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TMI Blog2010 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... -company is paid, by Indian Railways, for what it terms as the services, including catering provided by it to the passengers. The petitioner had in the past been paying VAT, in respect of the services on board the trains, including providing of food and beverages and the tax was paid up to 30th April, 2007. 3. Section 84 of Delhi Value Added Tax Act, 2004, to the extent it is relevant, provides that if any determinable question arises, otherwise than in proceedings before a court, a person may apply in the prescribed manner to the Commissioner for the determination of that question. The determinable question includes as to whether a transaction is or would be a sale. 4. The petitioner sought a determination from the Commissioner of Value Added Tax, under Section 84 of Delhi Value Added Tax Act, 2004 (hereinafter referred to as "the Act") on the taxability to VAT in respect of the food and beverages served to the passengers, on board the trains. The determination was sought on the following questions: "(1) Whether in the facts and circumstances and the „Agreements? signed between Indian Railways Catering & Tourism Corporation Limited and the Licensees, the food and beverage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonally liable to collect and pay the value added tax on their sales transactions individually at 12.5% u/s 4(1)(e) of the DVAT Act, 2004 in Delhi. Likewise, if the goods i.e. food and beverages are boarded by the Licensee(s)/Caterer(s) in the trains in Delhi, despite the fact that the Licensee(s) or the Caterer(s) are stationed/located outside Delhi and also the supplies are made by them to the passengers on running trains outside Delhi, the sales shall be treated to be the Local ones attracting tax under the provisions of DVAT Act, 2004." 7. An appeal was filed by the petitioner before the Appellate Tribunal against the determination made by the Commissioner. It was submitted by the petitioner before the Appellate Tribunal that it did not have any grievance against the answers given by the Commissioner to the questions raised by them in their application seeking determination. They, however, objected to the following observations made by the Commissioner: "However, in case, the first sellers i.e. the Licensee(s) and the Caterer(s) appointed by the applicant Corporation in such a case are located outside Delhi and also board the goods i.e. the raw materials etc. for preparing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into by it is subject to service tax, it cannot be subjected to levy of VAT and vice versa, since one transaction cannot be subjected to levy of both VAT as well as service tax. The submission is that service tax and VAT/sales tax operate in different fields and are mutually exclusive. The petitioner claims that on account of the Determination Order/Assessment Order passed under the DVAT Act, the provisions of Section 2(zc)(vii) of the DVAT Act, 2004 had come into direct conflict with the provisions of Section 65(105)(zzt) of the Finance Act, 1994. It has also been alleged in the petition that the respondents are seeking VAT even in respect of the food and beverages which are not loaded on the trains in Delhi. 11. The petitioner has accordingly sought a declaration that the services, rendered by it on board the trains, are not liable to Value Added Tax and are liable to service tax alone. It has been further prayed that in case it is held that the services provided by the petitioner alongwith food and beverages, amount to sale of goods, the provisions of Section 65(105) (zzt) of Finance Act, 1994 be declared ultra vires. The petitioner has also sought quashing of the Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of food and beverages to the passengers is that the licensee(s)/caterer(s), who supply the food and beverages to the passengers in the running trains, raise sales bills and invoices in respect of those supplies, in favour of the petitioner-corporation which, in turn, issues a consolidated sale invoice of such supplies in the name of Indian Railways and receives the sale consideration from it. 16. It is an admitted position that the invoices are raised by the petitioner in favour of Indian Railways in respect of three items (a) food; (b) beverages; and (c) newspaper. Admittedly, no VAT is being claimed by the respondents in respect of newspapers. Admittedly, the payment is being taken by the caterers/licensee from the petitioner-company, which raises bills in favour of Indian Railways and takes payment from it. The food is loaded in the trains as per the reservation chart finalized by Indian Railways and communicated to the petitioner. On completion of journey, the Train Superintendent of Indian Railways issues certificate as to actual occupancy of seats from one station to another. For example, in the case of August Kranti Rajdhani, originating from Delhi and terminating at Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res and securities) and includes- (i) livestock, all materials, commodities, grass or things attached to or forming part of the earth which are agreed to be severed before sale or under a contract of sale" Section 2(7) of Sale of Goods Act defines, goods as under:- "(7) "goods" means every kind of moveable property (other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale;" 21. Section 4(1) of Sale of Goods Act, which defines sale, to the extent it is relevant, reads as under:- "4. Sale and agreement to sell- (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price." (3) Where under a contract of sale the property in the goods in transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Goods Act and Section 2(m) of the Act. 26. Since no tax is sought to be levied on Indian Railways, in the petitions before us, we are not concerned with the transaction between Indian Railways and the passengers and, therefore need not go into the question as to whether providing food by Indian Railways to the passenger, who travels in its trains as part of the ticket price, can be said to be a service provided by the Railways to the passenger or not. What we have to decide is as to whether the transaction between the petitioner-company and Indian Railways is a contract of providing service or a composite contract of providing service and selling goods or a contract only for sale/supply of goods. 27. In State of Madras Vs. Gannon Dunkerley & Co.(Madras) Limited : (1958) 9 STC 353 (SC), it was held by the Supreme Court that the expression „sale of goods? in Entry 48 in List II of Schedule 7 of Government of India Act, 1935 cannot be construed in its popular sense but must be interpreted in its legal sense and should be given the same meaning which it has in the Sale of Goods Act, 1930, its essential ingredients being an agreement to sell movables for a price and propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such article or materials may pass to the other party, but, that would not necessarily convert the contract into one of sale of these materials. It was held that in every case the Court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. 29. In Northern India Caterers vs. Lieutenant Governor of Delhi: (1978) 48 STC 386 (SC), the appellant was running a hotel in which lodging and meals were provided on inclusive terms to the residents. Meals were also served to non-residents in the restaurant located in the hotel. The appellant before the Court maintained that having regard to the nature of the services rendered, there was no real difference between the two kinds of transactions and in both the cases it remained a supply and service of food not amounting to sale. It was held by the Supreme Court that the service of meals to the visitors in the restaurant of the appellant was not taxable under the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a purchase of those goods by the person to whom such transfer, delivery or supply is made;'] 32. All the sub-clauses of Article 366(29A) serve to bring transactions, where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchases and sales for the purpose of levy of Sales Tax. To this extent, the principle enunciated by Supreme Court in the case of Gannon Dunkerley & Co.(Madras) Limited (supra) now stands diluted. The catering contract has thus been brought within the fiction of a „deemed sale? and splitting of service and supply in respect of such a contract has been constitutionally permitted. The decision of Supreme Court in the case of Associated Hotels (supra) has thus been legislatively invalidated by the 46th Constitutional Amendment. 33. In K. Damodarasamy Naidu & Bros. Vs. State of Tamil Nadu & Anr.:(2000) 117 STC 1 (SC), the issue relating to the right of the States to levy tax on the sale of food and drink vide Entry 54 of List II of the 7th Schedule to the Constitution came up for consideration before Supreme Court. Referring to its earlier decision in the case of Northern Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, food in a restaurant has necessarily to be regarded as goods. According to Section 2(l), transfer of property in goods by one person to another would amount to sale. With cooked food or food which is supplied in a restaurant falling within the definition of the word "goods" in Section 2(g), transfer of property in the same would amount to sale as provided by Section 2(l). 12. In the present case, when a customer goes to a restaurant and orders food and in respect of which he pays the price indicated therein and the said food items are supplied to him, it would clearly be a case of transfer of property in goods to the customer. Whether the customer eats the entire or part of the dish or chooses not to eat at all would make no difference if he pays for the dishes supplied. The moment the dish is supplied and sale price paid, it would amount to a sale." 35. In Commissioner of Sales Tax vs. Departmental Catering (Northern Railways): (2006) 146 STC 287 (Delhi), the respondent was operating at New Delhi Railway Station and Parliament House, besides providing catering in running trains. While holding that selling of food stuffs by the respondent amounted to sale, this Court relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods in the value of the services. During the course of the judgment, it was observed that there was no denial of the legislative competence of the States to levy tax on sales provided that the concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction, but that does not allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. It was held that even in those composite contracts, which are by legal fiction, deemed to be visible under Article 366(29A) the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. The Supreme Court, in the course of the judgment, inter alia, observed as under:- "For reasons ultimately attributable to the principle enunciated in Gannon Dunkerley & Co.(Madras) Limited case (supra), namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transaction between the parties. 38. As regards outdoor catering services, Supreme Court in the case of Tamil Nadu Kalyana Mandapam Assn. vs. Union of India (UOI) and Ors.:(2004) 135 STC 480noted as under: "Similarly the services rendered by outdoor caterers are clearly distinguishable from the service rendered in a restaurant or hotel inasmuch as, in the case of outdoor catering service the food/eatables/drinks are the choice of the person who partakes the services. He is free to choose the kind, quantum and manner in which the food is to be served. But in the case of restaurant, the customer's choice of foods is limited to the menu card. Again in the case of outdoor catering, the customer is at liberty to choose the time and place where the food is to be served. In the case of an outdoor caterer, the customer negotiates each element of the catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalized service provided to the customer. Clearly the service element is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and drink as in restaurant." 39. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of K. Damodarasamy Naidu & Bros. and The East India Hotels (supra), it is difficult to say that it is not leviable in respect of food, provided to a passenger in a train. The service element, involved in providing meals to a passenger travelling in a train, is incidental and bare minimal required in selling of a food article/beverage to a customer. In fact, even in a shop-cum-restaurant, the meals are heated and beverages refrigerated and then served to the customer on his table in the crockery and cutlery provided by the shop-cum-restaurant. Even while selling a meal/snack/beverage off the counter, the seller heats the meal/snack and delivers cold/hot beverage to the customer. No one will buy meals/snacks if they are not hot, a soft drink, if it is not cold or a tea/coffee if it is not hot. The element of service, involved in serving a passenger travelling in a train, therefore, cannot be said to be higher than that involved in selling cooked food in a shop or in a restaurant. 40. The learned counsel for the petitioner has sought support from the decision of Supreme Court in the case of Tamil Nadu Kalyana Mandapam Assn. (supra). In that case, the members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice aspect of catering. It was held that making available the premises for being utilized as a Mandapam, whether with or without services, would itself be a service and cannot be classified as any other kind of legal concept and does not involve transfer of movable property. It was noted that Mandapam-keepers provide a wide variety of services apart from the service of allowing temporary occupation of Mandapam. A Mandapam-keeper, apart from maintenance of Mandapam, also provides the necessary paraphernalia for holding such functions, as well as the conditions and ambience which are required by the customer, such as providing the lighting arrangements, furniture and fixtures, floor coverings etc. It was further observed that the services provided by him cover method and manner of decorating and organising the Mandapam and the keeper provides the customer with advice as to what should be the quantum and quality of the services required, keeping in view the requirement of the customer and the nature of the event to be solemnized etc. It was noted that the logistics of setting up, selection and maintenance is the responsibility of the Mandapam keeper and that the services provided by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creative vs. Commissioner of Commercial Taxes:(12) VST 371 (SC). In this case, the appellant, an advertising agency, provided advertisement services by creating original concept and design advertising material and design brochures, annual report etc. The appellant was assessed under Karnataka Sales Tax Act, after deducting, from its gross turnover, the items such as taxes, discount and service charges, design and art work charges in which no transfer of property was involved, advertisement charges and sales outside the State. However, the Appropriate Authority ruled that the entire sale value, including the creation concept done by the appellant, formed part of the value of the sale and tax had to be imposed on the entire sale value. Reversing the decision of the Appropriate Authority and affirming the order of the Assessing Authority, Supreme Court held that it was a case of composite contract of a service provider and in such a case sales tax would not be payable on the value of the entire contract, irrespective of the element of services provided. It was held that a composite contract of this nature was not a works contract. This judgment is not attracted to the facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion and licences with respect to the cabs were not available to the transferee and remained in control of possession of the respondents, it cannot be said that there was sale of goods by transfer of right to use goods inasmuch as a necessary ingredient of the sale, being the transfer of right to use the goods was absent. The nature of the contract between Indian Railways and the petitioner-company is altogether different from the nature of the contract between NDPL and International Travel House Ltd., which was a subject matter of S.T. Appeal No.10/2009 and, therefore, this judgment does not advance the case of the petitioner in any manner. 46. Since these is transfer of goods, by the petitioner company to Indian Railways, for consideration and the property in the goods also passes to Indian Railways, the transaction between them is no doubt a case purely of sale of goods under the provisions of Sale of Goods Act as well as Delhi Value Added Tax Act and the element of service by way of heating the food, heating/freezing the beverages and then serving them to the passengers is purely incidental and minimal required for sale of food and beverage in a transaction of this nature. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to Indian Railways only when they are served to the passengers that would result in a situation where it will not be possible even to ascertain the place where the property in the goods passes to Indian Railways. Let us illustrate it by giving an example. If say biscuits are to be served to the passengers, the train may be in territory of one State when they are served to some of the passengers, whereas it may be in the territory of another State when they are served to the other passengers. We need to appreciate that the train keeps on running when these goods are served to the passengers and not all of them can be served at the same time. If the argument is accepted, the sale in respect of the goods served to some of the passengers may take place in one State, whereas sale in respect of the goods, served to the remaining passengers may take place in another State. If the food articles/beverages to be served are more than one, which normally is the case, one snack/meal may be served in the territory of one State, the second snack/meal may be served in the territory of the second State and the third snack/meal may be served in the territory of third State. If the contention, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, it cannot be said that the petitioner-company is loading excess or indefinite quantity of such goods on the train and consequently, the property in the goods does not pass to Indian Railways when they are loaded on the train. Section 33 of Sale of Goods Act provides for delivery of the goods by doing anything which the parties agree to treat as delivery or which has the effect of putting the goods in the possession of the buyer or any person authorized to hold them on his behalf. Since as per the agreement of the petitioner-Indian Railways, the goods are to be loaded on trains and kept in the equipment such as refrigerators and hot boxes owned by Indian Railways, this amounts to delivery of the goods to Railways and putting the goods into its possession, within the ambit of Section 33 of Sale of Goods Act. In fact, delivery of goods need not always be physical, and may, in appropriate cases, also be symbolic. This proposition finds statutory recognition in Section 33 of Sale of Goods Act. 50. It is true that at the time of execution of contract between the petitioner-company and Indian Railways, the goods, subject matter of the contract, are not ascertained and, in fact, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed for refund of the service tax paid by it. It has only challenged constitutional validity of Section 65(105)(zzt) of Finance Act, 1994 since it permits levy of service tax on „outdoor catering service.? Since respondents 3 to 5 have not come forward to file a reply and no arguments have been advanced before us on this question, we need not go further into this aspect of the matter. It is not our view that service tax cannot be levied on outdoor catering, as provided in Section 65(105)(zzt) of Finance Act, 1994. In our view, the transaction between the petitioner and Indian Railways does not amount to a contract of providing outdoor catering, but, is a transaction of sale of food and beverages by the petitioner-company to Indian Railways. 53. It was pointed out by the learned counsel for the petitioner that the petitioner-company is paid for snacks only in respect of those number of passengers, who actually board the train which shows that the property in the goods does not pass to Indian Railways till the time they are served to the passengers. We cannot accept the contentions. The property in the goods in its transferred to Indian Railways, as soon as they are loaded on ..... 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