Service tax on catering and mandap use upheld because the levy targeted the service element, not a sale of goods.

Service tax on outdoor caterers and mandap keepers was analysed as a levy on the service element of the transaction, not on a sale of food or beverages. The court reasoned that catering at a place other than the caterer's own premises, and permission to use a mandap for functions, are distinct taxable services, so the provisions were within legislative competence and not referable to sales tax power. It also rejected the Article 14 challenge, holding that fiscal legislation may select taxable subjects with wide discretion and that valuation by the gross amount charged did not make the scheme arbitrary, discriminatory, or vague.

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Issues: (i) Whether the impugned service tax provisions relating to outdoor caterers were beyond legislative competence on the ground that the activity was really a sale of food and therefore fell within Entry 54 of List II read with Article 366(29A)(f) of the Constitution of India. (ii) Whether the impugned provisions relating to mandap keepers and outdoor caterers were arbitrary, discriminatory, or vague so as to violate Article 14 of the Constitution of India.

Issue (i): Whether the impugned service tax provisions relating to outdoor caterers were beyond legislative competence on the ground that the activity was really a sale of food and therefore fell within Entry 54 of List II read with Article 366(29A)(f) of the Constitution of India.

Analysis: The charging scheme under Chapter V of the Finance Act, 1994 treated outdoor catering as a taxable service and valued it by the gross amount charged for catering services. The Court held that the relevant tax was imposed on the service aspect of the transaction, not on a mere sale of goods. It reasoned that the caterer's activity involved the distinct service of providing catering at a place other than his own, and that the inclusion of charges for food and beverages did not change the true character of the levy. The Court relied on its earlier decision upholding the service tax on mandap keepers and rejected the contention that the levy was referable to the State's power over sales tax.

Conclusion: The impugned provisions were within legislative competence and were not invalid for want of competence under Entry 54 of List II.

Issue (ii): Whether the impugned provisions relating to mandap keepers and outdoor caterers were arbitrary, discriminatory, or vague so as to violate Article 14 of the Constitution of India.

Analysis: The Court held that both mandap keeping and outdoor catering involved real services: permission to occupy a mandap for functions and catering at a place chosen by the client. It further held that the legislature had a wide discretion in selecting taxable subjects in economic and fiscal matters, and that the use of the gross amount charged as the measure of tax did not create arbitrariness or vagueness. The Court found no impermissible classification or unequal treatment, and no lack of guidance in the statutory scheme.

Conclusion: The challenge under Article 14 failed and the provisions were upheld as neither arbitrary nor discriminatory nor vague.

Final Conclusion: The constitutional challenge to the service tax provisions relating to mandap keepers and outdoor caterers failed in entirety, and the writ petition was dismissed.

Ratio Decidendi: A levy imposed on the service element of catering or mandap-use transactions is not invalid merely because the transaction also involves supply of food or beverages, and fiscal legislation will be upheld against an Article 14 challenge where the taxable subject and valuation method rationally relate to the service being taxed.

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