2009 (1) TMI 120 - AT - Service Tax

Tribunal Rules Sales Tax Excludes Service Tax on Catering Services

The Tribunal ruled in favor of the appellant in a case concerning the levying of service tax on 'Outdoor Catering Services'. The Tribunal held that when ... Mutual exclusivity of Service Tax and Sales Tax - deduction of value of goods under Notification 12/2003 - Outdoor Catering Services - taxability of composite contracts - article 366(29A) - supply of food as taxable under State law - penalty and extended period for demand where levy is not sustainableMutual exclusivity of Service Tax and Sales Tax - article 366(29A) - supply of food as taxable under State law - Outdoor Catering Services - taxability of composite contracts - Whether service tax could be demanded on the portion of amounts representing supply of food and beverages to Airlines where sales tax/VAT was paid on such supplies - HELD THAT: - The Tribunal held that supplies of food and beverages made to the Airlines fall within the scope of article 366(29A) as supplies on which sales tax is leviable. Applying the principle that payments of service tax and VAT are mutually exclusive, and following the Supreme Court's decision in Imagic Creative and this Bench's precedents, the Tribunal concluded that where sales tax has been paid on the goods component of a composite contract, service tax cannot be levied on that goods component. The appellants had separated and paid sales tax on the cost of food items and had excluded that cost when discharging service tax; consequently the demand for service tax on the food supply portion was unsustainable.Demand of service tax on amounts representing supply of food and beverages (on which sales tax was paid) is set aside.Deduction of value of goods under Notification 12/2003 - Outdoor Catering Services - valuation - Whether the appellants were entitled to deduction of the value of goods supplied (food items) under Notification No. 12/2003 - HELD THAT: - The Tribunal found that the Commissioner did not correctly examine the applicability of Notification No. 12/2003 which permits deduction of the value of goods and materials sold. The cost of the food items supplied was ascertainable from records and, in view of the constitutional and judicially recognised distinction between the goods and service components of composite contracts, the appellants were entitled to the benefit of deduction of the goods component under the Notification.Findings disallowing deduction under Notification No. 12/2003 are set aside and the appellants are entitled to deduction of the value of the goods supplied.Penalty and extended period for demand where levy is not sustainable - Whether invocation of the longer period and imposition of penalties was justified - HELD THAT: - Having held that service tax could not be levied on the portion representing supply of food on which sales tax was paid, and that the appellants had legitimately excluded that portion when discharging service tax, the Tribunal found no justification for invoking the longer period or imposing penalties. The constitutional provision and binding Supreme Court authority rendered the demand unsustainable and penalties inappropriate.Invocation of the extended period and imposition of penalties set aside.Final Conclusion: The appeal is allowed: demands of service tax insofar as they pertain to the goods component (food and beverages) on which sales tax/VAT was paid are set aside, the appellants are entitled to deduction under Notification No. 12/2003, and the extended period and penalties imposed are quashed, with consequential relief. Issues:Levying service tax on the gross amount collected by the appellant for providing 'Outdoor Catering Services'; Interpretation of taxable services under the Finance Act; Applicability of sales tax on the supply of food items in catering contracts; Consideration of Notification 12/2003 for deduction of the value of goods and materials sold; Imposition of penalties and interest under relevant sections of the Finance Act.Analysis:The appeal challenged an Order-in-Original passed by the Commissioner of Service Tax, Bangalore, demanding a significant sum as Service Tax from the appellant engaged in providing 'Outdoor Catering Services'. The appellant contended that they were not liable to pay service tax on the amounts collected for supplying food and beverages to Airlines, as they had already paid sales tax on these items to the State Government. They relied on constitutional provisions and various case laws to support their argument that sales tax on goods supplied exempts them from service tax. The Adjudicating Authority rejected their contentions, confirming the demand. The Departmental representative supported the original order, asserting the appellant's liability for service tax on the total amount collected.Upon careful review, the Tribunal acknowledged that the appellant's liability for service tax on the supply of food items to Airlines was not disputed. However, the crucial issue was whether service tax was applicable to the entire amount collected, including charges for food and beverages. The Tribunal noted that the appellant had excluded the cost of food items, for which sales tax had been paid, from the taxable amount. Citing constitutional provisions and legal precedents, including a Supreme Court decision, the Tribunal held that when sales tax had been paid on goods supplied, service tax could not be levied on the same transaction. The Tribunal found no merit in the penalties imposed, as the appellant had correctly discharged their tax liability based on the legal framework.In conclusion, the Tribunal set aside the original order, ruling in favor of the appellant and granting consequential relief. The judgment emphasized the exclusivity of sales tax and service tax in cases where sales tax had been paid on goods supplied, as per constitutional provisions and judicial interpretations. The Tribunal's decision highlighted the importance of correctly applying legal principles and notifications to determine tax liabilities in complex transactions like catering contracts.