food coupons, sight seeing, pick-up and drop, etc. taxable value and categorisation Arrangements with corporate house with reserved rooms may be actually occupied for more than 3 months but by different persons General declared tariff Vs. Special Corporate Rates or whether considered as discounts?
Issues for consideration under Service tax laws Hotel - Restaurants New category introduced with effect from 1 May 2011 Establishments having the facility of air-conditioning in any part of the establishment, at any time during the financial year and license to serve alcoholic beverages Services in relation to serving of food or beverage, including alcoholic beverages or both, in its premises Abatement of 70 percent subject to input credit restrictions Issues: Room service / food served in hotel rooms Food as a part of room tariff package Tariff at abatement of 50 percent while food in restaurant at 70 percent abatement Take away / parcel
Issues for consideration under Service tax laws Hotel Rent-a-cab service Rent a cab service provided to guests Abatement of 60 percent subject to input credit restrictions Issues: Credit on vehicles Full payment for period when credit taken Can abatement be availed in later years? Rent a cab provided under a room tariff package Tariff abatement 50 percent, rent-a-cab abatement 60 percent
Issues for consideration under Service tax laws Hotel Cenvat Credit Abatement with Credit Restrictions Room Rentals Restaurant Mandap Keeper / Convention / Pandal & Shamiana Rent-a-cab Tour Operator Full Credit Health and Fitness Spas Beauty Centre Internet Café Dry Cleaning No Credit Full Credit Separate Records?? Non-Taxable/ Trading Laundry (Washing) Sale from In-Room Bars Over the counter sales in restaurant Over the counter sales from bakery outlet Common Services Rule 6(3) Reversal
Issues for consideration under Service tax laws Hotel Cenvat Credit Input Service Definition Earlier input service means and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises Amended Input Service Definition input service means.and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, Input Services for Setting up Vs. Modernization / Renovation / Repairs Redecoration - Doors opened for litigation?
Issues for consideration under Service tax laws Tourism Package tours Taxability of a package tour entirely outside India or in Jammu and Kashmir: Tour entirely in a country other than India Tour entirely in Jammu and Kashmir Taxability of a package tour partly outside India: Tour partly in India and partly in a country other than India Tour entirely in India and partly in Jammu and Kashmir Circulars dated 27 Apr 2000 (withdrawn) and 30 October 2009 Treatment under abatement abatement of 60 or 75 percent on the gross amount charged for tour?
Issues for consideration under Service tax laws Tourism Travel Agents Computer Reservation System (CRS) platform provided free of charge by the CRS provider Booking of tickets and accommodation by travel agents through the CRS platform CRS incentive given by CRS provider to travel agent at the end of the year whether promotion? whether BAS?
Issues for consideration under Service tax laws Concept Paper on Negative List Services earlier not covered may get covered Fate of abatements Service charges in restaurants ancillary to food products, so included in the value of goods for food whether Service Tax payable? Supplies deemed to be supply of goods, the value of goods to be excluded from the definition of service whether food in restaurants subject to Service Tax where no difference in value in case of served food and home delivery Joint development of hotels Royalty / Franchise Consultancy Vs. Profit Sharing Whether Service Tax payable Mandap keeper / Pandal License to use mandap / pandal Vs. Lease of goods
Issues for consideration under VAT laws
Issues for consideration under VAT laws Room Rent Levy Hotels providing lodging and boarding for a composite sum sale price for supply of food at prescribed percentages Sale of food items, non alcoholic / alcoholic beverages from room bar / mini bar is liable to VAT Sale of in-room articles is liable to VAT No liability for luxury tax on sale of food and drinks on which VAT is payable
Issues for consideration under VAT laws Room Rent Set off/ Input Tax Credit No set off on purchase of goods used for rendering of service Set off allowed on food, beverages and other articles sold Set off is available on room refrigerator where the goods are stored for sale??
Issues for consideration under VAT laws Restaurants Levy Sale of food by way of Buffet or a-lacarte in a restaurant liable to VAT Valuation Service charges recovered form part of the sale price Sale price will include additional charges for making payment through credit card Rate of VAT Schedule rate or composition rate for hotels under State VAT laws (Maharashtra rate of composition for hotels below four stars 5% / 10%)
Issues for consideration under VAT laws Restaurants Set off/ Input Tax Credit (Maharashtra) Purchases Dealer Paying at Full Rate Composition Dealer Ingredients Allowed Not Allowed Fuel Kitchen Utensils and Equipments Cutlery and Table Linen Furniture Computer/ Cash Register/ Air Conditioner Allowed (retention of 3 percent) Allowed Allowed Allowed (retention of 3 percent) Allowed (retention of 3 percent) Not Allowed Allowed Allowed Allowed (retention of 3 percent) Allowed (retention of 3 percent)
Issues for consideration under VAT laws Restaurants Whether the following goods can be purchased at concessional rate of 2% against Form C??? Floor tiles for fixation in kitchen Exhaust fans for use in kitchen Oven for making cakes and pastries Furniture and fixtures for use in restaurants Manufacture or Resale under Section 8(3)(b) of the Central Sales tax Act, 1956
Issues for consideration under VAT laws Bar Sales (Maharashtra w.e.f. 1 May 2011) Levy Schedule rate increased to 50 percent No set-off available Effectively single point levy on trading Dual levy on restaurant sales 20 percent tax payable on MRP by manufacturer/ importer Restaurants: 5 percent or 20 percent on Sale Price plus 20 percent on MRP of imported liquor
Issues for consideration under VAT laws Banquet Sale / Convention centre / Mandap keeper Article 366(29A)(f) provides for levy of tax on supply of foods and drinks No provisions under MVAT law to determine the sale price of food provided in banquets, conventions, etc. VAT being assessed on composite charges recovered for providing the banquet hall along with the food Whether the hotels can take shelter of the SC judgment in the case of K. Damodarasamy Naidu & Bros.?? At times separate consideration for the banquet / convention facilities and for meals are charged and VAT is paid only on price charged for meals
Issues for consideration under VAT laws Banquet Sale / Convention centre / Mandap keeper Rate of VAT Schedule rate or composition rate for hotels under State VAT laws (Maharashtra rate of composition for hotels below four stars 5 percent) Mandap Keepers Right to use goods??
Issues for consideration under VAT laws Bakery Bakery eligible to purchase ovens, etc. used at 2% CST against Form C Rate of VAT Schedule rate or composition rate for hotels who are bakers (4% / 6% on first fifty lakhs Turnover in excess of fifty lakhs taxable at applicable rate) Bakery would not be eligible to claim any set off in case it opts for composition. Set off available on capital assets
Issues for consideration under VAT laws Intellectual Property Rights / Franchise Whether Double Taxation Covered under State VAT law and also under Service Tax law Transfer of right to use trademarks or brand name Franchisee arrangement - an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified or associated with the franchisor Whether sale of goods / service? Distinction between transfer of the right to use goods and licence
Issues for consideration under VAT laws Travel Desk Transfer of right to use vehicle with driver for certain number of days / hours? Whether it will amount to transfer of control and possession and hence liable to VAT? No set off on motor vehicle purchased and used for providing services like rent a cab service. However, in case the vehicle is provided on transfer of right to use basis, set off would be available
Issues for consideration under VAT laws Sale/ Supply of food Whether cost of food supplied to passengers during in-flight service or on board a train, forming a part of the fare would be liable to VAT? In such an instance, the situs of sale? the basis of valuation for levy of VAT? Taxability on sale of food on low cost flights
Likely issues under the Goods and Services Tax
Likely issues under the Goods and Services Tax Entire hospitality revenue including room rent to be liable to GST Credit of GST paid on all operations would be available Luxury tax likely to be subsumed Overall GST rate on services likely to go up
Thank You Parind Mehta +022 3090 2030 parind@kpmg.com