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of <h1>VAT authorities wrongly included service tax component in catering business sale price calculation</h1> Punjab and Haryana HC ruled in favor of petitioner in VAT assessment revision case involving catering business. Court held that VAT authorities ... Revision of assessment order - levy of VAT on the service tax component which the petitioner has separately paid being in catering business - HELD THAT:- On conjoint reading of ‘sale price’ and ‘gross turnover’ the authorities reached at the conclusion that VAT charged would not form part of the sale price. Since, the liability to pay service charge is of the applicant and the applicant has received service tax from the purchaser as consideration for sale, therefore, the service tax would be the part of sale price and VAT would be applicable on the basic price plus service tax. The interpretation taken by the Principal Secretary to the Government of Haryana, is wholly erroneous for implementing and imposing of VAT. The authority would have to examine each case whether the work done is a sale separately from the service in cases relating to catering, where there is an element of sale relating to food etc., the VAT would be applicable. However, for the purpose of service tax where the catering provides the service for serving foot etc., the VAT on the said element cannot be charged and as service tax @ 60% element is only required to be paid, the same cannot be included in the original sale for the purpose of claiming VAT. The issue is no more res integra and the view already expressed by the Hon’ble Division Bench of this Court in M/S SODEXO INDIA SERVICES PRIVATE LTD. VERSUS STATE OF HARYANA AND OTHERS [2010 (9) TMI 985 - PUNJAB AND HARYANA HIGH COURT] followed where it was held that the action of the respondents in issuing show cause notice for revision of assessment is unjustified and based on wrongful interpretation of sale in relation to catering business. Application disposed off. Issues:Assessment order revision based on VAT on service tax component in catering business.Analysis:The petitioner challenged a notice proposing to revise an assessment order to demand VAT on the service tax component separately paid in the catering business. The petitioner argued that the VAT should not be imposed on the service tax element as per relevant legal precedents. The petitioner relied on the Supreme Court judgment in Tamil Nadu Kalyana Mandapam Assn. vs. Union of India and a decision by the High Court in M/s CAP 'N' Chops Caterers vs. State of Haryana. The petitioner contended that the revision notice was unjustified and failed to consider the distinction between service and sale elements in catering transactions.The State's counsel argued that the service element was already included in the invoice by the petitioner, justifying the VAT imposition. However, the Court examined the issue in detail. The Court referred to a clarification by the Department of Excise and Taxation in M/s Redington India Limited, which concluded that VAT should be applicable on the basic price plus service tax in certain transactions. The Court disagreed with this interpretation, emphasizing the need to differentiate between sale and service elements in catering. The Court highlighted that service tax should only be levied on the service aspect, not on the entire turnover from catering contracts.Citing legal principles from various judgments, including M/s J.K. Jute Mills Co. Ltd. vs. The State of U.P., the Court reiterated that the concept of sale cannot be expanded to include transactions that do not qualify as sales. The Court upheld the view expressed in previous judgments, such as M/s CAP 'N' Chops Caterers, that service tax can be imposed on the service element in catering, while sales tax should not be levied on the turnover attributable to service.Consequently, the Court quashed the revision notice and the clarification issued by the State Government, directing the application of the legal position established in previous judgments to prevent unnecessary litigation. The Court instructed the Principal Secretary, Excise and Taxation Department, Haryana, to issue a circular to ensure compliance with the settled law in such matters, aiming to avoid future disputes. All pending miscellaneous applications were also disposed of in light of the judgment.
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