Composite catering contracts: separately sold food already taxed as sale cannot be included again in the service tax base.

In a composite outdoor catering contract, the value of food and beverages separately supplied and already subjected to sales tax could be deducted from the service tax base because that component constituted a deemed sale under Article 366(29A) and could not be taxed again as service. Where the records showed the food value was ascertainable and separate invoices were issued, the deduction was permissible under the relevant exemption framework. The text also notes that, on the same facts, invocation of the extended limitation period and the associated penalties was not justified. The composite levy on the full contract value was therefore not sustainable to the extent of the food supply component.

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Issues: (i) Whether the value of food and beverages supplied under the catering contract, on which sales tax had already been paid, was deductible from the taxable value for service tax under outdoor catering service; (ii) Whether the demand for the extended period and the penalties imposed could be sustained.

Issue (i): Whether the value of food and beverages supplied under the catering contract, on which sales tax had already been paid, was deductible from the taxable value for service tax under outdoor catering service.

Analysis: The contract involved both service elements and supply of food items, and separate invoices were issued for the food supplies. The supply of food falls within the constitutional concept of deemed sale under Article 366(29A) of the Constitution of India. Where sales tax had already been paid on the food component, that component could not be subjected to service tax again. The notification governing deduction of the value of goods sold was also applicable, and the cost of food items was ascertainable from the records.

Conclusion: The deduction of the value of food and beverages from the service tax base was permissible and the levy on that component was not sustainable, in favour of the assessee.

Issue (ii): Whether the demand for the extended period and the penalties imposed could be sustained.

Analysis: Once the tax treatment of the food component was governed by the constitutional scheme and the same value had already suffered sales tax, the invocation of the longer limitation period lacked justification. In the same factual setting, the penalties imposed under the service tax provisions were not warranted.

Conclusion: The extended period demand and the penalties were not sustainable, in favour of the assessee.

Final Conclusion: The order confirming service tax on the full contract value was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: In a composite catering contract, the value of goods separately sold and subjected to sales tax cannot again be included in the measure of service tax, and the two levies operate on mutually exclusive fields to that extent.

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