By TIOL News Service

ALLAHABAD, APR 15, 2014: THE assessee is a Society registered under the Societies Registration Act, and had entered into agreements with National Thermal Power Corporation Limited (NTPC) and Lanco Infratech Limited (LANCO) for running and maintenance of an administrative building canteen.

The letter of award stipulated that service tax would be paid extra in accordance with the prevailing rates on the submission of relevant documents. Commercial tax/VAT was required to be charged from customers and visitors.

A notice to show cause was issued by the office of the Commissioner of Central Excise, Allahabad requiring the assessee to show cause why service tax in the amount of Rs.10 ,40,803 /- for the period 1 October 2009 to 30 September 2010 should not be imposed on the assessee by treating the activity of the assessee of running restaurants/canteens at the premises of NTPC and LANCO as "outdoor catering services" within the meaning of Section 65 (76a) of the Finance Act, 1994.

The appellant contended inter alia that:

+ the activities of the assessee are covered by the main part of the definition of a tax on the sale or purchase of goods under Article 366 (29A) (f) of the Constitution and the assessee has paid Value Added Tax in respect of the supply of goods including beverages in the canteen to individual customers under the U.P. VAT Act;

+ the assessee does not provide any service to NTPC or LANCO but only sells goods in their canteens to individual customers for which it is not liable to pay service tax as an outdoor catering service under Section 65 (76a) read with Section 65 (24) of the Finance Act, 1994

After hearing rival submissions, the High Court held:

In the present case, the assessee is a caterer. The assessee is a person who supplies food, edibles and beverages for a purpose. The purpose is to cater to persons who use the facility of a canteen which is provided by NTPC or, as the case may be, by LANCO within their own establishments. NTPC and LANCO have engaged the services of the assessee as a caterer. The assessee is an outdoor caterer because the services which he provides as a caterer are at a place other than his own. The place is provided by NTPC and LANCO. The inclusive part of clause (76a) expands the definition to a place provided by way of tenancy or otherwise by the person receiving such services. NTPC and LANCO have engaged the services of the assessee as an outdoor caterer and the assessee is an outdoor caterer because services in connection with catering are provided by it at a place other than a place of the assessee.

On a plain and literal construction of the provisions of Section 65 (105) (zzt) read with the definitions of the expressions ‘caterer' and ‘outdoor caterer' as contained in clauses (24) and (76a), it is evident that the assessee is subject to the levy of service tax

There is no merit in the contention that since the assessee is liable to pay Value Added Tax on the sale involved in the supply of goods at the canteen, it is not liable to the payment of service tax. The charge of tax in the cases of VAT is distinct from the charge of tax for service tax. Entry 54 of the State List to the Seventh Schedule to the Constitution empowers the state legislatures to impose a tax on the sale of goods. The charge of service tax is not on the sale of goods but on a taxable service provided. Hence, the fact that the assessee may be paying VAT on the sale of goods on the supply of food and beverages to those who consume them at the canteen, would not exclude the liability of the assessee for the payment of service tax in respect of a taxable service provided by the assessee as an outdoor caterer.

However, the High Court set aside penalty under Sec 78 by holding that, having regard to the fact that there were contrary views which had held the field, a case for imposition of penalty was not made out. The essential ingredients of Section 78 were not fulfilled.

(See 2014-TIOL-499-HC-ALL-ST)