TaxTMI 
TaxTMI 
2011 (4) TMI 1267
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngfisher Airlines Limited, M/s. Jet Airways Limited and M/s. Deviyani International Limited. The assessee has entered into catering agreements with its customers for preparation and supply of meals of various varieties and other food items including beverages and dry stores. Under the agreement the assessee has agreed to render supply services, like loading and unloading services, transportation services, high lifting services and allied services under separate heads. The consideration paid for towards cost of the food and other services like handling, loading, etc., are separately charged and the bills are also raised separately as agreed to between the parties. The assessee manufactures food and delivers the packed food to Taj Sats who thereafter transport, high lift, load and unload the beverages till the final destination. The assessee has undertaken to render such services for an agreed consideration which is payable separately by the airlines in addition to the cost of food and beverages. The assessee is liable to pay VAT on the sale of goods being food or any other article of human consumption or any drink. The outdoor catering services are brought to tax net under the Servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reement with Taj Sats, audited financial statements and the like. The assessee furnished all the copies and filed a reply. However, the first respondent issued a consolidated show-cause notice dated September 20, 2010 under sections 39(1) and (2) of the Act for the periods November 1, 2005 to March 31, 2009 and April 1, 2009 to June 30, 2010 proposing to pass another reassessment order on the grounds that the assessee has not included the amounts received towards handling charges, transportation, etc., in the returns filed by the assessee. Overruling all the objections, the authorities have passed a consolidated order dated October 8, 2010 under sections 39(1) and (2) of the Act. Challenging the aforesaid consolidated order passed under section 39(1) and (2) of the Act, the assessee preferred a writ petition. Though a statutory appeal is provided against the said order to the Joint Commissioner of Commercial Taxes (Appeals), as the circular issued by him runs counter to the stand of the assessee, the learned single judge felt no useful purpose would be served in preferring the statutory appeal. Therefore, he permitted the assessee to prefer an appeal directly to the Kamataka ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing service as aforesaid. The amount collected towards service rendered has suffered service tax. Excluding that portion of the value mentioned in the bill in respect of the remaining extent they have been paying VAT. On that basis assessment orders have been passed and it is concluded. It is by virtue of the power conferred under section 39(1) of the Act notices were issued claiming that exclusion of the value of the service is erroneous and that the assessee has to pay VAT even on that component. The matter was contested and overruling the objections of the assessee, an order has been passed under section 39(1) of the Act. Again a notice is issued purported to be under section 39(2) of the Act to again reassess without there being any further evidence. The condition precedent for invoking jurisdiction under section 39(2) of the Act is, after the passing of an order under section 39(1) if the authorities came in possession of any further evidence, then only they could exercise power under section 39(2). In the instant case there is no further evidence and, therefore, the initiation of proceedings under section 39(2) and passing of an order under that provision is one without juris....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fines "caterer" as under:- "'Caterer' means any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic or non-alcoholic beverages or crockery and similar articles or accoutrements for any purpose of occasion;" Sub-section (76a) of section 65 defines "outdoor caterer" as under:- "'outdoor caterer' means a caterer engaged in providing services in connection with catering at a place other than his own, but including a place provided by way of tenancy or otherwise by the person receiving such services." Sub-section (zzt) of section 65(105) defines "taxable service" as under:- "(105) Taxable service' means any service provided or to be provided,- (zzt) to any person, by an outdoor caterer." The apex court in the case of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1978] 42 STC 386 (SC), at page 391 explaining the nature of business in hotels and restaurants, in the context of supply of meals has held as under (page 391 in 42 STC):- "It has already been noticed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....endered by mandap keepers as defined under sections 65, 66 and 67 of the Finance Act and in so far as it levies tax on catering service which amount to tax on sale and purchase of goods and therefore is beyond the competence of Parliament, particularly in view of the definition of tax on sale and purchase of goods contained in article 366(29A)(f) of the Constitution, held as under (pages 496 and 499 to 502 in 135 STC):- 41. Tax on catering services does not amount to tax on sale and purchase of goods:- As far as the above point is concerned, it is well-settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the Sale of Goods Act, 1930. The Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation, transactions which could not be a sale in law. The following judgments and the principles laid down therein can be very well applied to the case on hand. .......... 50. It may be noted that in recent times the service sector has grown phenomenally al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utdoor catering service the food/eatables/drinks are the choice of the person who partakes of the services. He is free to choose the kind, quantum and manner in which the food is to be served. But in the case of a restaurant, the customer's choice of foods is limited to the menu card. Again in the case of outdoor catering, the customer is at liberty to choose the time and place where the food is to be served. In the case of an outdoor caterer, the customer negotiates each element of the catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalised service provided to the customer. Clearly the service element is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and drink as in restaurant. Though the service tax is leviable on the gross amount charged by the mandap keeper for services in relation to the use of a mandap and also on the charges for catering, the Government has decided to charge the same only on 60 per cent of the gross amount charged by the mandap keeper to the customer. ............. 56. A tax on serv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned counsel. The supply of food by the restaurant owner to the customer though it may be a part of the service that he renders by providing good furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and a floor show, is what is the subject of the levy. The patron of a fancy restaurant who orders a plate of cheese sandwiches whose price is shown to be Rs. 50 on the bill of fare knows very well that the innate cost of the bread, butter, mustard and cheese in the plate is very much less, but he orders it all the same. He pays Rs, 50 for its supply and it is on Rs. 50 that the restaurant owner must be taxed. .......... 21. Parliament, when exercising the powers to amend the Constitution under article 366, cannot and does not amend State Acts. There is no other provision in the Constitution which so permits and there is no judgment of this court that so holds. The power to make laws for the States in respect of matters listed in List II in the Seventh Schedule is exclusively that of the State Legislatures. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not permissible to levy sales tax/value added tax in respect of service component of such composite transactions; and (c) In respect of composite transactions, other than those covered by article 366(29A) of the Constitution, if it is found that the intention of the parties was to segregate the element involving sale of goods from the element involving providing of service and actually the transaction represents distinct contracts which are clearly discernible, the State would have the power to separate the agreement involving sale of goods, from the agreement to provide services, and impose tax on the sale component of the transaction. If no such intention is found or the transaction does not involve two distinct contracts, one for sale of goods and the other for providing of services, it is not permissible to disintegrate such a composite contract so as to levy sales tax/value added tax on that component which involves sale of goods, during the course of the transaction. The test for deciding whether the composite contract falls in the first category or in the second category would be to ascertain what is the dominant nature of the t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upremacy of the service aspect. The Legislature in its wisdom noticed the said supremacy and identified the same as a potential region to collect indirect taxes. Moreover, it has been a well-established judicial principle that so long as the legislation is in substance, on a matter assigned to a Legislature enacting that statute, it must be held in its entirety even though it may trench upon matter beyond its competence. Incidental encroachment does not invalidate such a statute on the grounds that it is beyond the competence of the Legislature. Article 246(1) of the Constitution specifies that the Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In respect of the matters enumerated in List III (Concurrent List) both Parliament arid State Government have powers to make laws. The service tax is made by Parliament under the above residuary powers. Once the Parliament has made law dealing with this aspect of service by virtue of the residuary power co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o sales tax. .......... 46. The reason why these services do not involve a sale for the purposes of entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case [1958] 9 STC 353 (SC), namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in article 366(29A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in article 366(29A) continues to be-did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is as to what is 'the substance of the contract'. We will, for the want of a better phrase, call this the dominant nature test.  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract ; irrespective of the element of service provided. . ." In Larsen and Toubro Ltd. v. Union of India reported in [1993] 88 STC 204 (SC) ; [1993] 1 SCC 365, the apex court dealing with a works contract, where also a deemed sale takes place, held as under (page 234 in 88 STC):- " ...The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mely, outdoor catering, is a composite contract and both the Parliament as well as the State Legislature is competent to levy tax on service aspect and sale aspect, respectively. On facts:- It is in this background we have to look into the contract and in particular, the bill raised by the assessee supplying food and beverages to Kingfisher Airlines. It reads as under:- "* Kingfisher Airline rate sheet for in-flight catering Particulars Rate Food and Beverages Bill Avg, food price/meal 69.00 Ice cubes and dry ice/meal 1.50 Sub total 70.50 Service and transportation, handling bill Handling and off loading/meal 10.00 Hi-lift/meal 7.50 Store handing/meal 2.00 Sub total 19.50 Total price/meal 90.00 * It was mutually agreed that you will raise separate bill for food and beverages and charges VAT (local applicable sales tax from time to time) on that. * and further it was mutually agreed that you will arise separate bill for services transportation and handling and charge service tax (as per Government of India notification from time to time) on that *....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the bill. However, the learned counsel for the Revenue sought to rely on the judgment of this court in the case of Apco Concrete Block and Allied Products v. Deputy Commissioner of Commercial Taxes in STA No. 84 of 2009, disposed of on July 8, 2010, wherein it is held as under (pages 315 and 316 in 44 VST):- "8. In the light of the expressed provisions under the Acts and the Rules and the explanation given by the Government, the position is clear that the dealer collects freight charges as part of total order value. Though it is specifically mentioned what is the cost component to the said transportation charges, collecting the value before effecting sale of the goods, when sale of goods becomes complete only after the delivery of the goods, therefore, it becomes part of taxable turnover. If after transfer of title to the goods by delivery of the goods, for which he has already collected the price of the goods and after delivery if he receives the transportation charges, then the said amount does not form part of the taxable turnover as it is not a part of the sale consideration or paid prior to sale of the goods. That appears to be a clear manifestation of....