2009 (1) TMI 119 - AT - Service Tax

Appellants not liable for Service Tax on airline food & beverages under Notification No. 12/2003.

The Tribunal ruled in favor of the appellants, finding them not liable for Service Tax on the cost of food and beverages supplied to airlines. The ... Levy of Service Tax on composite supply of goods and services - Classification as Outdoor Caterer Service - Mutual exclusivity of Service Tax and Sales Tax - Entitlement to abatement under Notification No. 12/2003 - Invocation of extended limitation period and imposition of penalties where bona fide belief exists - Value of taxable service as the amount charged by the service providerClassification as Outdoor Caterer Service - Levy of Service Tax on composite supply of goods and services - Appellants are liable to Service Tax under the category of Outdoor Caterer Service. - HELD THAT: - The Tribunal examined the contractual arrangements and operational activities undertaken by the appellants (preparation, packing, sealing, transportation and loading of meals) and held that, as a matter of law and fact, the activity falls within the ambit of taxable Outdoor Caterer Services. The Tribunal accepted precedent and relevant High Court decisions holding in-flight catering to attract Service Tax and thus affirmed liability under the service category while distinguishing separable elements of supply of goods and of services. [Paras 6]Liability under the category of Outdoor Caterer Services upheld.Mutual exclusivity of Service Tax and Sales Tax - Entitlement to abatement under Notification No. 12/2003 - Levy of Service Tax on composite supply of goods and services - Service Tax cannot be levied on the separable value of food and beverages supplied to airlines where VAT/sales tax has been paid; appellants entitled to benefit under Notification No. 12/2003. - HELD THAT: - Relying on the principle that payments of Service Tax and VAT are mutually exclusive in a composite contract, the Tribunal found that the cost of food and beverages supplied was identifiable and had been subjected to VAT. Applying the reasoning of the Supreme Court and relevant authorities, the Tribunal held that Service Tax cannot be demanded on that separable goods component and that the appellants should have been granted the Notification No.12/2003 benefit (abatement) in computing taxable service value. The Commissioner's failure to examine and allow the Notification benefit was reversed. [Paras 6]Service Tax disallowed on the value of food/beverages subject to VAT; entitlement to Notification No.12/2003 recognised.Invocation of extended limitation period and imposition of penalties where bona fide belief exists - Longer period and penalties are not justified because appellants acted under bona fide belief that Service Tax was not payable on the food/beverages. - HELD THAT: - The Tribunal accepted the appellants' contention of bona fide belief that Service Tax did not apply to the value of food and beverages supplied and noted that the appellants had discharged Service Tax on handling and transportation charges. In these circumstances, the Tribunal held there was no justification to invoke the extended assessment period or to impose penalties under the relevant provisions. [Paras 6]Extended period and penalties set aside on account of bona fide belief.Final Conclusion: The appeal is allowed: liability as Outdoor Caterer is affirmed, but Service Tax cannot be levied on the separable cost of food and beverages already subjected to VAT; the appellants are entitled to benefit under Notification No.12/2003 and the invocation of extended period and penalties is unjustified. Issues:1. Whether the appellants are liable to pay Service Tax on in-flight catering services.2. Whether the appellants are entitled to abatement towards the cost of food and beverages supplied.3. Whether the appellants can be charged Service Tax on the cost of food and beverages supplied to airlines.4. Whether the appellants are justified in their belief regarding Service Tax liability on food and beverages supplied.5. Whether penalties and longer period invocation are warranted.Issue 1: Liability for Service Tax on In-Flight Catering ServicesThe appellants argued that their primary activity is the sale of goods, making them exempt from Service Tax. They relied on the Northern Indian Caterers case to support their claim. However, the Commissioner found them liable under the category of 'Outdoor Caterer Services'. The Tribunal noted the various activities undertaken by the appellants in providing catering services and concluded that they fall under the taxable category. The appellants' argument that they should not be liable for Service Tax was rejected based on legal precedents and the Commissioner's findings.Issue 2: Entitlement to AbatementThe appellants contended that they should receive abatement towards the cost of food and beverages supplied. However, the Commissioner did not accept this claim. The Tribunal observed that the Commissioner's decision was based on legal interpretations and previous court rulings, including the Kerala High Court's decision. The appellants were not granted abatement as per the impugned order.Issue 3: Service Tax on Food and Beverages Supplied to AirlinesThe appellants questioned the inclusion of the cost of food and beverages supplied to airlines in computing Service Tax liability. They argued that since they paid VAT on these items, Service Tax should not apply. The Tribunal referenced the Imagic Creative case, where the Supreme Court clarified that Service Tax and VAT are mutually exclusive. It was determined that Service Tax cannot be charged on the cost of food and beverages supplied to airlines, as these costs are separable and identifiable.Issue 4: Justification of Belief Regarding Service Tax LiabilityThe appellants claimed they were under a bona fide belief that they were not liable for Service Tax on food and beverages supplied to airlines. The Tribunal considered this argument and found that the appellants' belief was reasonable. They had been discharging Service Tax on handling and transportation charges, indicating a good faith effort to comply with tax obligations.Issue 5: Penalties and Longer Period InvocationThe appellants argued against the imposition of penalties and the invocation of a longer period for tax assessment. The Tribunal agreed with the appellants, noting that their belief regarding Service Tax liability on food and beverages supplied was justified. Consequently, penalties and longer period invocation were deemed unwarranted, and the appeal was allowed with consequential relief.In conclusion, the Tribunal ruled in favor of the appellants, finding no merit in the impugned order. The appellants were not liable for Service Tax on the cost of food and beverages supplied to airlines, were entitled to the benefit of Notification No. 12/2003, and penalties were deemed unjustified.