2017 (4) TMI 860 - HC - Service Tax

Scope of service - whether the food supplied by an employer to the workers at a subsidized rate, would come within the meaning of the expression service, irrespective of whether the food is supplied within the premises or outside the premises? - Held that - any supply of subsidized food to the workers by the management of a Company, has to be seen as part of the pay package that the workers have negotiated with the employer. Under the Factories Act, 1948 and even under the Industrial Disputes Act, 1947, the expression wages would include within its purview, anything that is supplied at a subsidized rate - the food supplied by an employer to its employees at a subsidized rate forms part of the wages under Section 2(rr) of the Industrial Disputes Act, 1947. Once the State Authorities have treated the supply of food to the workers of the petitioner as sale, it is not open to the respondents to treat the same as service and impose a liability - petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Whether the food supplied by an employer to the workers at a subsidized rate constitutes a service taxable under the Finance Act, 1994.
2. Interpretation of the definition of the term "service" under Section 65B(44) of the Act.
3. Application of exemptions under Notification No.25/2012-Service Tax to taxable services.
4. Determining whether the supply of subsidized food to workers is part of their wages under the Industrial Disputes Act, 1947.

Analysis:
1. The petitioner, a hotel engaged in boarding and lodging, supplied food to its workers at a subsidized rate. The dispute arose when the 2nd respondent demanded service tax, interest, and penalty on the food supplied, considering it a taxable service under the Finance Act, 1994. The key issue was whether such supply of food constituted a service, irrespective of the location of supply - within or outside the registered premises.

2. The definition of "service" under Section 65B(44) of the Act was crucial in determining the taxability of the food supply. The definition required three prerequisites: an activity carried out for another for consideration. However, certain exclusions were noted, such as activities involving transfer of title in goods or immovable property. The court emphasized that an activity must first satisfy the definition of service before considering exemptions under relevant notifications.

3. The respondents relied on Notification No.25/2012-Service Tax to argue that all services, except those exempted, were taxable. However, the court highlighted that the focus should be on whether the activity falls within the definition of service before applying exemptions. It was essential to establish that the activity met all criteria under the definition of service before considering any exemptions.

4. The petitioner contended that the supply of subsidized food to workers formed part of their wages under the Industrial Disputes Act, 1947. The definition of wages under the Act included various components like allowances and concessional supplies. The court agreed that such supply of food at a subsidized rate was part of the workers' pay package negotiated with the employer, falling within the definition of wages.

In conclusion, the court allowed the Writ Petition, setting aside the impugned order demanding service tax on the food supplied to workers. The judgment emphasized the need to establish that an activity meets the definition of service before considering tax implications or exemptions, highlighting the importance of legal interpretation and application of relevant statutes in tax matters.