2009 (1) TMI 120 - AT - Service Tax

Service tax on supply of food items to Airlines Outdoor Caterer Services - revenue demand tax on gross amount collected - Held that, if sales tax has been paid on the goods (food/beverage supplied), service tax cannot be levied on the same since cost of the food items supplied is clearly available in the records, Commissioner s finding that they are not entitled for the benefit of Not. 12/2003 which provides for deduction of the value of the goods and materials sold, is not correct

Summary

Issues:
Levying service tax on the gross amount collected by the appellant for providing 'Outdoor Catering Services'; Interpretation of taxable services under the Finance Act; Applicability of sales tax on the supply of food items in catering contracts; Consideration of Notification 12/2003 for deduction of the value of goods and materials sold; Imposition of penalties and interest under relevant sections of the Finance Act.

Analysis:
The appeal challenged an Order-in-Original passed by the Commissioner of Service Tax, Bangalore, demanding a significant sum as Service Tax from the appellant engaged in providing 'Outdoor Catering Services'. The appellant contended that they were not liable to pay service tax on the amounts collected for supplying food and beverages to Airlines, as they had already paid sales tax on these items to the State Government. They relied on constitutional provisions and various case laws to support their argument that sales tax on goods supplied exempts them from service tax. The Adjudicating Authority rejected their contentions, confirming the demand. The Departmental representative supported the original order, asserting the appellant's liability for service tax on the total amount collected.

Upon careful review, the Tribunal acknowledged that the appellant's liability for service tax on the supply of food items to Airlines was not disputed. However, the crucial issue was whether service tax was applicable to the entire amount collected, including charges for food and beverages. The Tribunal noted that the appellant had excluded the cost of food items, for which sales tax had been paid, from the taxable amount. Citing constitutional provisions and legal precedents, including a Supreme Court decision, the Tribunal held that when sales tax had been paid on goods supplied, service tax could not be levied on the same transaction. The Tribunal found no merit in the penalties imposed, as the appellant had correctly discharged their tax liability based on the legal framework.

In conclusion, the Tribunal set aside the original order, ruling in favor of the appellant and granting consequential relief. The judgment emphasized the exclusivity of sales tax and service tax in cases where sales tax had been paid on goods supplied, as per constitutional provisions and judicial interpretations. The Tribunal's decision highlighted the importance of correctly applying legal principles and notifications to determine tax liabilities in complex transactions like catering contracts.