2023 (6) TMI 842 - HC - VAT and Sales Tax

Calculation of VAT - expenses charged are separate than the food charges despite only one coupon of composite amount issued at the entry by the respondent or not - penalty imposed under Section 61 of RVAT Act - HELD THAT - The assessee cannot split up the amount charged for the sale of food, even if assessee provides certain services in addition to the food, and VAT has to be paid on the entire consideration charged for the food. The assessee, undisputedly, issued coupons that were adjustable against food only and therefore the assessee is liable to pay VAT on the entire consideration charged from its customers for supply of food. This position of law is well settled now and explained in great detail by the Hon ble Apex Court in the case of K. Damodarasamy Naidu and Bros. 1999 (10) TMI 598 - SUPREME COURT , holding that the price that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned Counsel. The contention of the assessee that as per aspect theory, the dominant supply was of supply of entertainment/service is also untenable - the questions of law framed hereinabove have to be answered in favour of the revenue and against the assessee - Accordingly, the impugned order of the Tax Board is quashed and set aside and the levy of penalty is maintained.

Summary

Issues Involved:
1. Whether the Rajasthan Tax Board was justified in holding that the expenses charged are separate from the food charges despite only one coupon of composite amount issued at the entry by the respondent.
2. Whether the Rajasthan Tax Board was justified in deleting the tax and interest without appreciating the provisions pertaining to "Sale" under Section 2(35) and "Sale Price" under Section 2(36) of the RVAT Act.

Summary:

Issue 1:
The revenue argued that the assessee, engaged in the business of restaurants and resorts, was issuing entry coupons to customers, charging Rs. 350 per adult and Rs. 175 per minor, adjustable against food. However, the assessee was paying VAT only on Rs. 250 (adults) and Rs. 125 (children), with the remaining amount recorded under 'Charges for generation of Cultural Receipts, Staff, Maintenance, Adm. Expenses'. The revenue contended that VAT should be payable on the entire amount as per Section 2(35) and Section 2(36) of the RVAT Act, citing the Supreme Court judgments in K. Damodarasamy Naidu and Bros. and Idea Mobile Communication Ltd.

The assessee countered that the coupons were for administrative convenience and invoices were issued separately, reflecting charges for food and entertainment services. The Tax Board noted that invoices were indeed issued, and the coupon phrase 'adjustable in food only' was to prevent misuse. The assessee argued that their business was primarily entertainment, with food being a secondary component, and thus the charges should be split.

The Court found that the assessee's practice of bifurcating the amount charged from customers into separate entries was deliberate window dressing to evade tax. The definition of 'Sale' and 'Sale Price' under the RVAT Act made it clear that VAT must be paid on the entire amount charged for food, even if additional services were provided. The Court cited the Apex Court judgment in K. Damodarasamy Naidu and Bros., which established that the price paid by the customer for food in a restaurant includes the cost of services provided and must be taxed accordingly.

Issue 2:
The Court rejected the assessee's argument that the dominant supply was entertainment/service, noting that entry was not allowed solely for cultural experience and the assessee charged separately for services inside the premises. The Court also dismissed the reliance on the judgment in Kota Eye Hospital and Research Foundation, as the primary supply in that case was medical service, unlike the present case where the assessee was not providing a bundled supply of services.

Conclusion:
The Court answered the questions of law in favor of the revenue, quashing the Tax Board's order and maintaining the levy of penalty. The STRs were allowed, and any pending applications were disposed of.