Catering contracts and VAT: service tax component cannot be added to sale price for tax purposes.

VAT on the service tax component in a catering contract was treated as impermissible because catering combines a sale element with a service element. The statutory definition of sale price under Section 2(zg) of the Haryana VAT Act, read with Article 366(29A)(f) of the Constitution, does not justify adding the service component to taxable turnover merely because service tax is separately charged. The clarification applying VAT to the basic price plus service tax was therefore based on an erroneous understanding of sale in catering, and the revision notice was quashed as inconsistent with the settled distinction between goods and services.

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Issues: Whether VAT could be levied on the service tax component in a catering contract, and whether the clarification and revision notice treating that component as part of sale price were sustainable.

Analysis: The applicable statutory definition of sale price under Section 2(zg) of the Haryana Value Added Tax Act, 2003 was read with the constitutional position under Article 366(29A)(f) of the Constitution of India. Catering involves both sale of goods and rendition of service. The taxable turnover could include the sale component, but the service element could not be treated as part of the sale price merely because service tax was charged separately. The clarification that VAT would apply on the basic price plus service tax ignored the settled distinction between the supply of goods and the service aspect in catering, and did not accord with the binding view already adopted in earlier precedent.

Conclusion: The levy of VAT on the service tax component was held to be impermissible, and the clarification as well as the revision notice were quashed as based on an erroneous interpretation of sale in relation to catering business.

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