2011 (4) TMI 451 - HC - Service Tax

Demand - out door catering service - Whether the cost of goods supplied should be treated as sale of goods and it cannot be charged to service tax - Notification No. 12/2003 dated 20-6-2003 - The Division Bench held that out door catering consists of goods namely, the articles of food etc., which would constitute sale. Hence, the value of the food articles are liable for sales tax which the State Government is liable to impose - The facts involved in the present case are identical to the facts that arose in the Writ Appeal Nos. 671 to 726/2011. - Decided in favor of the assessee

Issues:
1. Whether the cost of goods supplied in an outdoor catering service should be treated as sale of goods or service for service tax purposes.
2. Whether the assessee is liable to pay service tax on the gross amount realized from providing outdoor catering services.
3. Whether the assessee is eligible for exemption under Notification No. 12/2003.
4. Legality and sustainability of the orders of the CESTAT.
5. Interpretation of "Outdoor Catering Service" and liability for service tax.

Analysis:
1. The Tribunal held that in an outdoor catering service, the cost of goods supplied should be treated as the sale of goods, not a service, based on the Supreme Court's ruling in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 245. The assessee claimed exemption under Notification No. 12/2003, arguing that the service tax liability should be based only on the handling and transportation charges, not the entire amount received. The assessing authority disagreed, stating that service tax should be based on the gross amount charged. The Tribunal allowed the appeal, applying the Supreme Court judgment and granting the benefit of the notification, setting aside the penalty and confirming the exemption.

2. The High Court considered the nature of outdoor catering services and the division of goods and services involved. It concluded that outdoor catering contracts are composite contracts, with the sale of food articles subject to sales tax and the service aspect liable for service tax. The Court emphasized the need for bifurcation to determine the taxable portions correctly. The State Legislature can levy sales tax on the value of food articles, while service tax applies to the service provided, including transportation costs. The Court clarified that the entire sale price should not be taxed, only the relevant portions for sales tax and service tax. The Court affirmed that outdoor catering contracts are not indivisible and that service tax is payable on the service aspect, while sales tax is payable on the deemed sales aspect.

3. The Court referenced a previous judgment in Writ Appeal Nos. 671 to 726/2011, where similar issues regarding outdoor catering services were addressed. The Court reiterated that outdoor catering contracts involve both goods and services, with sales tax applicable to the sale of food articles and service tax applicable to the service provided. Given the identical nature of the present case to the previous judgment, the Court disposed of the appeals in line with the earlier ruling, answering the substantial questions of law in favor of the assessee and against the revenue.

4. The Court emphasized the importance of correctly interpreting the concept of "Outdoor Catering Service" to determine the tax liabilities accurately. It highlighted the distinction between the sale of goods and the provision of services in such contracts, emphasizing the need for proper bifurcation to apply the relevant taxes appropriately. The Court's decision was based on constitutional provisions and previous legal precedents, ensuring a clear understanding of the tax implications in outdoor catering services.

5. The judgment provided a comprehensive analysis of the issues surrounding the taxation of outdoor catering services, considering legal provisions, notifications, and judicial interpretations to determine the correct tax liabilities. By addressing the questions raised in the appeals and referencing relevant legal principles, the Court clarified the application of sales tax and service tax in outdoor catering contracts, ensuring a balanced and legally sound decision in favor of the assessee.

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