2022 (4) TMI 427 - AT - Service Tax

Levy of Service Tax - Outdoor Catering Services - It therefore appeared to the Department that Service Tax was paid only on the service portion and not on the entire gross value received by them - period from October 2005 to December 2010 - benefit of N/N. 01/2006-S.T. dated 01.03.2006. For the period prior to 01.04.2007 - HELD THAT - The sole agreement of the appellant with M/s. Manali Petro Chemicals has been relied by the Department to hold that the appellant has been undertaking the activity of serving food prior to April 2007. As there is a separate agreement entered by the company with another person viz. M/s. Shanmugasundaram for serving the food, on the probability of facts, the argument put forward by the appellant that the activity of serving food was done by another contractor, appears to be more tenable and acceptable - demand do not sustain. For the period after 01.04.2007 - HELD THAT - Admittedly, the appellant has been filing returns and paying Service Tax after 2007. The appellant has entered into two separate contracts and has been discharging Service Tax on the income received under the agreement for rendering the services. They have been paying Sales Tax / VAT on the amounts received for the supply of food. The case of the Department is that the value of these two contracts has to be clubbed together and after giving the abatement of 50% in terms of Notification No. 01/2006-S.T. dated 01.03.2006 the appellant has to discharge its Service Tax liability. The levy of Service Tax under Outdoor Catering Services would be attracted only if the activity involved serving of food and not mere sale of food. In COMMR. OF SERVICE TAX, PUNE-I VERSUS BINDRAS HOSPITALITY SERVICE PVT. LTD. 2019 (3) TMI 1854 - CESTAT MUMBAI it was held that sale of cooked food to the employees at the counters would not be taxable under Outdoor Catering Services. When the value of food items have already been subjected to Sales Tax / VAT, we do not think that it is correct to levy Service Tax on the said amount again. The Tribunal in the case of M/S. GOLDLINE HOSPITALITY SOLUTIONS (P) LTD. VERSUS THE COMMISSIONER OF G.S.T. CENTRAL EXCISE, CHENNAI SOUTH COMMISSIONERATE 2019 (1) TMI 1309 - CESTAT CHENNAI had occasion to consider a similar issue. After taking note of various decisions on similar issues, the Tribunal held that when Sales Tax / VAT has been discharged on the value of food items, the demand of Service Tax cannot be raised again by clubbing such value along with the service charges. The demand cannot sustain - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Liability to pay Service Tax under Outdoor Catering Services for the period from October 2005 to December 2010.
2. Correctness of taxable value calculation post-01.04.2007.
3. Applicability of Notification No. 01/2006-S.T. and Notification No. 12/2003-S.T.
4. Validity of extended period of limitation for demand.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax Under Outdoor Catering Services for the Period from October 2005 to December 2010:
The appellants were engaged in providing Outdoor Catering Services and registered under the Service Tax Commissionerate, Chennai. The Department scrutinized their ST-3 returns and found that they did not avail abatement under Notification No. 01/2006-S.T., leading to a Show Cause Notice demanding Service Tax of ?61,57,841/- for the period from October 2005 to December 2010, along with interest and penalties. The appellant contended that prior to 01.04.2007, they only supplied food and did not provide serving services, which were handled by another contractor. The Tribunal found that the agreement with M/s. Manali Petro Chemicals Ltd. did not specifically stipulate serving food by the appellant and accepted the appellant's argument that another contractor undertook the serving activity.

2. Correctness of Taxable Value Calculation Post-01.04.2007:
Post-01.04.2007, the appellant entered into two separate agreements for the supply of food and serving of food, discharging Sales Tax/VAT on food supply and Service Tax on serving charges. The Department argued that the value of both contracts should be clubbed and Service Tax should be calculated after availing the abatement under Notification No. 01/2006-S.T. The Tribunal noted that the levy of Service Tax under Outdoor Catering Services applies only if the activity involves serving food, not mere sale. It referenced several judgments, including M/s. Sky Gourmet Pvt. Ltd. and M/s. Ambuj Hotels & Real Estate Pvt. Ltd., which supported the appellant's stance that VAT-paid food value should not attract Service Tax.

3. Applicability of Notification No. 01/2006-S.T. and Notification No. 12/2003-S.T.:
The appellant argued that even if Service Tax was applicable, they should benefit from Notification No. 12/2003-S.T., which exempts the value of food items. The Tribunal agreed, noting that the value of food items subjected to Sales Tax/VAT should not be included for Service Tax calculation. This aligns with the principle that the levy of Service Tax and VAT are mutually exclusive, as upheld in M/s. Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes.

4. Validity of Extended Period of Limitation for Demand:
The appellant contended that they had disclosed all details in their returns and submitted documents when requested by the Department, arguing there was no willful suppression or misstatement to evade tax. The Tribunal found merit in this argument, noting the interpretational nature of whether the appellant should have entered a single contract or two separate contracts for tax purposes. The demand raised by invoking the extended period of limitation was deemed unsustainable.

Conclusion:
The Tribunal concluded that the demand for Service Tax could not be sustained, setting aside the impugned order and allowing the appeal with consequential reliefs as per law. The judgment emphasized the mutual exclusivity of Service Tax and VAT and the necessity of clear contractual stipulations for tax liability.