2011 (4) TMI 210 - HC - Service Tax

Demand - outdoor catering service - Sale of goods - Notification dated 10-9-2004 bearing No. 20/04-ST up to 28-2-2006 and Notification No. 1/2006-ST, dated 1-3-2006 - The service so rendered by the assessee, which also includes the cost of transporting the food articles constitutes service. Therefore, to this extent alone, the assessee is liable for service tax and not for the entire cost received from the Airlines - The entire sale price includes the transportation charges also and out of that sale price what is the service aspect and what is the sale aspect requires to be decided by the authorities - Therefore, the Court declared that a contract for out door catering is a composite contract which fails under sub-clause (f) of clause (29A) of article 366 of the Constitution of India and service tax is payable on service aspect and sales tax is payable on deemed sales aspect and it is not an indivisible contract - Decided in favour of the assessee

Summary

Issues:
1. Interpretation of "Outdoor Catering Services"
2. Recognition of supply of food and beverages as an integral activity of "Outdoor Catering Service"
3. Liability to pay service tax for services rendered as outdoor caterers

Analysis:
1. The case involved a dispute regarding the treatment of the cost of goods supplied in outdoor catering services for service tax purposes. The Tribunal had ruled in favor of the assessee, citing the Supreme Court's decision in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 245. The assessee contended that they were eligible for exemption under Notification No. 12/2003, dated 20-6-2003, for the value of food and beverages served to the Airlines. The assessing authority disagreed, stating that service tax should be paid on the gross amount charged by the service provider, as per section 67 of the Finance Act, 1994. The Tribunal allowed the appeal, holding that the food supplied should be treated as the sale of goods, not a service, based on separate invoices raised for food and beverages. The Tribunal's decision was based on the interpretation of relevant notifications and legal provisions.

2. The substantial questions of law raised in the appeal included the legality and conformity of the CESTAT's order with the statute in interpreting "Outdoor Catering Services" and the recognition of food and beverage supply as an integral part of outdoor catering service. The Division Bench of the High Court had previously addressed a similar issue in Writ Appeal Nos. 671 to 726/2011. The Division Bench concluded that an outdoor catering contract is a composite contract involving both goods (food articles) and services (transportation and handling). It held that sales tax should be imposed on the value of food articles, while service tax should apply to the service aspect. The Court emphasized the need for a bifurcation between the sale of goods and the service provided in outdoor catering contracts. The judgment provided a framework for determining the tax liability on different components of outdoor catering services.

3. Considering the precedents set by the Division Bench in previous cases, the High Court disposed of the present appeals in line with the judgment dated 18-4-2011. The Court reiterated that outdoor catering contracts involve both goods and services, with sales tax applicable to the sale of goods and service tax applicable to the service aspect. The Court clarified that the entire amount mentioned in the bill cannot be subject to tax, and a distinction must be made between the sale and service components. The judgment favored the assessee, emphasizing the composite nature of outdoor catering contracts and the need for a nuanced approach to tax liability determination. The decision highlighted the importance of correctly categorizing different elements of outdoor catering services for tax assessment purposes.