2014 (5) TMI 97 - HC - VAT and Sales Tax

VAT cannot be imposed on services provided by partnership firms in the hotel industry

The High Court ruled that Value Added Tax (VAT) cannot be imposed on services provided by a partnership firm in the hotel industry as services are subject ... Imposition of Value Added Tax on service element - Service Tax determination of value for restaurant services - Doctrine of mutual exclusivity between VAT and Service Tax - Application under Section 57 of the Uttarakhand VAT Act, 2005Imposition of Value Added Tax on service element - Service Tax determination of value for restaurant services - Doctrine of mutual exclusivity between VAT and Service Tax - Whether VAT could be levied on the portion of the restaurant bill (40% of billed value) which had been declared liable to Service Tax by the Government of India notification dated 06.06.2012 - HELD THAT: - The Court held that Value Added Tax is leviable on sale of goods and not on services, whereas service tax is the levy applicable to services. The central authority competent to impose service tax had, by notification dated 06.06.2012, determined that 40% of the billed value for supply of food or drink in a restaurant constitutes taxable service for the purposes of service tax. The State did not challenge that declaration. Consequently, the portion of the bill declared to be service cannot be subjected to VAT. The Commissioner, Commercial Tax therefore erred in rejecting the revisionist's application seeking exclusion of the 40% portion from VAT, and the orders of the Commissioner and the Tribunal were set aside. The matter was remitted to the Commissioner to pass an order afresh in accordance with the Court's observations.Revision allowed; impugned orders set aside; Commissioner directed to pass fresh order in light of the finding that the 40% portion declared as service is not liable to VAT.Final Conclusion: The revision is allowed on the ground that the 40% of the restaurant bill, having been declared by the Central Government notification to be a service subject to service tax, cannot be subjected to Value Added Tax; impugned orders are set aside and the Commissioner is directed to decide afresh consistent with this conclusion. Issues:1. Applicability of Value Added Tax on services provided by a partnership firm engaged in the hotel business.2. Interpretation of the amendment to the Service Tax (Determination of Value) Rules, 2006 regarding the liability of service tax on the supply of food or beverages in a restaurant.3. Validity of the rejection of the application under Section 57 of the VAT Act, 2005 by the Commissioner, Commercial Tax and subsequent dismissal of appeal by the Commercial Tax Tribunal.Analysis:1. The High Court examined whether Value Added Tax (VAT) could be imposed on services provided by a partnership firm operating in the hotel industry. It was established that VAT is applicable to the sale of goods and not on services, which are subject to taxation under Service Tax Laws. The Court emphasized that the authority responsible for imposing service tax has the jurisdiction to determine what constitutes a service. As the State did not contest the declaration of services liable to service tax under the Government of India notification dated 06.06.2012, which included 40% of the billed amount for food or beverages in a restaurant, the Court concluded that VAT cannot be levied on such services.2. Regarding the interpretation of the amendment to the Service Tax (Determination of Value) Rules, 2006, the Court clarified that the element of service deemed liable to service tax, as specified in the notification, precludes the imposition of VAT on the same services. The Court highlighted that the declaration made by the competent authority regarding the liability of service tax on certain services supersedes the imposition of VAT on those services.3. The Court found fault with the decision of the Commissioner, Commercial Tax in rejecting the revisionist's application under Section 57 of the VAT Act, 2005. Consequently, the Court allowed the revision, overturning the judgments of both the Tribunal and the Commissioner, Commercial Tax. The Commissioner, Commercial Tax was instructed to reconsider the matter in accordance with the Court's observations, indicating that the application should not have been dismissed based on the erroneous interpretation of tax liabilities on the services provided by the partnership firm in the hotel business.