Service tax on outdoor catering has long been a
controversy in indirect tax regime. Law defines outdoor caterer as
“65(76a) “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.”
“65(24) “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 other purpose or
occasion.”
The taxable service
u/s 65(105)(zzt) means any service provided or to be provided “to any person by
an outdoor caterer”. Up to 16.5.2008, the expression was “service provided or to
be provided to a client”. In Tamil Nadu
Kalyana Mandapam Association vs Union of India (2004) 135 STC 480 (SC), the
hon’ble Supreme Court has held that the outdoor catering is predominantly a service. This coincides with the view of the review
judgment of Hon’ble Supreme Court in the judgment reported in 45 STC 212 (SC) (Northern India Caterers (India)
Limited vs Lt .Governor of Delhi).
The Judgment goes on to point out what can be a service and what not. In a restaurant if the purchaser of food
cannot take away the food as and when he wishes, the activity is merely a
service and not sale. Forty Sixth Amendment seeks to rectify what has been
proposed and brings supply, delivery and transfer of food and beverages for
human consumption under the purview of sales tax. The constitutional amendment
which sought to eliminate the confusion only further increased the problems.
What happens to the service element during the transfer of goods. Who can tax
the service aspect? Whether State as “deemed sale” or Centre as “service”?
If the recent
judgments given by various High Courts are observed, we can be sure of only one
point. No one concurs on the issue in hand. When Kerala High Court though its
judgment dated dated 3.07.2013, reported as
2013 (31) STR 257 (Ker.) (Kerala
Classified Hotels and Resorts Association vs Union of India) expresses it
as a deemed sale and State, as, only having power to levy tax, Bombay High
Court choose to depart from Kerala High Court decision in the judgment reported
in 2014 (34) STR 522 (Bom.) (Indian
Hotels and Restaurant Association vs. Union of India). Bombay High Court out-rightly
rejected the idea that parliament was denuded of its competence to legislate and
impose tax provided, in this case, service provided by restaurants and hotels.
Karnataka High Court,
in the judgment reported in (2011) 46 VST 57 (Kar.) (Commissioner of Service Tax vs. LSG Sky Chef India Private Ltd) has
gone a step beyond and held that there should be bifurcation of the sales
component and service component. Though this view might be the only practical
scenario available, the judgment failed to provide sufficient reasons on the
query of whose prerogative whether Parliament or State Legislature. Further the
legality to levy of service tax on outdoor catering has been upheld in the
judgment, dated 10th April 2014, reported as [2014] 72 VST 191
(All.) (Indian Coffee Workers’
Co-operative Society Limited vs Commissioner of Central Excise and Service Tax
Allahabad).
The High Courts have
given various view point’s that can be taken. Each one more precarious than the
other, if not careful. Hence we can wait for the One Supreme Court Judgment
that will certainly put to rest the controversy. However it is rather curious
as to which route will Apex Court chose to end the debate. My bet is on Karnataka
High Court since that is the easiest way out and probably the right one.
