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Old 18th December 2012, 19:03   #1
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Default Most hotels are overcharging in the name of VAT

Folks, did you notice a quarter page adv taken out by Central Excise and Commercial Taxes Dept a few days back in TOI? It boldly mentioned that next time around you go to a restaurant ensure that the bill is not bumped up with a 14.5% VAT. The hotels in Hyderabad and most probably elsewhere as well are fleecing their customers with this component when actually there is no such thing as 14.5% VAT on food. According to them it is actually 14.5% on the 40% of the total bill which comes to some 4% or so of the total bill. The logic is that the VAT is charged only on the value added part of the goods being sold. Typically for food items it is considered to be 40% of the total bill amount. So the 14.5% VAT is only chargeable on that part of the bill which the hotels/restaurants will remit back to the government. Anything excess is actually pocketed by them. The advertisement also clarified that other fancy names like Service Charge, Luxury Charge and similar heads are also not charged by the government.


I wonder though why the dept can not itself start a drive to weed out this unhealthy practice. I can't recall a single hotel till date in Hyd that never had this 14.5% component on total bill. Right from the topmost names to the regular ones, they all charge 14.5% VAT on the entire bill. It's impossible, IMO, for a customer to fight it out on his own. The practice has become too well entrenched to be irradicated at an individual level.

What do you guys do when you are presented with such an artificially inflated bill? Also, is the practice of 14.5% VAT on the entire bill common across India or is this more of a Hyderabad specific problem? I travel a lot but now can't recall exactly how it is everywhere else. Will keep a track the next time around.
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Old 18th December 2012, 19:35   #2
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Default Re: Most hotels are overcharging in the name of VAT

The last time I was in pizza hut (Hyderabad), they charged a 14.5% VAT and a 10.xx% Service Charge. We asked them why the service charge (we weren't aware of this overcharging on VAT then), and we were told that it is "company policy" to charge for the service. We had a large bill and the service charge was ridiculous. The service was horrendous that specific day, too. We were infuriated and didn't leave any tip and didn't ring the stupid bell. We never visited a pizza hut ever again.

The problem with the Indian government is that it usually puts the onus of lower rung implementation on its citizens which is like dusting their hands off responsibility. Do they actually think individual customers would be able to fight even a small kirana store, forget a super global restaurant chain?
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Old 18th December 2012, 19:50   #3
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Default Re: Most hotels are overcharging in the name of VAT

I haven't seen it in the newspaper, but isn't VAT a state subject? Does CBEC have any say on it? Or is this just an advisory?
The newspaper link would be useful.
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Old 18th December 2012, 19:56   #4
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Default Re: Most hotels are overcharging in the name of VAT

Thanks Zappo, I needed a confirmation on the VAT charged by restaurants. Also, while I can understand the 10% Service Charge which is in lieu of the tip, I am unhappy with a 'Service Tax' which is a third item in this list and is different from Service Charge.

Restaurants are now charging VAT at 14.5%, Service Charge at 10% and Service Tax at 12.36%. Essentially, you are paying about 40% over the cost of food as taxes and charges! Thanks to this revelation that VAT should be charged at 40% of amount, it is clear that the restaurants are taking in more money than the government. Time for a class action suit? :P
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Old 18th December 2012, 20:00   #5
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Default Re: Most hotels are overcharging in the name of VAT

Lot of contradicting reports are floating around on this matter. The ad from Central Excise and Commercial Taxes Dept was more confusing. The following link can throw some light on the topic. As per this VAT does n't look illegal.
http://www.charteredclub.com/service...in-restaurant/

Last edited by poloman : 18th December 2012 at 20:01.
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Old 19th December 2012, 09:52   #6
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Default Re: Most hotels are overcharging in the name of VAT

Quote:
Originally Posted by poloman View Post
Lot of contradicting reports are floating around on this matter. The ad from Central Excise and Commercial Taxes Dept was more confusing. The following link can throw some light on the topic. As per this VAT does n't look illegal.
http://www.charteredclub.com/service...in-restaurant/
More you read, more confused you are.

For simplicity, putting the info in here.

Name:  ServiceTax.jpg
Views: 1687
Size:  40.3 KB

Name:  VAT.jpg
Views: 2145
Size:  73.7 KB

As per this, 40% of Bill is to be considered for Service Tax, but not VAT? Right?

I too remember seeing this ad in the paper, but not able to recollect if it was VAR or Service tax mentioned in there. How do we get that link?
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Old 19th December 2012, 14:22   #7
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Default Re: Most hotels are overcharging in the name of VAT

I think if one of us can get hold of the TOI published on the 8th of this month we should be able to locate the adv. I believe if one has access to ePaper on the TOI site then also this adv should be accessible which is probably is on this link.

I am generally more keen to follow what the responsible government department or a related one has to say on a matter of taxes and revenue rather than some third party site.

P.S. : By the way, I believe what is quoted from Poloman's link may not be true. The reason is that VAT stands for Value Added tax. The logic is that government taxes you on everything that generates profitable revenue for you. Now, in case of VAT, for something that you buy for Rs.40 and then after some refurbishing etc sell off for Rs. 60 it is reasonably considered that the Rs.20 is the worth of the value that you added to the product which was otherwise valued at Rs.40 Hence the tax (VAT) is chargeable on this added value.

Remember, what you bought for Rs.40 probably had a value of Rs.10 added in the previous stage. That is to say, someone bought it for Rs.30 and then added a value of Rs.10 to the product before selling it off. Ideally government would have charged a VAT on that Rs.10 from the previous guy. In this cycle, note that government charges a VAT on each stage of value addition but does not charge VAT twice for the same value-add. Which is understandable as a part of the law of natural justice.

Now apply that logic to the restaurant bills. I see a huge relevance in that adv taken out by whichever government department it was. it made sense to me for sure.

Last edited by Zappo : 19th December 2012 at 14:32.
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Old 19th December 2012, 14:43   #8
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Thumbs down Re: Most hotels are overcharging in the name of VAT

Dominos charges VAT @14.5%. This is illegal right?
Attached Images
 

Last edited by Recompose : 19th December 2012 at 14:58. Reason: VAT, not service tax.
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Old 19th December 2012, 14:45   #9
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Default Re: Most hotels are overcharging in the name of VAT

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Originally Posted by Recompose View Post
Dominos charges service tax @14.5%. This is illegal right?
This is VAT, not service tax. And the ToI link talks about Service tax. Wonder if they can publish details for VAT too.
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Old 19th December 2012, 14:48   #10
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Default Re: Most hotels are overcharging in the name of VAT

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Originally Posted by mjothi View Post
This is VAT, not service tax. And the ToI link talks about Service tax. Wonder if they can publish details for VAT too.

But doesnt it say that VAT of 14.5% is supposed to be charged on 40% of the bill amount?
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Old 19th December 2012, 14:50   #11
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Default Re: Most hotels are overcharging in the name of VAT

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Originally Posted by Recompose View Post
Dominos charges service tax @14.5%. This is illegal right?
As per what the Government adv said, yes it is not correct. There is though a thin line between illegal and wrong. I do not know how government looks at this practice. The ad said that the unscrupulous restaurants are enriching themselves in the name of charging you (the customer) VAT. I don't understand what stops the government from slapping these restaurants with appropriate charges if this wrong is also illegal, which it should be since VAT is a government subject and someone using that name to enrich themselves is doing something patently illegal.

Probably time to write a letter to the High Courts of your respective states with the hopes that one of the courts will take this up suo moto as a PIL.

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Originally Posted by mjothi View Post
This is VAT, not service tax. And the ToI link talks about Service tax. Wonder if they can publish details for VAT too.
Which link? The one I posted? I can't open it here in office, so can't check it's exact content. However the TOI ad was very categorical that VAT is chargeable on 40% of the bill value and not the whole bill component which also make huge sense to me (I have posted why in my earlier post).

Last edited by Zappo : 19th December 2012 at 14:53.
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Old 19th December 2012, 15:04   #12
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Default Re: Most hotels are overcharging in the name of VAT

You tell me that again Zappo. Iam one of those unfortunate souls who spend a fortune on restuarant bills each month due to my fondness for good food.

As days pass by, i can see so many new components added that its just that decides for me whether to visit that restuarant OR not.

Some restuarants are straightaway fleecing with 14.5% VAT, 12.5% ST and 10% SC

I have stopped going to restuarants who charge in above manner. As the final bill is completely undigestable as the taxes component is exponetially high compared to the items consumed

For example, i have been to Cream Center in Jubilee Hills yesterday for dinner. They charged 14.5% VAT on total bill and 5% SC ( This again is a debate, some charge 5%, some charge 10%, WHY?)

Iam still not clear if they should charge 14.5% on 40% of total bill or NOT

Whatever, is the case. I DONT leave a penny as tip whenever i see a SC component in the bill. What they get from me is a polite thank you smile, that's it !!!
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Old 19th December 2012, 15:18   #13
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Default Re: Most hotels are overcharging in the name of VAT

Remember VAT is Value Added Tax - computed after all other changes are added up. A lot of blame must go to the govts which think going out is an easy way to fill their coffers.
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Old 19th December 2012, 15:46   #14
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Default Re: Most hotels are overcharging in the name of VAT

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Originally Posted by Recompose View Post
But doesnt it say that VAT of 14.5% is supposed to be charged on 40% of the bill amount?
Quote:
Originally Posted by Zappo View Post
As per what the Government adv said, yes it is not correct. There is though a thin line between illegal and wrong. I do not know how government looks at this practice. The ad said that the unscrupulous restaurants are enriching themselves in the name of charging you (the customer) VAT. I don't understand what stops the government from slapping these restaurants with appropriate charges if this wrong is also illegal, which it should be since VAT is a government subject and someone using that name to enrich themselves is doing something patently illegal.

Probably time to write a letter to the High Courts of your respective states with the hopes that one of the courts will take this up suo moto as a PIL.



Which link? The one I posted? I can't open it here in office, so can't check it's exact content. However the TOI ad was very categorical that VAT is chargeable on 40% of the bill value and not the whole bill component which also make huge sense to me (I have posted why in my earlier post).

here is the picture from the link.

Most hotels are overcharging in the name of VAT-servicetax.jpg

it talks about the Service Tax only, and nothing about the calculation of VAT.
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Old 19th December 2012, 15:47   #15
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Default Re: Most hotels are overcharging in the name of VAT

Quote:
Originally Posted by Zappo View Post

P.S. : By the way, I believe what is quoted from Poloman's link may not be true.
This is how I read the article
Service Tax
As per Service tax rules out of total food bill in a restaurant can be broken up as 40% is for services and 60% is for items sold.
So service tax amounts to 12.4% of 40% of the bill excluding VAT. Approximately 4.9%.
This tax is proposed by Central Govt.
Applicable only to restaurants with A/C and license to serve liquor.

VAT
Ideally VAT should be applied to rest 60% ie for items sold as per above break up of 40:60 . But no abatement rules has been applied to VAT on sale of food by the Govt. So the restaurant is free to charge VAT on total food amount even adding the Service Charges ( not service tax).
So around 14.5 % of total bill.
The VAT laws are formed by State Govt.


Service Charges

This is nothing but mandatory tip. This is up to the discretion of the restaurant. So some may charge 5% some 10% and some none. Govt has no role in this.

Last edited by poloman : 19th December 2012 at 15:55.
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