By TIOL News Service

MUMBAI, DEC 20, 2016: THE  appellant is engaged in the business of outdoor catering service in the premises of M/s. Larsen & Toubro Ltd., Powai Campus, Mumbai. The appellant was authorized by M/s. Larsen & Toubro Ltd to carry out the catering services at their premises for their employees or/and all its subsidiary or associated companies. Space, equipment and access to utilities, such as electricity and water, are provided by M/s Larsen & Toubro. The consideration for the services rendered was received by the appellant in two ways.

The appellant raises a bill every month for the catering services to M/s. Larsen & Toubro Ltd., under the category of meal recovery charges at the rate agreed upon between them and L&T.

The appellant also receives amounts from L&T to cover the total cost of the catering services rendered in excess of the receipts under the category of 'meal recovery'.

It was noticed that, during the period 16/06/2005 to 31/03/2009 the appellant had totally received a sum of Rs.52,11,22,205/- from M/s. L&T for the services rendered.

After granting an abatement of 50% as provided for under Notf. No.1/2006-ST, the taxable value was arrived at and service tax was computed as Rs. 3,12,00,022/-.

Along with the above demand notice, SCNs for the subsequent period 2009-10 and 2010-11 were issued and a total Service Tax demand of Rs. 5,67,93,885/- was confirmed along with penalty and interest by the Commissioner (TAR), Mumbai.

This was in February 2012.

The CESTAT while dealing with the application for Stay held thus –

ST - Catering services provided by L & T Grahak Sahakari Sansthan Maryadit in thepremises of L&T Ltd. - appellant is providing catering services at the behest of M/s L&T to their employees at the rates specified by L&T and payment for the same is made by L&T on monthly basis on the bills raised and in addition they are also compensated by way of subsidy for any loss incurred while rendering said service - it is clearly established that service is rendered to M/s L&T Ltd. only - appellant does not cease to be an 'outdoor caterer' merely because the services has been provided at the premises provided by the service recipient - merely because on a small portion of the consideration received the appellant has discharged VAT liability, the transaction does not amount to one of sales - in any case, while computing service tax liability, abatement of 50% has been provided on gross consideration received which more than accounts for the cost of the goods sold while rendering the service - argument that transaction is one of sale of goods is prima facie not sustainable - prima facie the service rendered by the appellant amounts to 'outdoor catering service' and on the consideration received for rendering the service appellant liable to discharge ST liability: CESTAT

Financial difficulty - as for the plea that the appellant is incurring losses, amount declared as loss in the balance sheet is the amount reflecting excess expenditure over income - since this cost is reimbursed/recovered to/by the appellant by M/s L&T Ltd. year after year by way of subsidy, it is not the appellant who is bearing the cost but M/s L&T - plea of financial hardship is without any merits - Pre-deposit of 50% of the Service Tax demand confirmed for obtaining Stay: CESTAT

We reported this order of the CESTAT directing pre-deposit of 50% of tax demand as - 2013-TIOL-711-CESTAT-MUM.

Demand for the latter period of 2011-12 was also confirmed and the same was also appealed against before the CESTAT.

All the appeals were heard in July 2016 and an order was passed recently.

The appellant submitted that the appellant is a co-operative society comprising of employees of M/s Larsen & Toubro who are the beneficiaries of the canteen which is statutorily mandated under labour laws and is, therefore, excluded from tax owing to the principle of mutuality. It is also contended that the food supplied is subject to VAT liability and is, therefore, not liable to tax under FA, 1994; that the employees pay individually for their food, admittedly at agreed rates, and which is not the practice in the outdoor catering industry. Reliance is placed on the decisions in Rajeev Kumar Gupta - 2009-TIOL-864-CESTAT-DEL, Indian Coffee Workers Co-op. Society Ltd - 2014-TIOL-499-HC-ALL-ST.

The AR adverted to the definition of "consumer society" appearing in Maharashtra Co-operative Societies Act, 1960 and submitted that the appellant is debarred from claiming exemption on the ground of mutuality.

The Bench observed –

On merits:

+ The appellant provides food to employees of M/s Larsen & Toubro and it is in the capacity of canteen operator that this service is rendered. The status of the appellant as a society of employees is irrelevant to the performance of this activity. Notwithstanding the existence of such a co-operative society, the obligation under Factories Act, 1948 devolves on M/s Larsen & Toubro. It can be inferred that the canteen is being operated on behalf of M/s Larsen & Toubro. Whether the foods articles are provided free of cost or at subsidized rates or at market prices is a matter of labour-employer negotiations. It is clear that without the approval and concurrence of M/s Larsen & Toubro, the appellant could not engage in the activity of running the canteen. Nor can the appellant decide on rates of food articles or the composition of the individuals who are served in the canteen. The activity of the appellant is a consequence of the obligation of M/s Larsen & Toubro to its employees and is, therefore, but a service.

+ The primary difference between a 'caterer' and an 'outdoor catering service' is that the latter operates from a premise other than its own. It is not the case of the appellant that service is rendered from its own premises. Further, there is no dispute that the appellant is in the business of catering because it is specialized in supply of food and beverages in the canteen premises belonging to M/s Larsen & Toubro. Therefore, it would appear that all the requirements for taxability in accordance with section 65 (105) (zzt) of Finance Act, 1994 is in place.

+ Mere payment of some portion of the cost does not render the activity as a commercial transaction between appellant and the consumer. On the claim of mutuality, we are of the opinion that the society and its membership is not germane to the contract between M/s Larsen & Toubro and the appellant for engaging the latter as a caterer of food and drink in the canteen at Powai campus.

+ In the present matter, appellant is an independent entity which does not have to bear any loss on account of the rates which are not within its commercial decision. It cannot, therefore, claim to have been engaged merely to cook and serve.

+ In Alfa Laval (India) Ltd Employees Co-Operative Consumers Society v. Commissioner of Central Excise - 2015-TIOL-1184-CESTAT-MUM this Tribunal has held that co-operative societies which have been contracted by the companies are also provider of catering services and therefore, liable to service tax.

Limitation:

"…appellant has been rendering the service for long and also happens to be a co-operative society which could not have been unaware of the legal provisions of taxation. It cannot also claim to have lacked knowledge inasmuch as M/s Larsen & Toubro is also one of the members of the society. We find that the appellant has been given the benefit of abatement in the computation of the tax."

Concluding that there is no reason to interfere with the impugned order, the appeals were rejected.

(See 2016-TIOL-3271-CESTAT-MUM)