2009 (1) TMI 169 - AT - Service Tax

CESTAT Bangalore Upholds Service Tax for Outdoor Catering Services

SKY GOURMET PVT. LTD. Versus CST, BANGALORE AND VICE VERSA

SKY GOURMET PVT. LTD. Versus CST, BANGALORE AND VICE VERSA - 2009 (92) RLT 429 (CESTAT - Ban.) , 2009 (14) S.T.R. 777 (Tri. - Bang.) , [2009] 22 STT 422 ... ISSUES PRESENTED AND CONSIDERED 1. Whether the value of food, beverages and dry stores sold by a service provider while rendering 'Outdoor Catering Services' is includible in the taxable value for service tax, or whether such value can be excluded under the exemption Notification that excludes the value of goods sold during provision of taxable services subject to documentary proof. 2. Whether the appellant is entitled to the benefit of Notification No. 12/2003-ST (exclusion of value of goods sold) despite the Commissioner having allowed abatement under alternative Notifications (Notification No. 20/2004-ST and Notification No. 1/2006-ST), and whether an assessee may elect the more beneficial notification when more than one notification is available. 3. Whether, having paid VAT on the sale element of catering supply, the service provider can be required to pay service tax on the same value (issue of double taxation and divisibility of catering contracts under the constitutional fiction in Article 366(29A)). 4. Whether the departmental appeal on correctness of penalty calculation under amended penal provision (Section 76) requires adjudication where the demand has been set aside by the Tribunal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Inclusion/exclusion of value of goods sold in taxable value of 'Outdoor Catering Services' Legal framework: Service tax is leviable on taxable services under Section 66 of the Finance Act, 1994. Notification providing exemption may exclude from taxable value the value of goods sold during provision of taxable services, subject to documentary proof. The Constitution (46th Amendment) introduced Article 366(29A)(f), deeming supply of food or drink as sale where supplied 'by way of or as part of any service'. Precedent treatment: The Tribunal relied upon the principle in the Supreme Court decision that, in catering contracts, the contract can be divisble into service and sale components and the value of goods cannot be included in value of service where the sale element is isolated and taxed under sales tax/VAT. Interpretation and reasoning: The Court examined Article 366(29A)(f) and held it creates a legal fiction treating supply of food/drink within a service contract as sale of goods. Where the sale element is identified and VAT/sales tax has been discharged, that value cannot be subjected to service tax. The presence of separate invoices identifying and documenting the cost of food, beverages and dry stores constituted documentary proof permitting exclusion of that value from taxable service value under the exemption Notification. The Tribunal concluded the service provider had already discharged VAT on the sale element and had not included those amounts within the service tax base. Ratio vs. Obiter: Ratio - The value of goods sold (food/beverages) that is separately invoiced and on which VAT has been paid is excluded from service taxable value under the applicable exemption as a consequence of Article 366(29A)(f) and supporting authority that catering contracts are divisible. Obiter - ancillary observations about general operation of notifications where multiple notifications exist (addressed under Issue 2). Conclusions: The value of goods sold during rendering of outdoor catering services, when evidenced by separate invoices and subject to VAT, is not includible in the taxable value for service tax and is excludable under the exemption Notification. Issue 2 - Availability and election between Notification No. 12/2003-ST and other abatement Notifications Legal framework: Statutory notifications provide reliefs/exemptions/abatements; principles of taxpayer choice and application of beneficial provisions are relevant. Notification No.12/2003-ST excludes the value of goods sold in the course of taxable services; Notification No.20/2004-ST and No.1/2006-ST provide abatement (50%) for specified services. Precedent treatment: The Tribunal cited authorities recognizing that where multiple beneficial notifications or provisions are available the assessee may choose the more beneficial option (principle of election in favour of taxpayer reliefs as applied in past decisions). Specific case law was relied upon by the appellant to support the right to choose the beneficial notification. Interpretation and reasoning: The Court found the two forms of relief are conceptually different and in this factual matrix mutually exclusive in operation: an abatement reduces taxable value by a percentage, whereas Notification No.12/2003-ST permits outright exclusion of value of goods sold when documented. Given documentary proof of separate sale invoices and prior VAT payment, the assessee is entitled to avail the Notification excluding the sale value rather than the abatement. The Tribunal held there is no legal impediment to the assessee selecting the more beneficial notification where conditions of that notification are satisfied. Ratio vs. Obiter: Ratio - Where conditions of an exclusionary notification are satisfied (documentary proof of separate sale and VAT payment), the assessee may avail that notification even if an alternative abatement notification exists; taxpayer may elect the beneficial relief. Obiter - discussion of government's ability to frame mutually exclusive notifications; not necessary to the core holding. Conclusions: Notification No.12/2003-ST is applicable on the facts; the assessee may elect it and is entitled to exclude the documented sale value of food/beverages from service tax, notwithstanding availability of abatement under other notifications. Issue 3 - Double taxation and effect of VAT payment on service tax liability Legal framework: Article 366(29A)(f) deems supply of food/drink as sale when supplied as part of a service contract, enabling isolation of sale element for sales tax/VAT. Doctrine against double taxation and principles preventing tax on the same value under different tax heads apply. Precedent treatment: The Tribunal relied on authoritative pronouncements establishing that where the sale element in catering contracts is identifiable and taxed under sales tax/VAT, the same value should not be subjected to service tax. Interpretation and reasoning: Given the constitutional fiction and the existence of separate invoicing and VAT payment, the Court reasoned that requiring service tax on the same sale value would result in double taxation. The Tribunal applied the ratio that sale element already discharged VAT and therefore cannot attract service tax. Ratio vs. Obiter: Ratio - Tax paid under VAT on the sale component of a catering contract precludes imposition of service tax on that identical sale value when the sale component is distinctly identified. Conclusions: The appellant, having paid VAT on the sale element, cannot be required to pay service tax on the same value; consequently differential duty demand and associated penalties based on inclusion of the sale value are untenable. Issue 4 - Departmental appeal on penalty calculation under amended Section 76 rendered infructuous Legal framework: Amended penal provision prescribes penalty 'at the rate of two hundred rupee for every day or 2% per month on Service Tax payable, whichever is highest subject to not exceeding the total Service Tax Payable' effective from a specified date; penalties are to be computed as per applicable law. Precedent treatment: The Revenue challenged the Commissioner's flat rate penalty computation as inconsistent with the amended provisions and sought recalculation. The Tribunal noted that where the substantive demand is set aside, appeals on penalty computation become academic. Interpretation and reasoning: Having allowed the assessee's appeal and set aside the demand (and thereby negating any outstanding service tax), the Tribunal observed the departmental appeal against penalty computation lacks practical consequence and is therefore infructuous. Ratio vs. Obiter: Ratio - Where the underlying tax demand is set aside, a departmental appeal solely challenging penalty calculation on that demand becomes infructuous and may be dismissed. Obiter - remarks on correct method of penalty computation under the amended Section are unnecessary to decide the appeal. Conclusions: The departmental appeal on penalty calculation was dismissed as infructuous because the substantive demand and penalties were set aside; no recalculation of penalty was required.