Service Tax - Applicability for Restaurants

The cloud over the applicability of service tax in restaurants seems to have finally passed and clarity has now emerged.

1) Service Tax of 14% is applicable only for dine-in bills at restaurants which are air-conditioned. The 14% needs to be levied on 40% of the bill value.
2) Service Tax is not applicable for take-aways and home deliveries; This is the final resolution and the one that was causing the most confusion
3) If a restaurant levies service charge, the full 14% service tax is applicable on the service charge component of the bill.
4) Input credits for service tax can only be off-set against the revenue component on which service tax has been collected. E.g. If a restaurant is paying service tax on the rental, say 14% on Rs. 1 lakh per month, the Rs.14,000 service tax can be off-set only against the service tax collected on the dine-in component of the revenues. i.e. if 50% of the revenues of the restaurant are from dine-in, then only 50% of the input credit (i.e. Rs.7,000 can be offset).
5) Service tax will not be applicable for non-AC restaurants.

Item 4 above is the most complicated rule to follow for restaurants and needs careful computation by your accountant.