Service tax on cinema snack and packed food counter sales, including reheated items-demand set aside as goods sales.

The dominant issue was whether service tax was leviable on the supply of food items at cinema counters, including items sold in packed form or supplied after reheating. Relying on its prior decision on the same question of law, the Tribunal held that such transactions are sales of goods with no identifiable element of service, and therefore fall outside the charging provisions for service tax; consequential interest and related liabilities could not survive. The impugned demand was set aside and the appeal was allowed.

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Issues: Whether the sale of food and beverages at counters inside cinema multiplexes (packaged or reheated/ready-to-eat items sold over the counter) constitutes a taxable service under the Finance Act, 1994 (section 66E) or is a transaction of sale of goods not chargeable to service tax.

Analysis: The question engages the definitions of "service" and "declared services" under section 65B(44) and section 66E of the Finance Act, 1994, and requires identifying the predominant/characteristic element of the transaction. Where food items are sold in packaged or ready-to-eat form over counters, with limited choice, no waiter service, no table service, and customers taking the items to their seats, the transaction aligns qualitatively with take-away or packaged food sale. The dominant purpose test and the incidental service principle apply: provision of food counters inside a cinema complex to facilitate convenience during a film is incidental to the cinematic service and does not convert the sale of goods into a service. Precedent of the Tribunal applying these principles and subsequent dismissal by the Supreme Court of Revenue appeals upholds that such counter sales are sales of goods and not taxable services. Distinct service-oriented offerings (for example, seat-side waiter service in premium classes) remain taxable as services, but that is factually distinguishable.

Conclusion: The sale of packaged or reheated ready-to-eat food and beverages at cinema counters is a transaction of sale of goods and not a service under the Finance Act, 1994; accordingly, service tax is not leviable on such transactions. The appeal is allowed and the impugned demand, interest and penalties confirmed under sections 73, 75 and 78 are set aside with consequential relief to the appellant.

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