2024 (4) TMI 822 - AT - Service Tax

Food supply to airlines without serving constitutes sale of goods not taxable outdoor catering services

COMMISSIONER OF CENTRAL GOODS, SERVICE TAX & CENTRAL EXCISE-DELHI I Versus AMBASSADOR SKY CHEF

CESTAT New Delhi dismissed the appeal challenging under-valuation of taxable services for in-flight catering. The tribunal held that the respondent's ... Short payment of service tax - outdoor catering services - under-valuation of taxable services - in-flight catering services to International and Domestic airlines - bundled services - HELD THAT:- For an activity to be called as outdoor catering, there has to be the preparation of food, supply of food and serving of the food. Apparently and admittedly, the activity of the respondent herein is that they are providing/supplying food to various airlines alongwith the responsibility of packing and handling of food, loading in transportation thereof alongwith the requisite equipments and of providing the laundry services. This admitted fact is sufficient shown that there is no activity of serving the food, the Hon‟ble Supreme Court in the case of TAMIL NADU KALYANA MANDAPAM ASSN. VERSUS UNION OF INDIA [2004 (4) TMI 1 - SUPREME COURT] has held that a tax on services rendered by outdoor caterers is in pith and substance a tax on services and not a tax on sale of goods or on hire purchase activities. Even Bombay High Court in the case of NARANG HOTELS AND RESORTS PVT. LTD. VERSUS STATE OF MAHARASHTRA AND OTHERS [2003 (10) TMI 620 - BOMBAY HIGH COURT] has held that the sale by a flight kitchen of eatable or goods is complete when the goods are loaded in the supply unit and despatched when the supplied food is served simultaneously it is outdoor catering else it is merely sale of goods more so in the case when invoice shows it as a separate element. Thus it is clear that the issue involved in the present case is no more res-integra that supply of F&B per se is not the 'outdoor catering service'. It rather amounts to sale of F&B. The Adjudicating Authority has considered most of the above said decisions while dropping the demand proposed by the impugned show cause notice. There are no infirmity in the order, the same is hereby upheld - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the supply of food and beverages by a flight caterer constitutes 'outdoor catering service' (a declared service) attracting service tax on the value of food, or whether such supply is essentially a sale of goods with only ancillary services being taxable as services. 2. Whether separate invoicing for food and beverages and for ancillary activities (transportation, loading, handling, storage, laundry) can be disregarded as a device to undervalue the taxable service component and thereby justify invoking extended period and tax recovery under the proviso to Section 73(1). 3. Whether, on facts where the supplier supplies and loads food but does not serve it to passengers, the activity amounts to provision of service (outdoor catering) or sale of goods, and the legal consequences for the incidence of service tax and other taxes. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of supply of food by flight caterer - service (outdoor catering) vs. sale of goods Legal framework: The statutory definitions relevantly define 'outdoor caterer'/'outdoor catering' as activities involving providing/laying/serving food at a place other than the caterer's own, and the statutory notion of 'declared service' includes activities where goods being food or drink are supplied as part of an activity. Service tax is leviable on taxable services under the Finance Act unless excluded by the negative list. Precedent treatment: The Court relied on established judicial authorities holding that where the supplier merely supplies and dispatches food (loads it into the supply unit) without actually serving it to passengers, the transaction is in substance a sale of goods and not outdoor catering service; authorities also recognise that outdoor catering is a composite activity with separable sale and service components and require bifurcation. Interpretation and reasoning: A joint reading of statutory definitions and ordinary meaning shows that outdoor catering presupposes preparation, supply and serving of food. Where the supplier prepares and supplies food and is responsible for packing, handling and loading but does not serve the food to passengers (the actual serving is performed by airline crew after takeoff), the element of serving - central to outdoor catering - is absent. Consequently, the principal transaction is the transfer of goods (food), and ancillary activities (transportation, packing, laundry) constitute the service aspect. The fact that invoices separately describe food and ancillary services supports the conclusion that the contract is divisible and that the supply of food is a sale of goods distinct from service components. Ratio vs. Obiter: Ratio - Where feeding on board is carried out by the airline (serving), flight kitchen's supply and loading of food constitutes sale of goods; only ancillary activities are service components liable to service tax. Obiter - Observations on dictionary meanings and composite-contract analysis that corroborate the ratio. Conclusion: The supply of food by the flight caterer in the present factual matrix is a sale of goods; it is not an outdoor catering service. Service tax can be levied only on the separable service aspects (transportation, handling, laundry, etc.), not on the value of food per se. Issue 2: Legitimacy of separate invoicing and allegation of deliberate undervaluation to evade service tax; applicability of extended period/ proviso to recovery provision Legal framework: Proviso to the relevant recovery provision permits extended assessment/recovery where suppression or misstatement or intent to evade is established. Tax liability depends on correct characterization and valuation of goods vs services. Precedent treatment: Jurisprudence recognises that composite contracts for catering may contain both sale and service elements and requires bifurcation to determine incidence of sales tax vs service tax. Previous decisions have treated transactions where only supply (and not serving) occurs as sale of goods, with service tax limited to ancillary services. Interpretation and reasoning: The impugned show cause notice relied on the premise that the supply of F&B is part of outdoor catering and that separate invoicing was a deliberate attempt to suppress gross value of taxable service. However, where the factual matrix supports that the supplier did not perform the serving component and contracts are divisible with distinct consideration for goods and services, separate invoicing reflects the true commercial arrangement rather than a device to evade tax. No positive evidence of misrepresentation, suppression or intent to evade was found on the record; the adjudicating authority applied precedents and bifurcated sale and service components accordingly. Ratio vs. Obiter: Ratio - Mere separate invoicing does not automatically establish suppression or intent to evade; extended period provisions are not attracted without evidence of misrepresentation or suppression. Obiter - Comments on commercial options available to the airline to procure transportation separately and on the absence of dependence of food supply on ancillary services. Conclusion: Extended period invocation was not justified on the facts; separate invoicing was not indicative of deliberate undervaluation warranting extended recovery. The demand under the proviso to the recovery provision is unsustainable in absence of evidence of suppression or intent to evade. Issue 3: Allocation of tax incidence between sale of goods and service components and consequence for departmental demand Legal framework: Where a composite transaction contains both sale of goods and services, established principle requires bifurcation of value to determine tax incidence - sales tax (or VAT) on the deemed sale portion and service tax on the service portion. The definition of declared services and taxable services is to be interpreted in light of the actual elements performed. Precedent treatment: Authorities state that the value attributable to food articles may be subject to sales tax while transportation/bringing food to client location constitutes taxable service; courts and tribunals have required identification of the service element and sale element for correct levy. Interpretation and reasoning: Applying the bifurcation principle to the admitted facts - supply, packing, handling and loading of food without serving - the Court held that the food portion amounts to sale of goods. Ancillary activities qualify as services on which service tax was already discharged by the respondent. The adjudicating authority, having bifurcated and accepted the supplier's position, acted in conformity with precedent and statutory scheme. Ratio vs. Obiter: Ratio - Composite catering contracts must be bifurcated; service tax only on service portion (transportation, handling etc.), while the food value is treated as sale of goods. Obiter - Observations on how transportation charges may be apportioned between sale and service aspects when necessary. Conclusion: The departmental demand for service tax on the value of food was not sustainable; the adjudicating authority's order (which distinguished sale and service components and dropped the demand) was lawful and is upheld. The appeal by the revenue is dismissed.