VAT authorities wrongly included service tax component in catering business sale price calculation

Punjab and Haryana HC ruled in favor of petitioner in VAT assessment revision case involving catering business. Court held that VAT authorities erroneously included service tax component in sale price for VAT calculation. HC distinguished between sale element (food items subject to VAT) and service element (serving, where only 60% service tax applies) in catering business. Following precedent in Sodexo India Services case, court found show cause notice for assessment revision unjustified due to wrongful interpretation of sale definition in catering context. Application disposed of in petitioner's favor.

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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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