Outdoor catering taxability upheld where an employer-linked canteen discharged statutory obligations and limitation defence failed.

A canteen run by a cooperative society for a manufacturing company's employees was treated as taxable outdoor catering service because it was operated to discharge the employer's statutory obligation, with consideration coming from employee payments and employer subsidy. The service remained taxable despite subsidised rates and employee use, and mutuality was held irrelevant to the service arrangement. The plea of bona fide belief was rejected: the activity had been carried on openly and continuously, and the extended period of limitation was upheld. The service tax demands were sustained and the appeals failed.

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Issues: (i) Whether the canteen operation carried on by the cooperative society for the employees of the manufacturing company was taxable as outdoor catering service under the service tax law; (ii) whether the demand could be defeated on the ground of limitation and bona fide belief of non-taxability.

Issue (i): Whether the canteen operation carried on by the cooperative society for the employees of the manufacturing company was taxable as outdoor catering service under the service tax law.

Analysis: The canteen was operated to discharge the employer's statutory obligation under the Factories Act, and the society functioned as the entity actually rendering the catering service on behalf of the employer. The consideration consisted of employee payments together with employer subsidy and support, and the fact that the service was rendered to employees or at subsidised rates did not alter its character. The principle of mutuality was held to be irrelevant to the service arrangement between the company and the society. On the statutory definitions of caterer and outdoor caterer, the activity satisfied the ingredients of taxable service.

Conclusion: The activity was held taxable as outdoor catering service, in favour of Revenue.

Issue (ii): Whether the demand could be defeated on the ground of limitation and bona fide belief of non-taxability.

Analysis: The plea of bona fide belief was not accepted. The society had been rendering the service for a long period, the employer was itself a member of the society, and the records showed that abatement had already been granted in computing the demand. On these facts, the extended period objection was not accepted.

Conclusion: The demand was held not barred by limitation, in favour of Revenue.

Final Conclusion: The service tax demands were sustained and the appeals failed.

Ratio Decidendi: A canteen operated on behalf of an employer to satisfy the employer's statutory obligation, with consideration made up by employee payments and employer subsidy, constitutes taxable outdoor catering service, and a belated plea of bona fide non-taxability will not defeat the demand on limitation where the service activity was carried on openly and continuously.

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