2019 (1) TMI 1309 - AT - Service Tax

Valuation - Outdoor Catering Services - inclusion of cost of items and service charges in assessable value - the bill amount showed the total cost of sale without showing the cost of items and service charges separately - appellants had paid service tax on 50% of the cost by availing the benefit of N/N. 01/2006-ST. Whether the differential service tax of ₹ 47,81,657/- with interest demanded on entire value of food and service charges is correct or whether the service tax liability is required to be calculated only on the service charges? - Held that - The issue is no longer res integra and is covered by the decision of the Hon ble Karnataka High Court alluded to by the Ld. Advocate in C.S.T., Bangalore Vs. The Grand Ashok 2011 (4) TMI 210 - KARNATAKA HIGH COURT . The Hon ble High Court of Karnataka has held that Outdoor Catering is a composite but divisible contract of service under Article 366(29)(a)(f) of the Constitution of India; hence, sale of goods has to be bifurcated from service provided - the demand amounting to ₹ 47,81,657/- with interest thereon and also the imposition of penalties on that score cannot sustain and will require to be set aside - demand set aside. Whether the amount of commission, consultancy fees and housekeeping and pantry management charges received by the appellant are required to be included in the value of taxable service under Outdoor Catering category or otherwise? - Held that - There are no corroborative evidence in the Show Cause Notice or the impugned Order to shore up the Department s allegation that these charges actually relate to Outdoor Catering Service only - The clarifications of appellant in this regard have also not been addressed or rebutted by the adjudicating authority - this demand with interest and penalty also does not have any basis to sustain - demand set aside. Appeal allowed in toto.

Summary

Issues:
1. Calculation of service tax liability on food and service charges.
2. Inclusion of commission, consultancy fees, and housekeeping charges in taxable service under "Outdoor Catering" category.

Analysis:

Issue 1: Calculation of service tax liability on food and service charges:
The Department contended that the supply of food is essential in Outdoor Catering Service, making it inseparable, thus disqualifying the benefit of Notification No. 12/2003-ST for the appellant. The Department demanded a differential service tax based on clearances made by the appellant. The Commissioner confirmed a lower service tax liability than initially proposed. The appellant argued that their practice of paying sales tax on food items and service tax on service charges separately was legal, citing legal precedents. The Tribunal referred to the decision of the Hon'ble Karnataka High Court in C.S.T., Bangalore Vs. The Grand Ashok, which held that Outdoor Catering is a composite but divisible contract of service, requiring a bifurcation between the sale of goods and services provided. The Tribunal ruled in favor of the appellant, setting aside the demand for differential service tax and penalties.

Issue 2: Inclusion of commission, consultancy fees, and housekeeping charges:
The appellant clarified that these charges were not related to Outdoor Catering Service but were for consultancy, commission incentives, and maintenance services. The Department failed to provide evidence linking these charges to the taxable category of "Outdoor Catering Service." The Tribunal found no basis to sustain the demand for these charges and penalties, setting them aside. The entire appeal was allowed with consequential benefits.

This judgment highlights the importance of correctly interpreting legal provisions and distinguishing between taxable and non-taxable components in service transactions, ensuring fair treatment and compliance with tax regulations.