TaxTMI 
TaxTMI 
2026 (8) TMI 932
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2009. However, from April 2009 to September 2010, the appellant abruptly ceased paying service tax but filed statutory returns stating that no consideration was received, and from October 2010 onwards they neither paid service tax nor filed returns. On receiving information that the appellant continued to provide the service, the Range Officer called for details of services rendered and charges collected. On the basis of the data furnished, a Show Cause Notice (SCN), dated 17.10.2014 was issued proposing recovery of Rs.1,52,89,649/- with interest and penalties. The Commissioner confirmed the demand with interest, imposed an equal penalty under section 78 and a penalty of Rs.10,000/- under section 77(2) of the Finance Act, 1994. Aggrieved, the appellant has filed the present appeal. 3. The learned Advocate Shri J.V. Niranjan appeared for the appellant and Ld. Authorized Representative Smt. Anandalakshmi Ganeshram appeared for the respondent. Submissions made by the Appellant 3.1 Shri J.V. Niranjan the Ld. Counsel for the appellant submitted as follows:- A) The appellant is engaged in the sale of food and beverage items to passengers from the pantry car of the trains, ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....zzt) of the Finance Act, 1994. B. Under the licence terms, the appellant was required to establish requisite infrastructure, including base kitchens with trained staff, and to deploy its own personnel in key positions such as pantry car managers/supervisors, production unit in-charges (cell/base kitchens), and store in-charges responsible for procurement and supply of materials. C. The Ld. A.R. referred to the following Orders in favour of Revenue. i. In P. Siva Prasad [2019 (27) GSTL 233 (Tri. Hyd.)], supply of food and beverages on trains/platforms was held to be catering service. ii. In Saj Flight Services (P) Ltd. [2006 (4) STR 429 (Ker.)], supply of food was held to be a composite service; payment of VAT does not negate service tax liability. iii. In Indian Coffee Workers' Co-op Society Ltd. [2014 (34) STR 546 (All.)], catering at a place other than the caterer's premises was held to be outdoor catering; on-board train catering is clearly covered. iv. In Alfa Laval (India) Ltd. Employees Co-op Consumers Society [2015 (40) STR 255 (Tri. Mum.)], preparation and service of food at the client's premises was held to be outdoor catering; the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be totally time-barred it needs to be examined first. A decision on merits rendered on a time-barred matter is coram non judice and void. Consequently, an authority must examine limitation on its own motion, even if not raised as a defence. Prima facie a demand for the period April 2009 to September 2010, based on SCN dated 17.10.2014 appears time barred. While a patently obvious time-bar must be decided at the threshold, disputed or doubtful cases where the question of limitation is not clear from a plain look at the record, require a threefold scrutiny: first, whether the demand is sustainable on merits; second, whether it falls outside the normal limitation period; and third, whether the conditions invoking the extended period are proven. In the present appeal the Appellant who was paying Service Tax on the impugned activity, stopped paying tax and the matter was not informed to the department. Revenue states that there was no interpretational issue involved and the non-payment of tax is a case of evasion of duty, by supressing facts. Since the issue of limitation is not free from doubt, it would require examination, we take up the matter on merits. 7. It would be apposite....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 67. Valuation of taxable services for charging service tax: (i) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value, then such value shall, -in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) In a case where the provision of service is for a consideration which is not ascertainable, is the amount as may be determined in the prescribed manner. ***** ******* ****** (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed." 8. It is common knowledge that a service is provided to m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....di and Duronto trains, the meal is included in the ticket fare. The vendor is paid by IRCTC and ordinarily provides catering service to IRCTC, which fulfils its obligation to passengers. vi. Train-side Vending Train-side vending involves licensed vendors boarding trains to sell pre-packed food with minimal interaction. These transactions are classified as a sale of food unless additional catering or service obligations apply. vii. Base Kitchen Supply Base kitchen supply involves preparing food in approved kitchens and delivering it to pantry cars or on-board staff. This is typically a B2B supply to IRCTC or another caterer, rather than a direct sale to passengers. 9. Under the scheme of the Finance Act, 1994, existence of two distinct persons, namely, the service provider and the service recipient, is sine qua non for levy of service tax. In Magus Construction Pvt. Ltd. Vs Union of India [2008 (11) S.T.R. 225 (Gau.)], the Hon'ble Assam High Court held that to have "service", there must be a "service provider" rendering services to some other person(s), who shall be recipient of such "service". Therefore, before classification under any taxable category based on the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....if the service recipient. 12. However the question whether their activity amounts to sale or service needs to be specifically addressed. The passenger pays IRCTC by purchasing a train ticket for the intended journey. IRCTC owes a duty to every passenger to provide a complete travel experience, which includes food. IRCTC discharges this obligation directly or indirectly, in many different ways as discussed at para 8 above. One such direct method is when it subcontracts this operational obligation to the on-board vendor. The distinction assumes greater significance with that of a supplier who merely sells pre-packed food articles, as per the scenario of 'Train-side Vending' discussed above. In such cases, there is no preparation, cooking or rendering of hospitality at the time of supply. The customer purchases identifiable goods for a stated price, and the property in the goods passes upon delivery. The transaction bears all the attributes of a contract of sale under the Sale of Goods Act, 1930, namely transfer of property in movable goods for a price. In the case of the on-board vendor as in the case of the Appellant, it is discharging a service on behalf of IRCTC and is not invo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... object. An occasion is an event defined with reference to time which may take place either as an isolated occurrence or be sporadic or periodical. Thirdly, the supply may be directly by the person himself or indirectly through another. In order to be an outdoor caterer within the meaning of clause (760), a person must, at the outset, be a caterer. Clause (76a) provides a statutory definition of who is regarded as an outdoor caterer. A caterer is an outdoor caterer because services in connection with catering are provided at a place other than his own. The use of the expression in connection with catering' broadens the ambit of the definition by bringing within its purview not merely a service of catering but a service which has a connection with catering. The place where the service is to be provided must be a place other than that of the caterer himself. The inclusive part of the definition includes a place which may be provided to the caterer by the person receiving the service either by an agreement of tenancy or otherwise" (emphasis added) 12.3 We find that as stated by Revenue, Railway Board Commercial Circular No. 78/2012 dated 21.12.2012, also clarifies that tarif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Union of India, [(2006) (003) STR 260], the Supreme Court upheld the constitutional validity of service tax on mandap-keepers and outdoor caterers, holding that catering is not merely a sale of food but a composite activity in which the service element is substantial and independently taxable. The Court held that Article 366(29A)(f), which deems the supply of food as a sale for the purpose of sales tax/VAT, does not obliterate the service component of the transaction. Applying the aspect theory, the Court observed that the same composite transaction may simultaneously contain a sale of goods and a service element, each capable of being taxed under separate legislative fields. The levy of service tax is therefore on the service aspect of catering and not on the sale of food. The Court further held that an outdoor caterer renders much more than the mere supply of food, such as arranging, serving and managing catering at a place chosen by the client, making the service element predominant. Consequently, the levy of service tax on catering services does not trench upon the States' power to levy sales tax on the deemed sale of food. Relevant portion of the judgment is extracted be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew that transaction would attract service tax. In our view service anywhere would attract the liability to tax under Section 66 of the Act. Considering the nature of the work undertaken by the petitioner we find no infirmity in the order of the Superintendent of Central Excise holding that petitioner is providing catering service and is liable to get registered under Section 69 of the Finance Act, 2004. We find no reason to entertain these appeals. They are accordingly dismissed in limine." (emphasis added) 17. A similar view is seen in the Hon'ble Karnataka High Court's decision, in the case of Commissioner of Service tax Vs LSG SKY Chef India Pvt. Ltd. [2012 (27) STR 5 (Kar)], which held that the activity of an outdoor caterer supplying food and beverages to airlines is a composite contract comprising both the sale of food (goods) and the provision of catering services. The Court held that Article 366(29A)(f) of the Constitution recognizes catering contracts as involving a deemed sale of goods. Consequently, the value attributable to the food and beverages supplied cannot form part of the taxable value for service tax. Service tax is leviable only on the service element of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onduct and constitute a positive act of wilful default, satisfying the test laid down by the Hon'ble Supreme Court in Easland Combines, Coimbatore Vs The Collector of Central Excise, Coimbatore [(2003) 3 SCC 410 / 2003 (152) E.L.T. 39 (S.C.)]. 20.1 As regards the alleged delay in the issue of SCN after the department gained knowledge of the non-payment of duty, it is seen that the SCN has invoking the extended period has been issued within time i.e from the cause of action. It is not for the Appellant or this Authority to determine the pace of the investigation and after how much period from the discovery of the evasion the SCN should be issued within the extended time limit, available to the officers. 20.2 The issue was examined by the Hon'ble High Court of Gujarat in Commissioner of Central Excise, Surat - I Vs Neminath Fabrics Pvt. Ltd. [2010 (256) ELT 369 (Guj.)], it held as under: "16. The termini from which the period of "one year" or "five years" has to be computed is the relevant date which has been defined in sub-section (3)(ii) of Section 11A of the act. A plain reading of the said definition shows that the concept of knowledge by the departmental autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, the proviso comes into play only when suppression is established or stands admitted and it would differ from a case where fraud, etc., are merely alleged or is disputed by the assessee and therefore, the concept of knowledge cannot be read into the provisos because that would amount to rendering the term "relevant date" negatory and such interpretation is not permissible. The contention that once knowledge has been acquired by the department, there is no suppression and the ordinary statutory period of limitation prescribed under sub-section (1) of Section 11 would be applicable was rejected as a fallacious argument inasmuch as once the suppression is admitted, merely because the department acquires knowledge of the irregularity, the suppression would not be obliterated." (emphasis added) 20.4 In COMMISSIONER OF C. EX., CALICUT Vs STEEL INDUSTRIES KERALA LTD. [2005 (188) E.L.T. 33 (Tri. - Bang.)], a Coordinate Bench of this Tribunal held that the theory of universal knowledge cannot be attributed to the department in the absence of any declaration. 20.5 In COMMISSIONER OF C. EX., VISAKHAPATNAM Vs MEHTA & CO. [2011 (264) E.L.T. 481 (S.C.)], where the billed rate would al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....articulars. 20.8 Again in M/s. Grobest Feeds Corporation India Pvt. Ltd., M/s. Rohit Extractions (P) Ltd. Vs Commissioner of Customs, Chennai [2026 (1) TMI 1241 - CESTAT CHENNAI, Final Order Nos. 40131-40133/2026, Dated: 22.01.2026], a Coordinate Bench of this Tribunal while examining a demand under the extended period, stated: "9.7 We also reject the appellants' plea that extended period cannot be invoked in classification disputes. The law is well settled that classification disputes are not immune from invocation of extended limitation, where suppression or misstatement of material facts is established. In Jaiprakash Industries Ltd. v. CCE [2002 (146) ELT 481 (SC)], the Hon'ble Supreme Court held that suppression of facts relating to the nature and characteristics of goods, even in matters of classification, would justify invocation of the extended period. Similarly, in Tamil Nadu Housing Board v. CCE [1994 (74) ELT 9 (SC)], the Apex Court clarified that where vital facts are withheld from the department, limitation would run from the date of discovery and not from the date of clearance. 9.8 The appellants' contention of bona fide belief also does not inspir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urns. The jurisdictional range officer, by letter dated 25.11.2010 called for details of the services rendered and the charges collected. 25. It is further material that, pursuant to information received from OAB, the Range Officer, by letter O.C.No.17/2011 dated 04.03.2011, upon comparison of the ST-3 returns with the balance sheets for the years 2006-07 to 2009-10, pointed out certain discrepancies and sought an explanation. In its reply dated 21.03.2011, the appellant stated that it was licensed by IRCTC to manage catering services on trains and that it sold meals cooked by it or procured en route to passengers. It also sold chips, biscuits and chocolates procured by it. The appellant contended that the supply of food for consideration fell within Article 366(29A)(e) of the Constitution and constituted a deemed sale of goods. Reliance was placed upon Indian Railways Catering & Tourism Corporation Ltd. v. Government of NCT of Delhi & Ors., 2010-TIOL-517-HC-DEL-ST, wherein, on the facts of that case, the provision of food in trains was treated as a sale of goods and not as a contract for service or a composite contract for supply of goods and services. Reliance was also placed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on Joint Venture v. CCE, 2007 (216) E.L.T. 177 (S.C.), Anand Nishikawa Co. Ltd. v. CCE, 2005 (188) E.L.T. 149 (S.C.), and other decisions. 30. Thus, in the aforesaid factual background and contentions urged, I propose to evaluate the appellant's plea that extended period cannot be invoked and its submission on merits. EXTENDED PERIOD OF LIMITATION COULD NOT HAVE BEEN INVOKED 31. To appreciate whether the extended period of limitation could have been invoked, it would therefore be appropriate to reproduce section 73(1) of the Finance Act,1994 as it stood at the relevant time. This section deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. It is as follows: "73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. - (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, Central Excise Officer may, within one year* from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the last date on which such return is to be filed under the said rules; (c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder; (ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made there under, the date of adjustment of the service tax after the final assessment thereof; (iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund." 35. The statutory scheme therefore requires the Revenue, before invoking the extended period, to establish the existence of one or more of the specified circumstances and the requisite intent to evade payment of service tax. The extended period is an exception to the normal rule of limitation and cannot be invoked merely because tax was not paid. Section 73(6), as applicable to the relevant period, defines the "relevant date". Where a periodical return was required to be filed, the relevant date was the date on which such return was filed; where no such return was filed, it was the last date on which the return was required to be filed. This provision is material b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... principles to the present case, I find it difficult to conclude that the appellant deliberately suppressed the nature of its activity from the Department. In its reply dated 21.03.2011, the appellant expressly disclosed that it was licensed by IRCTC to manage catering services on trains, explained the manner in which food was sold to passengers, stated its understanding that the transactions constituted sales of food, referred to Article 366(29A)(e) of the Constitution and relied upon judicial decisions in support of its position. The appellant specifically conveyed that it would therefore not be discharging service tax liability on the same. 39. The appellant thus did not merely remain silent regarding its activity. It disclosed the nature of the transactions and explained why, according to it, service tax was not payable. The Department, in turn, admittedly, as seen from the letter dated 04.07.2011 of the jurisdictional range officer, to examine the tenability of the appellant's contentions, sought further particulars and the appellant furnished information in response. The show cause notice itself demonstrates that the demand was quantified, only on the basis of the appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....set aside, finding such cooperation also a reason to invoke Section 80 of the Finance Act and to set aside the penalties. 43. It is also a pertinent fact that the appellant who had been paying service tax till March 2009, had filed nil returns for the period April 2009 to September 2010 reporting that they have not received any payment towards the said service. Yet, the jurisdictional range officer deemed it fit to send a letter calling for details only on 25.11.2010. Various High Courts as well as this Tribunal, have consistently held that when the assessee is registered and filing returns regularly, the range officer had a duty to scrutinize returns and detect any irregularity and to raise pertinent queries in this regard and that in the light of any negligence or failure to do so, the allegation of suppression by the assessee cannot be countenanced. The decisions in Jagadamba Power & Alloys Ltd v CCE, Jaipur, 2025(391) ELT 478 (Chhattisgarh) affirmed in CCE v Jagadamba Power & Alloys Ltd, 2025 (391) ELT 465 (SC), Swastik Engineering v CCE, Bangalore, 2010 (255) ELT 261 (Tri-Bang) upheld in CCE Bangalore II v Swastik Engineering,2014 (302) ELT 333 (Kar), M/s. Indian Railway Ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vade. If any of these factors are alleged they should be established in the SCN and in the order. 9. All that is evident from the SCN and from the order is that the assessee furnished it's returns on time as required and it is the officer who failed to scrutinize the returns in time and took too long to scrutinize the returns pertaining to 2004- 2005 to 2007-2008 much beyond the period of limitation. Therefore, if there is any loss of revenue on this count, the responsibility for that rests clearly on the officer who failed to scrutinize the returns in time and raise a demand. It does not rest on the appellant/assessee. 10. In view of the above, we find that entire demand is hit by limitation and on this ground alone, it needs to be set aside. It is not necessary for us to examine the merits of the case." (emphasis supplied) 44. In the present case, the record, viewed as a whole, discloses a dispute regarding the legal character of the appellant's transactions and not a deliberate attempt to keep the activity outside the knowledge of the Department. The Department had before it the appellant's returns, correspondence and financial particulars and pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se food; the sale proceeds were received from the passengers; and the turnover was subjected to VAT. 48. The appellant further contends that it initially paid service tax under a mistaken understanding of the applicable law but ceased payment from April 2009 upon forming the view that the transactions constituted sales of food. The payment of VAT is relied upon as evidence of the appellant's understanding of the transactions and of the manner in which the turnover was accounted for. 49. The adjudicating authority proceeded on the basis that the appellant, a restaurant at Tirupur, was licensed by IRCTC to provide catering and on-board services and that, under the license, it was required to establish infrastructure, including a base kitchen, trained cooks and staff, and to deploy personnel such as pantry-car managers, supervisors and store personnel. On that basis, the authority treated the activity as outdoor catering service under Section 65(105)(zzt). 50. The question, however, is not merely whether the appellant performed activities ordinarily associated with catering. The statutory question is whether, during the relevant period, the activity undertaken by the appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....particular contractual provision which, during the relevant period, converted the appellant's activity into the taxable service alleged in the show cause notice. 55. Nor has the adjudication order satisfactorily identified the recipient of the alleged taxable service or the consideration attributable to that service. If the Revenue's case is that the appellant provided catering service to IRCTC, the contractual terms and the consideration payable by IRCTC for such service were required to be established. If, instead, the case is that the appellant independently provided a taxable catering service to passengers, the statutory ingredients of that service and the basis for treating the amounts paid by passengers as consideration for that service were required to be established. The two propositions cannot simply be treated as interchangeable. The legal character of the activity must follow from the contract and the actual course of the transactions proved on record. 56. In the present case, however, the show cause notice and the adjudication order do not satisfactorily undertake that exercise. The show cause notice is the foundation of the proceedings, and the assessee m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/assessee may warrant visualizing different situations. For instance, if there is ambiguity in the subject of tax, that is to say, who are the persons or things liable to pay tax, and whether the revenue has established conditions before raising and justifying a demand. Similar is the case in roping all persons within the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language of the law. There cannot be any implied concept either in identifying the subject of the tax or person liable to pay tax. That is why it is often said that subject is not to be taxed, unless the words of the statute unambiguously impose a tax on him, that one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her franchisors and in view of this, conclusion in this regard has to be drawn against the appellants. We do not agree with this plea of the Revenue. During the period of dispute, as per the definition of the word "franchise" as given in Section 65(47) the franchise agreement, which attracted service tax was to satisfy four conditions, and if the Revenue wants to subject a person to service tax under this entry, the burden of proving that the agreement between that person and his client is a "franchise agreement" within the meaning of this term, as defined under Section 65(47) of the Finance Act, 1994, would be on the Revenue. If the Appellants were not coming forward with the information with regard to condition No. '4', it was possible for Revenue to conduct enquiry with the franchisees for ascertaining as to whether in terms of their agreement with the Appellants, they are under an obligation not to engage in providing similar service identified with any other person. But no such enquiry has been conducted. In view of this, we hold that this activity of the Appellant is not covered by the definition of franchisee service as given in Section 65(47) of the Finance Act, 1994 and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for as sale turnover and subjected to VAT is a relevant circumstance in assessing the appellant's understanding of the transaction and the factual nature of the amounts received. 63. The decision in Saj Flight Services Pvt. Ltd. v. Superintendent of Central Excise, 2006 (4) S.T.R. 429 (Ker.), relied upon by the Revenue, does not conclude the present dispute. That decision arose from a different contractual and commercial arrangement concerning the supply of food to airlines. The appellant has pointed out that, unlike the arrangement considered in that case, it was not supplying a predetermined quantity of food to IRCTC or the Railways; the quantity ultimately sold to passengers was not known in advance; payment was received from passengers; and the appellant bore the risk in relation to unsold food. The decision is thus distinguishable. 64. These factual distinctions could not have been brushed aside without examining the underlying contract and commercial arrangement. At the same time, I do not treat the payment of VAT, standing alone, as determinative. The ultimate question remains whether the transaction, properly construed on the evidence, satisfied the statutory d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y outside the service-tax regime. Nor does it proceed on the proposition that payment of VAT conclusively excludes service tax. It rests on the primary and more fundamental conclusion that the statutory ingredients of the taxable service alleged in the present proceedings have not been established on the material available in this case. On Penalties 70. Having regard to my conclusion on limitation and merits, the penalties cannot survive. In any event, the circumstances of the present case do not disclose the deliberate conduct necessary to sustain penalties founded upon suppression or wilful misstatement. In International Merchandising Company LLC v. Commissioner of Service Tax, New Delhi, 2022 (67) G.S.T.L. 129 (S.C.), the Hon'ble Supreme Court considered the relationship between an interpretational dispute and invocation of the extended period and penalty. The Judgement of the Hon'ble Apex Court reinforces the requirement that the statutory conditions for invoking the extended period and penal consequences cannot be presumed merely from the existence of a tax dispute. The decision in Uniflex Cables Ltd v CCE, Surat II, 2011 (271) ELT 161 (SC) is also in similar vein. 71....