Food business make quick money under garb of taxes

  • Arjun Sharma and Sukhpreet Singh, Hindustan Times, Ludhiana
  • Updated: Sep 01, 2014 21:42 IST

Cashing in on unwary customers, restaurants as well as eateries across the city for years have been fleecing them by charging taxes on packed food items and drinks that have a fixed maximum retail price (MRP), all under the nose of the district administration.
Restaurants claim that they “legally” charge service tax on these items but fail to give a justification over the excessive cost of food items at their eateries. The service tax is charged at 12.36% at restaurants and hotels.

Since the directions from the ministry of consumer affairs in 2006, the practice is considered illegal. However, with no check in place, several restaurants continue to indulge in the malpractice.
According to the department of food supplies and consumer affairs, an item cannot be sold on a rate higher than its MRP.
When an HT team conducted a survey and visited some restaurants randomly, it was found that restaurants and eateries brazenly levied taxes on even packed food items.

Shockingly, some restaurants, food courts at malls and multiplexes charge as much as `57 for a water bottle that is available at a cost of `18 in the market. 'One Happy Bean', a restaurant at Sarabha Nagar, charged this excessive amount from this HT team. While the MRP on the bottle was `45, the bill listed an additional value-added tax (VAT) of 14.3% and service tax of 12.36%.

An eatery, 'Shanghai Moon' inside Silver Arc Mall, sold a can of cold drink at double the cost available in the market. Interestingly, the can did not bear any MRP, but was sold for `60 against the `30 charged in shops.
Inderdip Singh, joint director, department of food supplies and consumer affairs, said overcharging on foods items than the cost printed as MRP was illegal. “Action can be taken against those selling any item for more than the MRP,” Singh added.

Basant Restaurant at Fountain Chowk was also found charging more than the price printed as MRP on water bottle. While the MRP was `20, the restaurant charged `25 on the pretext of service tax. However, even if a service tax of 12.36% was charged, the cost would not be `25.
Denying overcharging at his restaurant, Bhupinder Basant said, “We can charge service tax on packed items like water bottle and others as per the law.”

Besides, several hotels in the city are getting water bottles without a printed price on them, enabling them to charge customers at their will.

However, an advocate of central excise department has blasted the claims of the restaurants and shopping malls stating that service tax of 12.36% could be charged only if a service was involved in the purchase. The tax could not be charged if these items are bought from the counter, a claim that could put the restaurant owners and shopping mall in a dock.

NK Thaman, senior advocate of central excise department, said service tax could be charged only if the food item or water bottle was served by an employee of the mall or restaurant. “Besides, VAT cannot be charged on an item having MRP,” Thaman added.

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