2018 (8) TMI 1286 - AT - Service Tax

Levy of Service Tax or VAT - supplies made to airlines towards cost of materials and handling charges - APVAT Act - Held that - Respondent herein is raising bill/invoice on the airlines wherein amounts are charged separately for the supply of food items and beverages and handling charges for such supplies; appellant is not rendering any services in flight and is required to only delivery the food articles to the airlines - Reliance placed in the case of COMMISSIONER OF SERVICE TAX VERSUS LSG SKY CHEF INDIA (P.) LTD. 2011 (4) TMI 911 - KARNATAKA HIGH COURT , where it was held that 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. Appeal dismissed - decided against Revenue.

Issues:
1. Whether service tax liability on gross value charged by the respondent to airlines was discharged.
2. Whether the lower authorities correctly calculated the service element in the amounts charged by the respondent.
3. Whether the First Appellate Authority's decision in setting aside the Adjudication Order was justified.
4. Whether the respondent's activity falls under the category of "Outdoor Catering Services" for service tax purposes.
5. Whether the 40% value not subject to VAT can be considered as a service component.

Analysis:

1. The appeal was filed by the Revenue against the Order-in-Appeal, where it was alleged that the respondent did not discharge the service tax liability on the gross value charged to airlines for in-flight catering services. The lower authorities confirmed the demands, penalties, and interest. The respondent contested, arguing that the amounts charged were for materials and handling charges, with specific mention in the invoices. The First Appellate Authority set aside the Adjudication Order after considering the provisions of APVAT and the Finance Act, 1994.

2. The Departmental Representative argued that the respondent did not pay service tax on the supplies made, claiming abatement of 60% for sales tax liability, implying the remaining 40% was for the service element. The Counsel for the Assessee supported the First Appellate Authority's decision, citing relevant case laws and provisions of APVAT Act, 2005. The Tribunal found that the respondent only delivered food articles to airlines without providing any services in-flight, leading to the conclusion that the service element was not applicable on the amounts charged.

3. The First Appellate Authority's decision was supported by the Tribunal, which concurred with the views expressed in the cases of LSJ Sky Chefs (India) Pvt. Ltd. and Grand Ashok, upheld by the Hon'ble High Court of Karnataka. The Tribunal found that the First Appellate Authority correctly interpreted the law and set aside the Adjudication Order.

4. It was established that the respondent's activity fell under the category of "Outdoor Catering Services." The adjudicating authority demanded service tax on the 40% value attributable to food items on which VAT was not paid. However, the lower authority did not examine the appellant's contention in terms of the VAT Act of AP, leading to an incorrect application of the philosophy of abatement.

5. The Tribunal clarified that the 40% value not subject to VAT cannot be automatically considered as a service component. The Tribunal upheld the First Appellate Authority's decision, emphasizing that VAT payment does not automatically preclude the imposition of service tax. The Tribunal rejected the appeal, upholding the impugned order.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's reasoning in arriving at its decision.

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