Business Other News 08 Feb 2017 Telangana’s &l ...

Telangana’s ‘VAT of tax’ fleecing consumers

Published Feb 8, 2017, 2:26 am IST
Updated Feb 8, 2017, 6:27 am IST
Unclear rules allowing businesses to charge extra.
Bottled water, billed for Rs 70 above, should be sold for MRP and not added to VAT.
 Bottled water, billed for Rs 70 above, should be sold for MRP and not added to VAT.

Hyderabad: If you’re wondering why your restaurant bills look bloated, with the final total far in excess of the charges listed in the menu, you can blame the extremely confusing scenario in respect of taxes/charges that the restaurant, the state and the central governments are imposing.    

Two major culprits are the collection of excess VAT (value added tax imposed by the state government) and service charge which is levied by the restaurant. Both these are questionable and hit the pockets of consumers. However, the commercial taxes department has done nothing to rein them in because it earns huge revenues from these illegal taxes and charges.


 In January this year, the Union government issued directions making the service charge voluntary and not mandatory. This is the charge that is supposed to be shared by the restaurant staff for rendering their services and is in lieu of the ‘tip’. It ranges from four to 10 per cent.

But despite this central directive, top five-star hotels in the city such as the Taj Krishna, Taj Residency, Taj Deccan, Taj Banjara, ITC Kakatiya etc., continue to make the service charge mandatory

K Mohan, president of the Hotel and Restaurants Association of Telangana State, which represents star hotels and restaurants, says: “Only standalone hotels and restaurants levy mandatory service charge. In star hotels, this is not the case. We will abide by the rule stipulated by the Centre.”


The overcharging as far as VAT is concerned lies in the fact that while the VAT Act clearly stipulates that VAT must be imposed only on food and beverages prepared in restaurants, and not on packaged food items and bottled water etc that have an MRP (maximum retail price), which includes all taxes, hotels are imposing VAT on packaged food items and water bottles and also adding on service charge, service tax, Swachh Bharat cess, and Kisan Kalyan cess, resulting in multiple taxation.

Principal secretary, commercial taxes department, Somesh Kumar said, "We insist that VAT be levied on the overall bill paid by customers, including all taxes. Hotels, restaurants with air-conditioning and other facilities only must collect service tax and service charge. For this reason and for uniformity in levying VAT, we take into account the overall bill paid by consumers for determining VAT. But collecting mandatory service charge is wrong.”


When asked if this does not amount to violation of the VAT Act, he replied, “The issue of service charge and sale of bottled water above MRP are governed by the consumer affairs and legal metrology departments. They have to ensure that hotels comply with norms on service charge and MRP issues. As commercial taxes department, we are only concerned with overall bill paid by consumers on which we impose 14.5 per cent VAT.”

Officials from the commercial taxes department said this is the standard practice in all the major cities in all states such as Maharashtra, Tamil Nadu and Karnataka.


Consumer helpline is not working
While hotels are blatantly violating tax norms, there is still no proper mechanism available to accept complaints.

A toll-free number of the legal metrology department launched in 2007 is currently non-operational. As of now, consumers can lodge complaints only via SMS and email — a process no one is really aware of due to negligence of the department in taking up awareness programmes.

Hotels are also resorting to blatant violations of norms while imposing VAT. And despite clear errors, paying customers have no idea what’s really going on with their bills. There is no awareness, or clear guidelines, they can use to later study their bills — which can later lead to filing of official complaints. There is a consumer affairs and legal metrology department to deal with such complaints but that remains inactive.


As of now, only SMS and an e-mail facility is available to lodge complaints.

Consumers can lodge complaints through  SMS to 9490165619 or send e-mail to

However, the Telangana State Hotels Association, claimed that barring just over 10 per cent of big  hotels, the remaining 90 per in the state have stopped imposing service charge on costumers after the Centre’s announcement in January.

When the vigilance and enforcement department held random inspections of six hotels and restaurants (all five-star and three-star) in 2013, officials found that they had collected an excess VAT of Rs 2.5 crore from consumers that year by levying service charge and imposing VAT on overall bill including all taxes.


The officials had recommended stringent action against erring the hotels but no official action was taken.

Service charge vs Tax

  • Service charge: It is collected by a restaurant for its service. It is not a tax but its purely charged by the restaurant. If you pay service charge, there’s no need for a tip. But you will have to pay this charge if the restaurant clearly mentions it in the menu.
  • Service tax: Service tax is levied by the Centre. This is payable on 40% of your total bill — which includes food, drinks, service charge and applies to AC businesses. This apart, there are other cesses levied too.
  • VAT: VAT collected by the state government is only applicable on food items that are prepared in the restaurant as they add value before serving it to you — not on packaged items.


Location: India, Telangana, Hyderabad