2021 (6) TMI 226 - HC - Service Tax

Levy of service tax - food that is taken away or collected from restaurants or eateries, in parcels - consumption of the food and drink is not in the premises of the restaurant - HELD THAT - Not all services rendered by restaurants in the sale of food and drink are taxable and it is only certain specified situations that attract tax. The sale of food and drink simplicitor, services of selection and purchase of ingredients, preparation of ingredients for cooking and the actual preparation of the food and drink would not attract the levy of tax. Only those services commencing from the point where the food and drinks are collected for service at the table till the raising of the bill, are covered. This would encompass a gamut of services including arrangements for seating, d cor, music and dance, both live and otherwise, the services of Ma tre D Or, hostesses, liveried waiters and the use of fine crockery and cutlery, among others. The provision of the aforesaid niceties are critical to the determination as to whether the establishment in question would attract liability to service tax, and that too, only in an air-conditioned restaurant - In the case of take-away or food parcels, the aforesaid attributes are conspicuous by their absence. In most restaurants, there is a separate counter for collection of the take-away food parcels. Once processed and readied for delivery, the parcels are brought to a separate counter and are picked up either by the customer or a delivery service. More often than not, the take-away counters are positioned away from the main dining area that may or may not be air-conditioned. In any event, the consumption of the food and drink is not in the premises of the restaurant - the provision of food and drink to be taken-away in parcels by restaurants tantamount to the sale of food and drink and does not attract service tax under the Act. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Liability to service tax on take-away or parcel food from air-conditioned restaurants.
2. Definition and scope of 'service' under the Finance Act, 1994.
3. Applicability of service tax on transactions involving both sale and service components.
4. Judicial precedents and interpretations affecting the taxability of restaurant services.

Detailed Analysis:

1. Liability to Service Tax on Take-Away or Parcel Food:
The core issue addressed is whether food taken away or collected from air-conditioned restaurants in parcels is liable to service tax under the Finance Act, 1994. The petitioners argued that take-away food constitutes a pure trading activity and does not involve any service component, thus falling outside the ambit of service tax. They relied on the definition of 'service' under Section 65B(44), which excludes the transfer of title in goods by way of sale.

2. Definition and Scope of 'Service' Under the Finance Act, 1994:
The petitioners contended that the sale of packaged food does not involve a service component and should not be artificially split into service and sale transactions. They referenced a letter (No.DOF 334/3/2011-TRU dated 28.02.2011) which clarified that service tax is not intended to cover the sale of food collected or picked up for consumption elsewhere. They also emphasized that restaurant service, by definition, includes attributes like organized seating, air-conditioning, and service at the table, which are absent in take-away transactions.

3. Applicability of Service Tax on Transactions Involving Both Sale and Service Components:
The revenue argued that under Section 66E(1) of the Act, the supply of food or any other article of human consumption is a taxable service. They cited the Bombay High Court's decision in Indian Hotels and Restaurant Association V. Union of India (2014), which held that restaurants primarily provide service, and the sale undertaken is incidental. Therefore, the provision of take-away food involves the rendition of service and should be taxed accordingly.

4. Judicial Precedents and Interpretations Affecting the Taxability of Restaurant Services:
The petitioners cited several Supreme Court judgments to support their argument against splitting the transaction into service and sale components. They referred to cases like K.Damodarasamy Naidu and Bros. V. State of Tamil Nadu (2000), State of Himachal Pradesh V. Associated Hotels of India Ltd. (1972), and Northern India Caterers (India) Ltd. V. Lt. Governor of Delhi (1978). The Andhra Pradesh High Court's decision in Bhimas Hotels Pvt. Ltd. V. Union of India (2017) also supported the view that subsidized food supplied to workers is not liable to service tax.

The revenue, on the other hand, relied on decisions like Hotel East Park V. Union of India (2014) and Federation of Hotels and Restaurants Association V. Union of India (2016), which upheld the validity of service tax provisions on restaurant services. They also referenced Circular No.334/3/2013-TRU dated 07.10.2013, which clarified that service tax is applicable only in specified restaurants with air-conditioning or central heating.

Conclusion:
The court concluded that the provision of food and drink to be taken away in parcels by restaurants constitutes the sale of food and drink and does not attract service tax under the Act. The court noted that several Appellate Commissioners had also taken a similar view, and in some cases, the Department did not file appeals, indicating a prevailing view within the Department against service tax liability on take-away food. Consequently, the writ petitions were allowed, and the impugned orders were quashed.

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