Sale of goods character defeats service tax on mineral water supplied under railway catering arrangements

Packaged drinking mineral water supplied in Shatabdi and Rajdhani Express trains was treated as a sale of goods, not as part of a taxable catering service, because the contractual and factual character of the transaction pointed to a sale. On that basis, the Tribunal held that service tax was not payable on the value of the mineral water, and Rule 2C of the Service Tax (Determination of Value) Rules, 2006 did not justify levy on that supply. The governing principle stated was that a transaction characterised as a sale of goods does not attract service tax merely because it is connected with catering arrangements.

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Issues: Whether the supply of packaged drinking mineral water in Shatabdi and Rajdhani Express trains was taxable as part of catering service, or constituted a sale of goods not liable to service tax.

Analysis: The dispute turned on the character of the transaction under the contractual arrangement with the railways. The Tribunal followed the settled view that the supply of mineral water in the trains was, on the facts, a sale of goods and not a taxable service. In that view, Rule 2C of the Service Tax (Determination of Value) Rules, 2006 did not justify levy of service tax on the value of the mineral water supplied.

Conclusion: The supply was treated as a sale of goods, and service tax was held not payable by the respondent.

Ratio Decidendi: Where the transaction, on its contractual and factual character, is a sale of goods, it does not attract service tax merely because it is associated with catering or similar service arrangements.

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