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Once sales tax is leviable on supply of food, service tax cannot be levied on same
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When there is contract for provision of service and if, in that contract, there is also supply of goods and if sales tax has been paid on the goods, service tax cannot be levied on the same.
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CESTAT, SOUTH ZONAL BENCH, BANGALORE
LSG Sky Chefs (India) Pvt. Ltd.
v.
CST
Appeal No. ST/425/2007
January 16, 2009
RELEVANT EXTRACTS:
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6. We have gone through the records of the case carefully. The appellants have entered into contract with various Airlines for supply of food, beverages, etc. to the Airlines. Before the Tribunal, the leviability to service tax on the activity of the supply of food beverage etc to the Airlines is not under dispute. The fact that the appellants come under the ambit of 'Outdoor Caterer Services' is not in dispute. Therefore, it is not necessary for us to discuss that aspect of the appeal. What is the relevant point here is whether the appellants are required to discharge the service tax liability on the entire amount collected from the Airlines which includes separately the amount collected for food, beverages, etc. even in terms of contract. It is also seen that separate invoices have also been issued for such supplies. No doubt, apart from mere supply of foods, the appellants is also engaged in various services like wrapping and handling of food; loading and transportation of food in trolleys; storage, handling and set up of catering equipments; storage and handling of dry stores and other re-cycling items; cleaning of equipment; handling of waste; cabin service and laundry services. What the appellants have excluded is only the amount due to the supply of the food, amount which represents the cost of the food items. It is also seen that the appellants had paid sales tax on the food items to the State Government. In this connection, we have to take note of the clause (f) of Article 366(29-A) of the Constitution of India introduced vide 46th Amendment of the At. It reads as follows. :
“366. (29-A) 'tax on the sale or purchase of goods' includes –
………………………………………………………………
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply of service, is for cash, deferred payment or other valuable consideration.
………………………………..”
Therefore, one thing is clear that in these catering contracts, the appellant supplies food also and in terms of the Constitution, sales tax is leviable on the supply of such food. Once sales tax is leviable on the supply of food, service tax cannot be levied on the same. In this connection, we have to take note of the decision of this bench in the case of M/s. Idea Mobile Communications Ltd. Vs. CCE, Trivandrum - 2006 (4) STR 132(Tri.-Bang.) wherein the Tribunal has held that no service tax is payable when sales tax has already been paid In the above decision, the Tribunal relied On the Apex Court's decision in the case of BSNL Vs. UOI. - 2006 (2) STR 161(SC) Further, the following case-laws were also relied on by the appellant: -
(i) Imagic Creative Pvt Ltd. Vs. Commissioner of Commercial Taxes - 2008 (9) STR 337(SC)
(ii) Idea Mobile Communications Ltd. Vs. CCE, Trivandrum - 2006
(4) STR 132(Tri.-Bang.)
(iii) BPL Mobile Communications Ltd. Vs. CCE, Mumbai - 2007 (7)
STR440 (Tri.'Mumbai)
(iv) M/s. ASL Motors Pvt Ltd. Vs. CCE, C & ST, Patna - 2008-TIOL-
114-CESTAT-Kol.
(v) M/s. Thermax Ltd. Vfe. CCEt Pune - 2007'TIOL-1466-CESTAT-
Mum.
(vi)Gerb Vibration Control Systems (P) Ltd. Vs. CST, Bangalore-
2007(7) STR 403(Tri.-Bang.)
(vii) Glaxo Smithkline Asia P. Ltd. Vs. A***ssing Authority -
2007(8)STR450(Del.)
Further, we have to take note of an important decision of the Hon'ble Apex Court in the case of Imagic Creative Pvt. Ltd. Vs. Commissioner of Commercial Tax (cited supra). In the said decision, the facts are that the appellant, M/s. Imagic Creative Pvt. Ltd., undertook the services for the evolution of prototype conceptual design (i.e. creation of concept) on which they had paid service tax. In that case, the State Government Sales Tax authorities initially, during assessment, gave abatement for the value on which the service tax was paid. However, that decision was overruled by a higher authority and the appellants approached the High Court. The High court rejected their appeal. But the appellants approached the Supreme Court against the decision of the High Court and the appeal of the appellant was allowed by the Hon'ble Supreme Court. We are reproducing para 28 of that decision, which reads as follows:-
“28. Payments of service tax as also the VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract; irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct"
In view of this, it is very clear when there is contract for provision of service and if, in that contract, there is also supply of goods and if sales tax has been paid on the goods, service tax cannot be levied on the same. There are several decisions to that effect and also the Commissioner has not examined correctly the applicability of Notification No.12/2003 to the appellant. The cost of the food items supplied is clearly available in the records. Therefore, the Commissioner's finding that they are not entitled for the benefit of Notification 12/2003 is not in order. The said Notification provides for. deduction of the value of the goods and materials sold. Reliance was also placed on the decision of this Bench in the case of Adlabs Vs. CCE, Banglore - 2006 (2) STR 121(Tri.-Bang.) and also Shilpa Colour Lab. vs. CCE, Calicut - 2007 (5) STR 423(Tri.-Bang.). In any case, it is seen that the appellants had already discharged the service tax liability on the amount collected by excluding the cost of the food items supplied and also certain other payments, which have been incurred on behalf of the Airlines and which have been reimbursed. In our view, there is no justification for invocation of the longer period and also imposition of any penalty. In view of the clear cut Constitutional provision, the appellants are liable to pay sales tax on the food supply and in view of the Supreme Court's decision cited above, once the appellants are paying sales tax on a portion of the value of the contract, then, simultaneously, we cannot demand service tax on them as they are mutually exclusive. We had already reproduced the observations of the Supreme Court in the decision cited supra, in such circumstances, there is no merit in the impugned order. The same is set aside. We allow the appeal with consequential relief.
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