Are you being fleeced?

How often have you gone to a restaurant and shelled out extra cash on the so-called service tax, service charge and value added tax (VAT) on your original food bill? Restaurant bill in India is highly misleading and if you are someone who frequently eat out, you possibly know how these eateries fleece naïve customers of extra money in the name of taxes and charges. And then, there is also the “tip”. What more, if you carefully glean through all the restaurant bills, you will be shocked to see the disparity in the rate of these taxes. Now that leaves us with the big question: Is your restaurant cheating you by over charging than the price marked on the menu? Most probably yes. Find out how and question it next time. After all it is your hard earned money!

Taxes and charges on seemingly simple stuffs like food and drinks are one such thing where customers are taken for granted. Hence, we made a conscious effort of digging into the nuances of various taxes so that we know where exactly is your money going.

Busting the Terminologies - Difference between Service Tax and Service Charge

To begin with let's first understand what the various tax related terminologies stand for.

Service charge and service tax are two most commonly used terms which are very different from each other.  Service charge is the charge levied on the services provided apart from the basic charge of the food. The service charge is not levied by govt. but collected by the restaurants themselves.

When we go to a restaurant we do not just have food, but we also avail services of the waitress and kitchen staff. Hence the service charges. Although there is no fixed amount for the service charge ,many restaurants charge it in the range of 5% to 10%. Service charges are mandatory to be paid if proper disclosures are made on the menu card otherwise it is the choice of customer.

Now coming to service tax, it is the tax levied by the Govt. of India on services provided in India. Many service providers collect this tax from its customers and give it back to government. This is fixed by the central govt. In case of restaurants, they collect the tax from its customers for the service provided.

Wishesh Takes The Onus Of Bringing The Truth Out

Our Wishesh team checked into various restaurants in the twin cities of Hyderabad and Secunderabad and came up with startling finds. The field reporters were shocked to see dubious bill stating different service charges for different restaurants, which compelled us to probe deeper into the matter to know the crux of the matter. We present a few bill copies below (restaurant names have been kept under wraps for various reason):

When our reporters tried to get in touch with the managers of the respective restaurants to find more about the disparity in the service charges, surprisingly, none of them were available at that point of time.

Jahgo Grahak Jago - Customer versus Service Tax

Know Customers - for every penny you are cheated off at these restaurants, you can claim a redressal. Here is how a woman from Chennai fought and won an extraordinary compensation of Rs 12,000 over a paltry tax of Rs 71, 170 times more than the amount duped.

It so happened that a restaurant in Chennai called Dhaba Express in city's Anna Nagar area charged one Miss Uma Parameshwari with such faulty tax in 2012. One look at her bill, and she knew she had been served with an excess bill than called for. In a bill of Rs 1,225, which included both the service tax and VAT, she was charged a total tax of on the entire food bill rather than the prescribed tax where in the the restaurant was to charge her 12.36% of 30% of the food bill on the premise that 30% of the bill is for services provided and 70% for the items sold.

According to the guidelines, she was to have been charged Rs 30, but Rs 71.79 extra was collected as service tax. She served a legal notice on the restaurant, seeking a refund of the extra sum collected along with Rs 25,000 as compensation. But the restaurant neither replied nor complied with the demand.

Uma Parameshwari then moved the district consumer court, which directed the restaurant "not to resort to this kind of unfair trade practices," the bench directed it to pay Rs 10,000 as compensation and Rs 2,000 as case cost.

How is the service tax applied on the food served at restaurants?

It is not always that we visit a restaurant for the service, sometimes it’s only for the food. To distinguish this situation of availing service or food the Govt. has laid down certain rules for the application of the service tax.

First rule is that only air conditioned restaurants need to pay service tax. Earlier for the service tax to be applicable the restaurant needed to be AC and serve liquor however in budget 2013 Honorable Finance Minister Mr. Chidambaram announced that service tax is applicable to all the restaurants with AC even though they are not serving liquor.

The charge what is applied on the food we are served at restaurants consists of both food and service charges. Hence, the service tax cannot be applied on the entire food charge. But it is difficult to distinguish what amount is for food and what is for service.

Hence, to make this bifurcation Govt. has made a rule where the service tax is applicable on the 40% of the food bill at restaurants.  Currently service tax is 12.36%.  This is applicable on the 40% on the food bill.  Therefore is ‘X’ is the bill amount 12.36% (40% (X)) is the service tax and the next effective service tax is 4.95% (X) at the rate of 4.95%.

VAT is another thing to be known about.  VAT - Value Added Tax is applicable to any item being sold.  At a restaurant food is being sold hence VAT is applicable.  VAT is levied by the state govt. Different state Governments have different rates for VAT. VAT also differs for alcoholic beverages and food items.

You must be thinking that VAT is for the items sold then it must be for 60% of the food bill as the other 40% is for service. However according to the VAT rule it is specified that VAT rate is applicable on the entire amount of the food bill.

Here is an example that will help you understand, Consider your total food bill is Rs. 1000/-

Government Explains...

The next question is why do our government allow such high taxation in things like food and recreation? When these high taxes are introduced in India, typically Govt. Cites higher taxation in foreign countries of Europe or other places. But they forget that the standard of living in those countries are way higher and better than a developing country like India.

That brings us to our next important question: Do the government use large sum of tax accumulated to fund their personal interest and political ambitions? Or is it because of the country's informal economic structure, inefficient tax administration and unevenly distributed income that compels government to take the path of least resistance, developing tax systems that allow them to exploit whatever options are available rather than establishing rational, modern, and efficient tax systems.

IMPACT OF THESE HIGH TAXES?

These high service taxes and charges hurts the commoners like us in diferent ways. The sky-rockettin taxes on bills do nothing, but make one feel more poorer and unless we earn a lavish paycheck, eating in restaurants seems like a luxury that most can't afford.

These incoherent and confusing implementations force everyone to have  more cash in hand - breads corruption, blackmailing, high inflation or failure of businesses.

Going forward before you pay your bill - make sure you are paying right amount of taxes not more and also don’t hesitate to file a case with the District Consumer Forum in Hyderabad. Here is the address:

9th Floor, Chandra Vihar, Nampally, Nampally, Chandra Vihar, Kattel Mandi, Abids, Hyderabad, Andhra Pradesh 500001
040 2474 6001

(AW: Suchorita Choudhury)