2021 (6) TMI 226 - HC - Service Tax

Service tax not applicable on take-away food from AC restaurants under Finance Act, 1994

The court held that the provision of food from air-conditioned restaurants for take-away or in parcels does not attract service tax under the Finance Act, ... Taxability of restaurant services - Service tax on take-away/parcel food - Distinction between sale and service - Declared services under Section 66E(1)(i) - Scope of abatement and bifurcation methodology - Clarifications in Circulars DOF 334/3/2011 and 173/8/2013Service tax on take-away/parcel food - Distinction between sale and service - Declared services under Section 66E(1)(i) - Clarifications in Circulars DOF 334/3/2011 and 173/8/2013 - Liability to service tax on food supplied as take-away/parcel under the Finance Act, 1994 - HELD THAT: - The Court examined the statutory scheme and administrative clarifications and held that not all restaurant-related transactions attract service tax. The levy under the Act is confined to the service component as declared in Section 66E(1)(i) and, by administrative clarification, to services provided in specified (air conditioned) restaurants and to the service activities commencing from the point food is collected for service at the table until the raising of the bill. The sale of food and drink simpliciter, and the mere provision of food for pick up or home delivery (take away/parcel), lack the attributes (seating, ambience, table service and other hospitality services) which constitute the taxable restaurant service. Circular DOF 334/3/2011 and Circular 173/8/2013 confirm that mere sale/pick up and goods sold at MRP are excluded from the service portion and that the levy targets the service element in specified circumstances. Applying these principles to the facts, the Court found that take away/parcel transactions amount to sale of goods and therefore do not attract service tax under the Act. [Paras 26, 27, 28, 29]Provision of food and drink as take away/parcel by the petitioners is the sale of goods and does not attract service tax under the Finance Act, 1994; the impugned orders taxing such receipts are quashed.Maintainability of writ where pure question of law exists - Whether the writ petitions are maintainable notwithstanding availability of statutory appeal - HELD THAT: - The Court noted that the controversy presented a pure question of law (taxability of take away/parcel transactions) and did not involve disputed factual issues. In that circumstance, the existence of statutory appellate remedy did not preclude the exercise of writ jurisdiction. Accordingly, the plea of non maintainability on account of an efficacious alternative remedy was rejected. [Paras 19]Writ petitions are maintainable and the objection based on availability of statutory appeal is rejected.Final Conclusion: Writ petitions allowed; orders demanding service tax on take away/parcel sales quashed as such transactions constitute sale of goods and do not attract service tax under the Finance Act, 1994 for the periods up to June, 2017; no costs. Issues Involved:1. Liability to service tax on take-away or parcel food from air-conditioned restaurants.2. Definition and scope of 'service' under the Finance Act, 1994.3. Applicability of service tax on transactions involving both sale and service components.4. Judicial precedents and interpretations affecting the taxability of restaurant services.Detailed Analysis:1. Liability to Service Tax on Take-Away or Parcel Food:The core issue addressed is whether food taken away or collected from air-conditioned restaurants in parcels is liable to service tax under the Finance Act, 1994. The petitioners argued that take-away food constitutes a pure trading activity and does not involve any service component, thus falling outside the ambit of service tax. They relied on the definition of 'service' under Section 65B(44), which excludes the transfer of title in goods by way of sale.2. Definition and Scope of 'Service' Under the Finance Act, 1994:The petitioners contended that the sale of packaged food does not involve a service component and should not be artificially split into service and sale transactions. They referenced a letter (No.DOF 334/3/2011-TRU dated 28.02.2011) which clarified that service tax is not intended to cover the sale of food collected or picked up for consumption elsewhere. They also emphasized that restaurant service, by definition, includes attributes like organized seating, air-conditioning, and service at the table, which are absent in take-away transactions.3. Applicability of Service Tax on Transactions Involving Both Sale and Service Components:The revenue argued that under Section 66E(1) of the Act, the supply of food or any other article of human consumption is a taxable service. They cited the Bombay High Court's decision in Indian Hotels and Restaurant Association V. Union of India (2014), which held that restaurants primarily provide service, and the sale undertaken is incidental. Therefore, the provision of take-away food involves the rendition of service and should be taxed accordingly.4. Judicial Precedents and Interpretations Affecting the Taxability of Restaurant Services:The petitioners cited several Supreme Court judgments to support their argument against splitting the transaction into service and sale components. They referred to cases like K.Damodarasamy Naidu and Bros. V. State of Tamil Nadu (2000), State of Himachal Pradesh V. Associated Hotels of India Ltd. (1972), and Northern India Caterers (India) Ltd. V. Lt. Governor of Delhi (1978). The Andhra Pradesh High Court's decision in Bhimas Hotels Pvt. Ltd. V. Union of India (2017) also supported the view that subsidized food supplied to workers is not liable to service tax.The revenue, on the other hand, relied on decisions like Hotel East Park V. Union of India (2014) and Federation of Hotels and Restaurants Association V. Union of India (2016), which upheld the validity of service tax provisions on restaurant services. They also referenced Circular No.334/3/2013-TRU dated 07.10.2013, which clarified that service tax is applicable only in specified restaurants with air-conditioning or central heating.Conclusion:The court concluded that the provision of food and drink to be taken away in parcels by restaurants constitutes the sale of food and drink and does not attract service tax under the Act. The court noted that several Appellate Commissioners had also taken a similar view, and in some cases, the Department did not file appeals, indicating a prevailing view within the Department against service tax liability on take-away food. Consequently, the writ petitions were allowed, and the impugned orders were quashed.