No service tax can be levied on food served as take away or parcels

The Hon’ble Madras High Court ('HC') in Anjappar Chettinad A/C Restaurants v. Joint Commissioner [W.P. Nos. 13469 of 2020, 28789 & 28095 of 2019 and 1748 & 5935 of 2021 decided on May 20, 2021] held that provision of food and drink to be taken-away in parcels by restaurant tantamount to the sale of food and drink and thus, shall not attract service tax under the Finance Act.

Facts

The Anjappar Chettinad ('the Petitioner') run Air-Conditioned restaurants under the name and style of Anjappar Chettinad, Thalapakkatti Hotels, RSM Foods and Prasanam Foods, the latter two being franchisees of Sangeetha restaurant, respectively. The Petitioner holds service tax registration for providing restaurant services, outdoor catering services and mandap keeping services. Audit was undertaken in all the cases and the Department concluded that service tax had not been discharged in relation to ‘take away/parcel services’ for various periods upto June, 2017 when Goods Services Tax ('GST') came into force.

Issues

Whether there is a liability to pay service tax under the Finance Act, 1994 ('Finance Act'), on food that is ‘taken away’ or collected from restaurants or eateries, in parcels.

Held

The Hon’ble Madras HC in W.P. Nos. 13469 of 2020, 28789 & 28095 of 2019 and 1748 & 5935 of 2021 decided on May 20, 2021, held as under:

• Observed that, levy of tax on service was governed by Finance Act and the legislative competence to levy a tax on service involved in the sale of food and drink is no longer res integra as held by the Hon’ble Supreme Court in the case of Federation of Hotel and Restaurant Associations of India v. Union of India [2018 (359) ELT 97 (SC)].
• Relied on Section 66E of the Finance Act, Circular 173/8/2013– Service Tax dated October 7, 2013 and Circular No. 334/3/2011- TRU dated February 28, 2011 to state that not all services rendered by restaurants in the sale of food and drink are taxable and it is only certain specified situations that attract tax. The sale of food and drink simplicitor, services of selection and purchase of ingredients, preparation of ingredients for cooking and the actual preparation of the food and drink would not attract the levy of service tax. Only those services commencing from the point where the food and drinks are collected for service at the table till the raising of the bill, are covered. This would encompass a gamut of services including for seating, décor, music and dance, both live and otherwise, the service of Maitre D’or, hostesses, liveried waiters and the use of fine crockery and cutlery, among others.
• Noted that, in the case of take-away or food parcels, the aforesaid attributes are conspicuous by their absence.
• Further noted that, orders are received either over telephone, by e-mail, online booking or through a food delivery service such as Swiggy or Zomato. Once processed and readied for delivery, the parcels are brought to a separate counter and are picked up either by the customer or a delivery service. More often than not, the take-away counters are positioned away from the main dining area that may or may not be air-conditioned.
• Thus, held that provision of food and drink to be taken-away in parcels by restaurants tantamount to the sale of food and drink and does not attract service tax under the Finance Act.

Relevant provisions

Section 66E(i) of the Finance Act

'66E. Declared services

The following shall constitute declared services, namely-

(i) Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.'