By TIOL News Service

MUMBAI, MAY 10, 2013: 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. 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'.

Thus, 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 Notification NO.1/2006-ST dated 01/03/2006, the taxable value came to Rs. 26,05,61,103/- and the service tax at the appropriate rate worked out to Rs. 3,12,00,022/-. Accordingly, a show cause notice dated 08/12/2009 was issued to the appellant demanding service tax under the category of outdoor catering services along with interest thereon and also proposing to impose penalties. Two more show cause notices were issued for the subsequent period vide show cause notice dated 19/10/2010 for the period 2009-10 demanding a service tax of Rs. 76,92,214/- and vide notice dated 05/10/2011 for an amount of Rs. 1,79,01,649/- for the period 2010-11.

A total Service Tax amount of Rs. 5,67,93,885/- demanded under the three notices was confirmed along with penalty and interest by the Commissioner (TAR), Mumbai and so the appellant is before the CESTAT.

While seeking Stay it is submitted that -

+ they have not rendered any outdoor catering service inasmuch as what they have done is to supply food to the employees of M/s. L&T and on such supplies made, they have paid Maharashtra Value Added Tax.

+ what is involved is sale of food articles and not any service and, therefore, the question of levy of service tax under the category of ‘outdoor catering service' does not arise.

+ the appellant is a society, whose members are employees of L&T or any of its subsidiary or associated companies, L & T and Allied Concerns Employees' Co-operative Society and Larsen & Toubro Consumers Co-Operative Society Ltd., and service has been rendered to its own members and, therefore, the question of rendering service to others does not arise.

+ Reliance is placed on the CESTAT decision in Rajeev Kumar Gupta vs. Commissioner of Central Excise, Jaipur - (2009-TIOL-864-CESTAT-DEL) and the Karnataka High Court decision in LSG Sky Chef India Pvt. Ltd.

+ The appellant also pleaded financial difficulty and submitted that their share capital is only to the extent of Rs. 1 lakh and as per their balance sheet they have incurred a loss of Rs. 9,62,39,536/- for the period ending 31/03/2012.

The Revenue representative submitted that the services are rendered not to the employees of M/s. L&T but to M/s. L&T; that whatever expenses are incurred by the appellant in providing the services to L&T is compensated by L&T in two ways (1) on the basis of bills raised for the meals supplied; and (2) by way of subsidy granted by L&T to the appellant for the excess expenditure incurred by them for rendering the services and therefore, the service recipient is M/s. L&T and not the employees of the L&T; that merely because the service has been rendered at the premises of L&T, it does not cease to be an outdoor catering service. Reliance is placed on the decision in Raj Kumar Jain vs. Commissioner of Central Excise - (2008-TIOL-1545-CESTAT-DEL) where in similar circumstances where the contractor rendered catering services to the employees of M/s EID Parry at the premises of the said company, the service was held to be classifiable under ‘outdoor catering services'. Similarly, the SC decision in Tamil Nadu Kalyana Mandapam Assn Vs. Union of India - (2004-TIOL-36-SC-ST) is relied upon to submit that tax on catering services does not amount to tax on sale and purchase of goods. In view of the above, it is submitted that the appellant should be put to terms.

The Bench distinguished the case laws relied upon by the appellant but found merit in those cited by the Revenue representative and also observed -

"5.1 As per Section 65(76)(a) of the Finance Act, 1994 ‘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 persons receiving such services". Section 65(105)(zzt) defines ‘taxable service' as "any service provided or to be provided or to be provided to any person, by an outdoor caterer".

5.2 In the present case the catering service is provided at the behest of M/s. L&T to their employees at the rates specified by M/s. L&T. Payment for the said service is also made by M/s. L&T on monthly basis based on the bills raised by the appellant on M/s. L&T. In addition to that, M/s. L&T compensates the appellant by way of subsidy for any loss incurred by the appellant in rendering the said service. From the nature of the transaction, as cited above, it is clear that the service is provided by the appellant to M/s. L&T Limited and not to the employees of M/s. L&T Ltd. Service recipient is the person who pays for the services received and it is M/s. L&T who is making the payment in the present case and, therefore, it is clearly established that the service is rendered to M/s. L&T Limited and to nobody else. Merely because the service has been rendered at the premises provided by M/s. L&T, it cannot be said that the service is not ‘outdoor catering'. The definition of ‘outdoor catering' also includes a person who provides such service at a place of the service recipient. Therefore, the appellant does not cease to be an ‘outdoor caterer', merely because the service has been provided at the premises provided by the service recipient.

5.3 As regards the argument that the appellant is paying Maharashtra VAT on the sale of food, and therefore, transaction is one of sale is also not correct. The appellant pays sales tax only on the ‘meal recoveries'. On the subsidy provided by M/s. L&T to the appellant to cover the cost of excess expenditure incurred by the appellant, no sales tax is paid by the appellant. The consideration received includes not only the meal recoveries but also the subsidies provided. For instance, for the year ending 31/03/2011 the taxable sales is only Rs. 50,47,965/- on which VAT has been paid. However, the amount received by way of subsidy from M/s. L&T towards the cost of service rendered is Rs. 5,22,70,559/- on which no sales tax has been paid and, therefore, 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 the tax liability, abatement of 50% has been provided on the gross consideration received which more than accounts for the cost of the goods sold while rendering the service and, therefore, the argument of the appellant that the transaction is one of sales is prima facie is not sustainable.

5.6 In view of the above, we are prima facie of the view that service rendered by the appellant amounts to "outdoor catering service" and on the consideration received for rendering the service the appellant is liable to discharge service tax liability."

On the plea of financial difficulty made by the appellant, the Bench observed -

"5.7 Coming to the financial status of the financial status of the appellant that they are incurring losses, the amount declared as loss in the balance sheet is the amount reflecting excess expenditure over income,. This cost is reimbursed/recovered to the appellant by M/s. L&T Ltd. year after year by way of subsidy and it is not the appellant who is bearing the cost but M/s. L&T. In view of the above, the plea of financial hardship is without any merits."

Observing as above, the Bench directed the appellant to make a pre-deposit of 50% of the Service Tax demand confirmed and report compliance for obtaining stay.

(See 2013-TIOL-711-CESTAT-MUM)