2025 (4) TMI 1113 - AT - Service Tax

Denial of benefit of N/N.12/2003 dated 20.06.2003 claimed in respect of the Outdoor Catering Services rendered by the appellant in respect of some of its customers - invocation of extended period of limitation. Whether for the relevant period the demand made on the appellant denying the benefit of N/N. 12/2003 dated 20.06.2003 claimed in respect of the Outdoor Catering Services rendered by the appellant in respect of some of its customers is tenable? - HELD THAT - The application of the N/N. 1/2006-ST is sought to be excluded in cases and the said N/N. 1/2006-ST does not prohibit the availment of the said notification if the service provider limits such availment to cases other than when N/N. 1/2006 has been availed. There are no provision in law that mandates that if a specific notification is issued then it would be to the exclusion of the assessee availing the benefit of any other notification that is also available to the assessee. If the notification itself does not stipulate an explicit bar stating that the benefit under the notification is available only if it is availed to the exclusion of availing benefit under any other notification we would be reluctant to read in any such implied prohibition so as to deny the appellant herein the benefit of the N/N. 12/2003-ST claimed. It is also seen that this Tribunal has in a catena of decisions taken a view that there is no bar in availing benefit under more than one notification unless it is barred categorically. The denial of the benefit of the N/N.12/2003-ST by the adjudicating authority for the reason that VAT is levied on the turnover and not on the value of the ingredients that go into the preparation of such food articles cannot be countenanced as it is settled law that the measures employed for assessing a tax should not be confused with the nature of the tax - When the appellant is clearly indicating the value of the goods and materials separately in its bills and which is supported by the records maintained by the appellant that would be documentary proof enough particularly when the notification does not stipulate any specific document the production of which alone would amount to discharge of adducing documentary proof. The adjudicating authority is determining that the VAT laws do not consider the appellant s manner of accounting the value of the goods/materials sold as sale when there is a studied silence on the above averments of the appellant regarding the documentary proof that the appellant relies on pertaining to its compliance of state VAT laws and when there is no reliance seen placed on any official notice/letter of the VAT authorities denying the appellant s discharge of its obligation under the State VAT Laws or finding it wanting on any aspect particularly when they are the authorities competent to determine the sufficiency of the appellant s compliance of the state VAT laws. The appellant is not eligible for the benefit of N/N. 12/2003-St dated 20-06-2003 and the consequent demand and imposition of penalty cannot sustain and is liable to be set aside. Whether the invoking of extended period of limitation is tenable? - HELD THAT - The findings of the adjudicating authority are only that the appellant has misstated/suppressed relevant facts and that therefore the invocation of extended period is upheld. Absent any finding that such misstatement/suppression was willful and that such willful misstatement /suppression of facts was with intent to evade payment of duty the adjudicating authority erred in upholding the invocation of extended period of limitation. It is also pertinent that there is no evidence let in of any positive or deliberate act on the part of the appellant with intention to evade payment of duty. The appellant has stated in its grounds of appeal that its records were also verified during the previous audit dated 26-11-08 for the period April 05 to October 08. There is no allegation that the appellant is not regularly filing its returns or have not reflected the manner of its levy of service tax in its invoices. The present SCN is also issued placing reliance on the records of the appellant alone and not premised on any statements recorded or any other evidence indicating any willful suppression or misstatement of facts. In such circumstances when the appellant was inspected and audit conducted and the audit queries replied to there could not be a case of suppression and the Department could not have invoked the extended period of limitation - the finding of the adjudicating authority invoking the extended period of limitation is unsustainable and the demand made on the appellant invoking the extended period of limitation is untenable. Conclusion - i) The denial of benefit under N/N. 12/2003-ST and the consequent demand for differential service tax and penalty are unsustainable and liable to be set aside. ii) The invocation of the extended period of limitation is improper in the absence of allegations or proof of willful misstatement or suppression with intent to evade tax. The demand of duty appropriate interest and penalty imposed by the original authority are untenable - Appeal allowed.

Summary

Two core legal issues arise for determination in this appeal: (A) the tenability of the demand denying the benefit of Notification No.12/2003-ST claimed by the appellant in respect of Outdoor Catering Services (ODC) rendered to certain customers; and (B) the validity of the invocation of the extended period of limitation for recovery of service tax.

Issue A: Tenability of Denial of Benefit under Notification No.12/2003-ST

The relevant statutory framework comprises the definitions under Section 65 of the Finance Act, 1994, particularly clauses defining "caterer," "outdoor caterer," and "taxable service" as including services by outdoor caterers. Notification No.12/2003-ST exempts from service tax the value of goods and materials sold by the service provider to the recipient, subject to documentary proof indicating the value of such goods and materials. Notification No.1/2006-ST provides a conditional abatement of 50% on the gross amount charged for catering services but excludes cases where benefit under Notification No.12/2003-ST has been availed.

The Tribunal observed that Notification No.1/2006-ST explicitly excludes its application where Notification No.12/2003-ST is availed, but does not prohibit simultaneous or selective availment of benefits under both notifications for different transactions. The absence of any statutory bar or explicit prohibition against availing benefits under multiple notifications was emphasized, with reliance on precedents affirming that an assessee may avail multiple notifications unless categorically barred.

Regarding the nature of the appellant's ODC contracts, the Tribunal relied on the constitutional provision Article 366(29A)(f), which deems the supply of goods (including food) as a sale for sales tax purposes when supplied as part of a service contract such as catering. The Supreme Court's ruling in Bharat Sanchar Nigam Ltd v Union of India clarified that catering contracts are composite contracts involving both service and sale elements, which can be bifurcated for taxation purposes. The sale portion is subject to sales tax (VAT), while the service portion is subject to service tax.

The Tribunal relied heavily on the decision in Sky Gourmet Pvt Ltd v CST, Bangalore, where it was held that the value of food and beverages supplied separately and for which VAT was paid cannot be subjected to service tax under Notification No.12/2003-ST. The Karnataka High Court affirmed this view in Commissioner of ST Bangalore v LSG Sky Chef India Pvt Ltd, holding that outdoor catering contracts are composite contracts with separable sale and service components liable to sales tax and service tax respectively. The High Court rejected the dominant nature test and confirmed that the State legislature can tax the sale component while the Centre can tax the service component.

The adjudicating authority's reliance on the decision in Sayaji Hotels Ltd, which took a contrary view, was set aside in favor of the superior authority of the Karnataka High Court and the Apex Court's constitutional interpretation. The Tribunal emphasized that the appellant's invoicing practice, which distinctly separated the value of goods/materials and services, supported by documentary proof and VAT payment, fulfilled the conditions of Notification No.12/2003-ST. The absence of any dispute or denial from VAT authorities regarding the appellant's compliance further reinforced this conclusion.

The Tribunal rejected the adjudicating authority's reasoning that the VAT levy on turnover precluded the appellant from claiming the notification benefit, clarifying that the measure of tax cannot be conflated with the nature of the tax. The appellant's documentary proof indicating the value of goods sold was deemed sufficient, as the notification did not mandate any specific form of documentary evidence.

Consequently, the Tribunal held that the denial of benefit under Notification No.12/2003-ST and the consequent demand for differential service tax and penalty were unsustainable and liable to be set aside.

Issue B: Validity of Invocation of Extended Period of Limitation

The extended period of limitation under the proviso to Section 73(1) of the Finance Act can be invoked only where there is willful misstatement or suppression of facts with intent to evade payment of service tax. The show cause notice in this case did not allege any such willful misstatement or suppression with intent to evade tax. The Tribunal relied on the Supreme Court's ruling in CCE v HMM Ltd, which mandates that such allegations must be explicitly made in the show cause notice to invoke extended limitation.

Further, the burden of proving mala fide or willful intent lies on the revenue, and mere misstatements or errors without intent do not suffice. The Tribunal noted the absence of any evidence of deliberate or positive acts by the appellant to evade tax. The appellant's records were audited previously without objection to the invoicing method or tax payments, and the present notice was issued based on the appellant's own records rather than external evidence or statements indicating concealment.

Consistent with precedents, the Tribunal held that the invocation of the extended period of limitation was improper in the absence of allegations or proof of willful misstatement or suppression with intent to evade tax. Therefore, the demand raised on the basis of extended limitation was untenable.

Significant Holdings and Core Principles

"If the notification itself does not stipulate an explicit bar stating that the benefit under the notification is available only if it is availed to the exclusion of availing benefit under any other notification, we would be reluctant to read in any such implied prohibition."

"A catering contract which involves service and sale at the same time is one such composite transaction that has been brought within the fiction of a deemed sale by virtue of Article 366(29A) so as to be exigible to sales tax."

"Article 366(29A)(f) specifically provides a legal fiction in respect of catering contracts where the contracts can be divisible into two components, i.e. service portion and sale of goods portion."

"Once the sale tax has already been discharged by them, they cannot be asked to pay service tax on the same value."

"The measures employed for assessing a tax should not be confused with the nature of the tax."

"In order to attract the proviso to Section 11A(1), it must be alleged in the show cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties."

"The burden of establishing mala fides is very heavy on the person who alleges it."

In conclusion, the Tribunal set aside the impugned order demanding differential service tax and penalties, and disallowed the invocation of the extended period of limitation, allowing the appeal with consequential relief. The case affirms the principle that composite contracts involving sale and service components must be bifurcated for taxation, that documentary proof of value suffices for notification benefits, and that extended limitation cannot be invoked without explicit allegations of willful evasion.