Exemption of Service Tax on F&B (further clarifications)

We had conveyed in our FHRAI Magazine issue of Nov-Dec 2004 that service tax of 10.2% is exempted on F&B served in
conferences and banquets in hotels under the service tax categories of mandapkeepers and convention services. We had also
given the text of notification no 12/2004 dated 10.09.2004 which provides or clarifies the exemption. We have been receiving
letters from some hotel members saying that the local Central Excise Authority, who deals with service tax, is not clear about this
exemption. We have responded to such queries with copies of notifications and letter from Ministry of Finance. We have also
learned that many hotels themselves are not clear on the notification and whether such exemption exists, and are charging the
service tax from their customers. In fact our information suggests that majority of hotels are still charging it at 6.12% taking the
rebate of 40%. Their attitude appears to be that guests have to pay it and they should not take a risk on it.

Item 1- 21/97-Service Tax dated the 26th June, 1997 (G.S.R. 347(E) dated the 26th June, 1997)

In the said notification, for the proviso, following proviso shall be substituted, namely:-"Provided that the said
exemption shall apply in such cases where -(a) such mandap keeper also provides catering services, that is,
supply of food and the invoice, bill or challan issued for this purpose indicates that it is inclusive of charges for
catering service; and (b) no credit of duty paid on inputs or capital goods has been taken under the provisions
of the Cenvat Credit Rules, 2004; and (c) such mandap keeper has not availed the benefit under the
notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003
-Service Tax dated the 20th June, 2003 (G.S.R. 503 (E) dated the 20th June, 2003)".

Item 4 - 12/2001 -Service Tax, dated the 20th December, 2001(G.S.R. 907 (E) dated the 20th December,
2001

In the said notification, in the opening paragraph, the following proviso shall be inserted at the end,
namely:-"Provided that the said exemption shall not apply in such cases where-(i)credit of duty paid on
inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) such
hotel providing service as mandap keeper has availed the benefit under the notification of the Government of
India in the Ministry of Finance(Department of Revenue), No. 12/2003-Service Tax dated the 20th June,
2003 (G.S.R. 503 (E), dated the 20th June, 2003

Item 6 - 12/2003-Service Tax, dated the 20th june, 2003[G.S.R. 503[E], dated the 20th june,2003]

In the said notification, in the opening paragraph, the following proviso shall be inserted at the end,
namely:-"Provided that the said exemption shall apply only in such cases where -(a) no credit of duty paid on
such goods and materials sold, has been taken under the provisions of the Cenvet Credit Rule, 2004; or (b)
where such credit has been taken by the service provider on such goods and materials, such services
provider has paid the amount equal to such credit availed before the sale of such goods and materials.

We are disappointed by this situation as we have lobbied hard for it with officers in the Ministry of Finance and made them agree to
this exemption. We are particularly disappointed that our hotel members do not wish to take the trouble to understand the issue
and take advantage of this exemption in their own interest and in the interest of their customers.

The position is being explained again in the opposite paragraphs: As indicated, 3 items in the Notification no 12/2004-Service Tax,
dated 10th September, 2004 from Ministry of Finance, Government of India are related to this item. Please note that the text of this
notification was carried in the November-December 2004 issue of this Magazine. It can also be found on Ministry of Finance
website:

finmin.nic.in

Exemption Under Notification no. 21/97-Service Tax dated 26th June, 1997
Under this notification a rebate of 40% is allowed in cases where catering is served in a mandapkeeper function. This has been
traditionally taken by all hotels and they are still taking it, without realising that they can take full exemption on F & B in a banquet
or conference. The only advantage in this route is that it is available on the entire bill even if other services are included in the bill
like hire of hall or hotel guest rooms, audio visuals, flower arrangement, DJ band etc. But catering must be involved in the function
to attract this provision.

Difference between Mandapkeeper & Convention Services

Mandapkeeper includes any official, business or social function in a hotel while Convention Services include any type of
conference in a hotel. Broadly speaking all business and social functions could be taken either in the mandapkeeper or Convention
services, depending on how it suits the particular authority. However social functions like a wedding banquet will only come under
the mandapkeeper service and can not be brought under the convention services. Please note that the rule of 40% rebate is
applicable to both mandapkeeper and convention services.

Exemption under Notification no. 12/2001-Service Tax dated 20th December, 2001

This provides full exemption on mandapkeeper service and the text of this notification and of subsequent related notifications is
given below. Please note that in the last notification dated 1st March, 2003, the time limit has been removed and it is now on a
regular basis.

Notification No.12/2001-Service Tax dated 20th December, 2001 gives complete exemption from service tax on mandapkeeper
service in cases where a substantial meal is served. The definition of a substantial meal is not explained, but it will normally
include lunch or dinner. This exemption is available only to hotels and not restaurants. Moreover, the authority could take an
official or business function under the service tax heading of convention services where this exemption is not available. However,
for social functions like wedding banquets, you can take the exemption under this notification as it provides exemption on the entire
bill and not just on F & B part of it.

1. Notification No. 12/2001- Service Tax dated 20th December, 2001

G.S.R. (E) - in exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government,
being satisfied that it is necessary in the public interest so to do, hereby exempt the taxable service provided by a hotel as mandap
keeper in such cases where services provided include catering services, that is, supply of food along with any service in relation to
use of a mandap, and the bill issued for this purpose indicates that it is inclusive of charges for catering services from the whole of
the service tax leviable thereon under section 66 of the said Act.

2. This notification shall have effect upto and inclusive of 31st day of March 2002.Explanation- For the purposes of this
notification,i. the expression "food " means a substantial and satisfying meal:ii. the expression "hotel" means a place that
provides boarding and logdingfacilities to public on commercial basis. [F.No. 354/216/2001/TRU]

2. Notification No. 2/2002- Service Tax dated 1st March, 2002

In the exercise of powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), he Central Government, being satisfied
that it is necessary in he public interest so to do, hereby makes the following amendment in the notification of the Government of
India, in the Ministry of Finance, (Department of Revenue), No. 12/2001-Service Tax, dated the 20th December, 2001; namely:-In
the said notification, in para 2, for the figures and words "31st day of March 2002", the figures and words "31st day of March 2003"
shall be substituted. [F.N. 334/1/2002-TRU]

3. Notification No.3/2003 -Service Tax New Delhi dated the 1st March, 2003

G.S.R. (E) - In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government,
being satisfied that it is necessary in the public interest so to do, hereby makes the following amendment in ht notification of the
Government of India, in the erstwhile Ministry of Finance (Department of Revenue) No. 12/2001 -Service Tax dated the 20th
December, 2001, published in he Gazette of India vide number G.S.R. 907(E), dated the 20th December, 2001, namely:-In the said
notification, paragraph 2 shall be omitted. [F.No. 334/1/2003-TRU]

Exemption under Notification No. 12/2003-Service Tax dated 20th June, 2003.

The text of notification No. 12/2003 -Service Tax, dated 12th June, 2003 is given on page 22. As you will see this notification says
that no service tax will be charged on the value of goods and materials sold by the service provider to the recipient of a taxable
service subject to the condition that there is documentary proof specifically indicating the value of such goods and materials. This
means that there should be a separate bill raised to the customer indicating the value of such goods. It is clarified that this
exemption is applicable to all the 71 services on which service tax is applicable and not just for mandapkeepers or convention
services. For example, if you sell a bottle of oil or cream to a customer as part of beauty saloon or health club service and raise
separate bill for it, no service tax should be charged on such a bill. F&B bills in banquets and conferences will come under the
category of goods and materials. Please note that there has to be a separate bill for goods and materials and there has to be
another bill for taxable services. This means that in the case of a hotel if you are charging for rental of the hall or for audio visual
equipment or any other services where there is no involvement of goods and materials, there should be a separate bill for them
and service tax of 10.2% should be charged on it.

Notification No. 12/2003- Service Tax dated 20th June, 2003

“In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied
that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to
the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under
section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods
and materials.

1. This notification shall come into force on the 1st day of July,2003. [F.No. B3/7/2003-TRU]”

To clarify this matter further to the satisfaction of your own finance department and of the service tax authority, we are giving here a
copy of letter dated 31st march 2004 form Mr. S.K Bhardwaj, Member, Central Board of Excise and Customs, Ministry of Finance
which specifically states as follows, " In other words, if the hotels raise separate bills towards the supply of the food or beverages
sold during a convention, no service tax is chargeable to the extent of the value of these items". This makes it doubly clear that
food and beverages are part of goods and materials under notification no 12/2003 dated 12/06/2003. The exemption will apply to
all banquets and conferences whether they are deemed under Mandapkeepers or Convention Services.

Please note that this exemption for F&B is also available for outdoor catering done by a hotel or restaurant or by other outdoor
caterers. The exemption under notification 12/2003 is universally applicable. If an outdoor caterer is charging for any shamiana,
hiring of tables and other items like transportation, lighting, music etc he should raise a separate bill for such services and charge
service tax of 10.2% on them. He can avail the exemption on F&B by raising a separate bill for it.

Please note that as mentioned above under all items of Notification No. 12/2004 dated 10th Setpemebr, 2004, you can not take
credit of service tax and other duties paid on input services and capital goods which are used to provide the output service. These
credits are available under Cenvet Credit Rules, 2004. However in the case of a hotel the procedure for taking the credit is
complicated and our advice is that you should take the exemption on F&B and not bother about the credit. This is because input
services like telephones, advertising etc. are used commonly for all departments of the hotel and are not dedicated to a particular
service like a conference hall or beauty saloon.

GOVERNMENT OF INDIA
MINISTRY OF FINANCE/DEPARTMENT OF REVENUE
CENTRAL BOARD OF EXCISE & CUSTOMS
NORTH BLOCK, NEW DELHI - 1 10 001
F.No. - 176/1/200 1-CX.4 (Pt.)
 New Delhi, the 31st March, 2004

S.K.BHARDWAJ
Member
Tel : 91-11-23094738
Fax: 91-11-23093020

To
The Secretary-General,
Federation of Hotel & Restaurant Association of India,
B-82, 8th Floor, Himalaya House, New Delhi-110 001

Sir,

Sub: Service Tax on Convention Services for Hotels - Reg.

Please refer to letter No.MOF/ST/1/2004 dated 11th March, 2004 on the above subject addressed to Revenue Secretary. You had
requested that an abatement of 40% may be granted on the gross value of convention services provided by hotels towards the
food and beverages supplied, as in case of services provided by a 'mandap-keeper'. This issue is being examined and would be
considered at an appropriate time.

I may, however, inform that in case goods or materials are sold by a service provider to a service receiver during course of
providing service, general exemption from service tax (vide exemption No.l2/2003-Service Tax, dated 20-06-2003) is presently
available to the extent of the value of such goods, subject to availability of a documentary proof indicating the value of such goods.
In other words, if the hotels raise separate bills towards the supply of food or beverages made during a convention, no service tax
is chargeable to the extent of the value of these items.

Yours faithfully,

(S.K. Bhardwaj)

Exemption on foreign exchange payments in service tax

We had clarified before that no service tax is to be charged from customers who pay in foreign exchange. This was originally
provided under notification no 2/1999 dated 28th February 1999, a copy of which is given below. There was some confusion and
suspension of this provision subsequently, but the exemption was later restored. This also has universal application for all services
subject to service tax, including beauty saloon, health club, drycleaning, internet access and rent-a-cab service in the hotels. You
should not charge service tax from guests for any taxable service if the payment is made in foreign exchange.

NOTIFICATION No. 2/99-SERVICE TAX, New Delhi, dated the 28th February. 1999

G.S.R. 185 (E) In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government,
being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable specified in sub-section (48) of
section 65 of the said Act, provided to any person in respect of which payment is made in convertible foreign exchange, from the
whole of the service tax leviable thereon under section 66 of the said Act.

(F.NO. 334/1/99 -TRU)

T R RUSTAGI , Jt. Secy.

Ministry of Finance

Please get in touch with us in case of any problem in getting the exemption on F&B

We are aware about the doubts being expressed by some hotels on the exemption on F & B in banquets and conferences.
Considering this, we have again discussed this matter with Mr. Gautam Ray, Commissioner and Joint Secretary -Taxes Research
Unit, (TRU) in the Central Board of Excise and Customs (CBEC) in the Ministry of Finance, Government of India. He has again
confirmed that the exemptions as indicated in Notification No. 12/2004 dated 10th September, 2004 are valid and the interpretation
as being taken by us is correct. He has also said that the hotels should not talk to inspectors of Central Excise and go straight to
the Commissioner or the Addl. Commissioner if a doubt is expressed on the exemption by any one in the Department. In case the
senior officers are also not convinced, you may send us the name, designation and full address of such an officer so that we may
write to them and also brief the CBEC on such a stand being taken by their field officers. They have promised that they will write to
such officers for an explanation and will correct his interpretation.