The UT administration is set to come up with a policy to declare levy of service charge on food items illegal. After consulting the legal department, the administration officials have prepared a draft of the policy, which is expected to be notified after clearance from UT adviser Vijay Dev.
Under the new policy, the administration will make it binding on the eatery owners to print the final rate (inclusive of all taxes) of a dish on the menu card.
A senior officer of the UT administration on condition of anonymity said, “As per the national policy maximum retail price (MRP) displayed on the goods should be the final rate including the value added tax (VAT), while eating joints are fleecing customers through levying of service charge.”
As of now, when someone goes out for eating, they are made to pay service tax and VAT over and above the actual price of the dish mentioned in the menu cards. Some of the restaurants even levy service charge, ranging between 7 and 10%.
The officer said to bring about transparency, the eating joint owners, hoteliers and restaurant owners would be asked to display the price of the dish that the customers would be paying inclusive of all taxes.
UT finance secretary Sarvjit Singh said, “We are shortly going to come up with a comprehensive consumer-friendly policy.”
The SDM (East) Danish Ashraf said “No law talks of levying service charge. In fact, charging it amounts to unfair trade practices. We have also taken legal opinion on the issue and a draft in this regard is being prepared. The notification would be out after UT adviser Vijay Dev clears it.”
In view of the complaints from public regarding the levy of service charge by some eateries in Chandigarh, the excise and taxation commissioner, Chandigarh, ordered to stop the practice through an order dated October 31 in 2014. The order was challenged in the Punjab and Haryana high court and thereafter the department superseded the earlier order by passing another one in February this year by way of a show-cause notice. This time administration sought replies from the eating joints owners as to why tax should not be charged on the service charges being collected by them. After this order the eateries started charging tax on the service charge as well and the levy went further up from 10% to 11.25%.
The eateries charge VAT on service charge despite the fact that VAT can only be charged on the ‘value of goods’ and not on ‘value of service’.
This levy is unconstitutional because as per the Constitution of India, the states has no power to charge tax on the value of services. It is further not understandable as to how can dealers charge VAT on the service charge that had been declared illegal by the administration earlier.
Ajay Jagga, advo