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TMI Blog2011 (4) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... ring that the sales tax is not liable to be paid on service aspect, the Revenue shall refund the said amount of ₹ 25 lakhs within four months from the date of the receipt of this order with interest at six per cent per annum, failing which the interest payable will be 12 per cent per annum. - Writ Appeal Nos. 671 to 726 of 2011 (T-RES) - - - Dated:- 18-4-2011 - KUMAR N. AND RAVI MALIMATH JJ. Sarangan, Senior Counsel for K.S. Ramabadran for the petitioner T.K. Vedamurthy, Government Advocate and N.R. Bhaskar, CGSC, for the respondents JUDGMENT These appeals are filed by the assessee challenging the order passed by the learned single judge who declined to entertain the writ petitions and has advised the assessee to prefer an appeal before the Karnataka Appellate Tribunal without going into the merits of the case. Facts of the case:- The assessee is a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (hereinafter for short referred to as, the KVAT Act ). The assessee is engaged in the business of catering services, which includes preparation and supply of food, beverages and other eatables. The major customers for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to show cause why the returns filed should not be rejected and turnover and tax re-determined. The assessee filed his statement of objections. The Assistant Commissioner proceeded to pass a reassessment order dated February 20, 2010 under section 39(1) of the Act. He observed that apart from the preparation and sale of food, the assessee has entered into contract of packing and forwarding, lifting of food, handling and off loading, store handling charges, etc. The services rendered by the assessee cannot be considered under the provisions of the KVAT Act and, therefore, did not include the amounts received by the assessee while recomputing the turnovers and the taxes payable under the provisions of the KVAT Act. He also proceeded to propose to levy VAT on sale of tender forms and on nonfood articles, i.e., packing materials and proposed to disallow the excess claim of input tax rebate apart from other disallowances. Pursuant to the said reassessment order, the assessee paid the additional taxes along with interest and that order has reached finality. Again the premises was visited on August 17, 2010. They called upon the assessee to produce copies of the agreement with the airli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended the said order per se is illegal and contrary to the statutory provisions and requires to be set aside. In so far as the merits is concerned, he submits that the dispute between the parties involves interpretation of constitutional provisions, doctrine of pith and substance, the theory of exclusiveness as found in article 246(1) of the Constitution of India and, therefore, he submits that notwithstanding the alternate remedy available under the statute this is a fit case where this court should entertain this writ petition and interpret these statutory and constitutional provisions so that the authorities would follow the interpretation and decide the issues in favour of the persons prescribed under the statute. He contends the contract in question involves the preparation of food and supply of food to the customers at his doors. The supply of prepared food to the customers at his doors involves transportation charges, handling charges and other charges which is essentially a service. Under no circumstances these acts constitute sale of goods. Therefore, as is clear from the invoices raised they have collected from the customers the value of the goods sold and the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. Therefore, the contention that the sales tax is payable only on the value of the food products which necessarily excludes the service component cannot be accepted. She also submitted that rule 6(4)(f) of the Karnataka Sales Tax Rules specifically provided for deduction of transportation charges. However, under the VAT Rules, rule 3(2) does not provide specifically for the deduction of the said transportation charges. Therefore, the sale price includes transportation charges. Hence, she submits the case does not call for any interference. Issues involved:- In the light of the aforesaid facts and the rival contentions, the point that arise for our consideration is as under:- In the case of a catering contract, in particular outdoor catering, when the assessee has claimed in the invoices specifically the value of goods as well as the value of the services rendered and paid service tax on the service component, is it open to the sales tax authorities to levy sales tax on both the components, namely, the value of the goods and the value of services rendered? Legal position:- Section 65 of the Finance Act, 1994 is the definition clause. Sub-section (24) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court reaffirmed the said position, as under (page 218 in 45 STC):- The appellant prepared and served food both to the residents in its hotel as well as to casual customers who came to eat in its restaurant, and throughout it maintained that having regard to the nature of the services rendered there was no real difference between the two kinds of transactions. In both cases, it remained a supply and service of food not amounting to a sale. It is important to note that the facts alleged by the appellant were never disputed at any stage, and we find no attempt by the taxing authorities to enquire into the truth of the facts so asserted. It is in that factual context that this court examined the question whether any liability to sales tax was attracted. Our judgment rests on that factual foundation, and must be understood in that light. The apex court in the case of Tamil Nadu Kalyana Mandapam Assn. v. Union of India reported in [2005] 1 VST 180 (SC) ; [2004] 135 STC 480 (SC), where the question arose for consideration was whether the service tax levied on service rendered by mandap keepers as defined under sections 65, 66 and 67 of the Finance Act and in so far as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The mandap 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, the nature of the event to be solemnised, etc. In fact the logistics of setting up, selection and maintenance are the responsibility of the mandap keeper. The services of the mandap keeper cannot possibly be termed as a hire-purchase agreement of a right to use goods or property. The services provided by a mandap keeper are professional services which he alone by virtue of his experience has the wherewithal to provide. A customer goes to a mandap keeper, say a star hotel, not merely for the food that they will provide but for the entire variety of services provided therein which result in providing the function to be solemnised with the required effect and ambience. 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 of the services. He is free to choose the kind, quantum and manner in which the food is to be served. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Nadu reported in [2000] 117 STC 1 (SC) explaining the scope of the 46th Amendment to the Constitution wherein article 366 was amended by inserting clause (29A), at paras 9 and 21 held as under (pages 6 and 11 in 117 STC):- 9. The provisions of sub-clause (f) of clause (29A) of article 366 need to be analysed. Sub-clause (f) permits the States to impose a tax on the supply of food and drink. The supply can be by way of a service or as part of a service or it can be in any other manner whatsoever. The supply or service can be for cash or deferred payment or other valuable consideration. The words of sub-clause (f) have found place in the Sales Tax Acts of most States and, as we have seen, they have been used in the said Tamil Nadu Act. The tax, therefore, is on the supply of food or drink and it is not of relevance that the supply is by way of a service or as part of a service. In our view, therefore, the price that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned counsel. The supply of food by the restaurant owner to the customer though it may be a part of the service that he renders by providing good furniture, furnishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Ltd. v. Government of NCT of Delhi [2010] 32 VST 162 (Delhi) at para 40, held as under (page 178 in 32 VST):- 40. The legal propositions, which emerge from a careful analysis of the above-referred decisions, can be summarized as under:- (a) It is open to the States to levy sales tax/value added tax, on the whole of the consideration, in transactions of sale of goods, such as sale to a customer in a restaurant, irrespective of the incidental element of service which is necessarily involved in sale of goods of this nature; (b) If the transaction between the parties is covered under article 366(29A) of the Constitution, it is permissible for the States to levy and collect sales tax/value added tax on the value of the goods involved in the execution of the transaction. It is not permissible to levy sales tax/value added tax in respect of service component of such composite transactions; and (c) In respect of composite transactions, other than those covered by article 366(29A) of the Constitution, if it is found that the intention of the parties was to segregate the element involving sale of goods from the element involving providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid to the caterer. Outdoor catering has an element of personalised 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. Though the service tax is leviable on the gross amount charged by the mandap keeper for services in relation to the use of a mandap and also on the charges for catering, the Government has decided to charge the same only on 60 per cent of the gross amount charged by the mandap keeper to the customer. Thus outdoor catering is essentially that of providing a service. The manner of service provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect. The Legislature in its wisdom noticed the said supremacy and identified the same as a potential region to collect indirect taxes. Moreover, it has been a well-established judicial principle that so long as the legislation is in substance, on a matter assigned to a Legislature enacting that statute, it must be held in its entirety even though it may trench upon matter beyond it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under (pages 115-117 and 129 in 145 STC):- 43. All the 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 purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerley Ltd. [1958] 9 STC 353 (SC). The amendment especially allows specific composite contracts, viz., works contracts (clause (b)), hire-purchase contracts (clause (c)), catering contracts (clause (f)) by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. .......... 46. The reason why these services do not involve a sale for the purposes of entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case [1958] 9 STC 353 (SC), 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 Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es up for consideration ; endeavours shall be made to see that provisions of both the Acts are made applicable. 32. Payments of service tax as also the VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract ; irrespective of the element of service provided. . . In Larsen and Toubro Ltd. v. Union of India reported in [1993] 88 STC 204 (SC) ; [1993] 1 SCC 365, the apex court dealing with a works contract, where also a deemed sale takes place, held as under (page 234 in 88 STC):- ...The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration received under such contract has to be apportioned between the part of the contract involving supply of goods and the part involving supply of service and appropriate tax to be levied separately. In other words supply of material involved in the execution of the catering contract only can be included in the value of goods. In view of the specific provision as contained in sub-clause (f) of clause (29A) of article 366 of the Constitution of India, the contract in question, namely, outdoor catering, is a composite contract and both the Parliament as well as the State Legislature is competent to levy tax on service aspect and sale aspect, respectively. On facts:- It is in this background we have to look into the contract and in particular, the bill raised by the assessee supplying food and beverages to Kingfisher Airlines. It reads as under:- * Kingfisher Airline rate sheet for in-flight catering Particulars Rate Food and Beverages Bill Avg, food price/meal 69.00 Ice cubes and dry ice/meal 1.50 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39(2) of the Act which is sine quo non for invoking jurisdiction under section 39(2) of the VAT Act, the earlier order was reversed and levy was imposed on the entire consideration mentioned in the bill. That is how the consolidated order for both the periods was challenged before the learned single judge and is the subject-matter of this proceedings. In the light of what is stated above, it is clear that the contract in question, namely, outdoor catering is a contract for service. By virtue of sub-clause (f) of clause (29A) of article 366 of the Constitution, it is to be treated as composite contract and the State Legislature is competent to levy sales tax on the sale aspect. But that does not empower them to levy tax on the entire amount mentioned in the bill. However, the learned counsel for the Revenue sought to rely on the judgment of this court in the case of Apco Concrete Block and Allied Products v. Deputy Commissioner of Commercial Taxes in STA No. 84 of 2009, disposed of on July 8, 2010, wherein it is held as under (pages 315 and 316 in 44 VST):- 8. In the light of the expressed provisions under the Acts and the Rules and the explanation given by the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - In so far as the contention that there is alternative remedy available, the learned single judge accepted the case of the appellant that the Commissioner has issued circulars to the effect that if transportation charge is a pre-sale expenditure, it forms part of the sale price and VAT is payable on the entire amount and no useful purpose will be served by preferring the statutory appeal. Having accepted the said contention, he advised the assessee to prefer an appeal directly to the Karnataka Appellate Tribunal, which is not bound by the circular issued by the Commissioner and to treat the said appeal as first appeal. The right to appeal is a creation of statute. Either the appeal is maintainable in terms of the statute or it is not maintainable. The court has no power to create new appellate forum, advise the parties or such forums to entertain the appeal contrary to statutory provisions. In view of the fact that what is involved in this case is interpretation of constitutional provisions in the light of Supreme Court judgment, we deem it proper to entertain the writ appeal and decide the constitutional issue once and for all in so far as the State is concerned, so that both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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