Service tax on airline food supplies cannot be presumed from the VAT balance where supply and service charges are separately invoiced.

Service tax could not be levied again on the value of food and beverages supplied to airlines where the invoices separately reflected supply value and handling charges, and VAT had already been paid on the supply component. Section 3(9) of the APVAT Act, 2005 permits VAT on 60% of the taxable turnover but does not deem the remaining 40% to be a service element. The Tribunal followed earlier rulings that, where supply and service components are separately identified and VAT is discharged on the supply portion, the same value cannot be treated as taxable service merely because it falls outside the VAT base. The demand was therefore dropped.

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Issues: Whether service tax was payable on the amount attributable to supply of food and beverages to airlines where the invoices separately showed supply value and handling charges and VAT was paid on 60% of the taxable turnover under the APVAT Act, 2005.

Analysis: The invoices showed separate charges for supply of food items and beverages and for handling charges. The First Appellate Authority held that the 40% amount not subjected to VAT could not, by itself, be treated as the service component. Section 3(9) of the APVAT Act, 2005 only provided for payment of VAT on 60% of the taxable turnover and did not deem the balance 40% to be service value. The Tribunal agreed with that view and followed the earlier decisions holding that where the supply and service elements are separately dealt with and VAT has been discharged on the supply component, the same value cannot again be subjected to service tax on the assumption of an abatement-based service element.

Conclusion: Service tax was not exigible on the disputed 40% value merely because VAT was paid only on 60% of the turnover; the order dropping the demand was sustained.

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