Delhi HC seeks govt response on excess VAT plea

The Delhi high court has issued notice to the Centre and the AAP government, on a PIL alleging that Delhiites end up paying more tax in restaurants. The plea states that restaurants are charging excess value added tax (VAT) on the food and drinks served by them.

The plea is similar to a PIL filed in Allahabad high court by students of National Law University, Jodhpur.

The claim highlights a lacuna in the law related to taxation of the goods component of bills generated in restaurants. As is widely known, VAT is charged by states, while service tax is charged by the Centre. The Service Tax (Determination of Value) Rules, 2006 clearly lays down that service tax must be charged solely on the service component of bills.

A bench of Chief Justice G Rohini and Justice Sangita Dhingra Sehgal also asked the Centre to respond to the plea and fixed the matter for hearing on October 3.

The petition contends that under the rules, VAT is to be levied only on the goods component which is 60 per cent of the bill amount and it cannot be imposed on the remaining 40 per cent service component. It alleged that the restaurants were charging VAT on the entire bill, including the service component, which is a violation of the law.

The plea sought a direction to the Delhi government and commissioner of VAT to take appropriate action against the restaurants which charged VAT on the service components. The petitioners told the court that they had written a letter last month to Delhi government and VAT commissioner requesting action against such restaurants, but had not received any response till date. “The government of NCT of Delhi is a direct beneficiary from this illegal collection of taxes. It is quite possible that it does not want to take any action against such illegal collection of taxes,” the petitioners claimed. They also sought the court’s direction to the concerned authorities to declare that VAT could be collected only in relation to goods component of an invoice and cannot be collected in relation to the service component.

It also claimed that lack of appropriate guidelines for determination of goods component of the invoice by the Delhi government cannot permit the restaurants to charge both service tax and tax on sale of goods on the same component.

Tax components in a bill charged by a Delhi restaurant VAT – 12.50 per cent. Service Tax - 5.60 per cent Swachh Bharat Cess - 0.20 per cent Krishi Kalyan Cess - 0.20 per cent