Food Related Services
1 Sale of food in hotel is service
¨ Sale of food is incidental to service. No transfer of property.
¨ So held in State of Himachal Pradesh v. Associated Hotels – (1972) 29 STC 474 (SC) = AIR 1972 SC 1131 and Northern India Caterers (India) v. Lt. Governor of Delhi – (1978) 42 STC 386 (SC) = AIR 1978 SC 1591.
¨ To get over the decision, concept of ‘deemed sale of goods’ of food Article was introduced in Constitution of India in 1982.
¨ ‘Tax on the sale or purchase of goods’ includes – 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 or service, is for cash, deferred payment or other valuable consideration – Article 366(29A)(f) of Constitution of India.
2 Mere supply of food not taxable
¨ In Indian Railways Catering and Tourism Corporation Ltd. (IRCTC) v. Govt of NCT of Delhi (2011) 9 taxmann.com 258 = 30 STT 479 (Del HC DB), IRCTC was supplying food articles to Indian Railways. It was held that contract for supply of food by IRCTC to Indian Railways was contract for sale of goods.
3 Composition scheme for Service tax on restaurant
¨ Only restaurant with bar and AC or bar and Central heating in any part of restaurant are liable. Thus bar is essential. Further either Air conditioning or Central heating is required.
¨ Service tax on 40% of value w.e.f. 1-7-2012 – Cenvat credit can be taken of input services, capital goods and input goods except of food items [It was 30% without Cenvat upto 30-6-2012]
4 Composition scheme for service tax in case of catering
¨ Tax on 60% if provided as outdoor caterer w.e.f. 1-7-2012 – Cenvat credit can be taken of input services, capital goods and input goods except of food items [It was 50% without Cenvat credit upto 30-6-2012].
¨ Tax on 70% if provided with convention centre, pandal, shamina etc. as a bundled service, w.e.f. 1-7-2012 – Cenvat credit can be taken of input services, capital goods and input goods except of food items [It was 60% without Cenvat credit upto 30-6-2012].
5 Canteen is restaurant or outdoor catering
¨ Whether canteen in factory or office is ‘restaurant’ or ‘outdoor catering’ is highly debatable issue.
¨ Earlier, ‘outdoor caterer’ was defined as follows – “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 [Section 65(76a)]. Now, that definition is not applicable w.e.f. 1-7-2012.
¨ Hence, we have to go by trade understanding. As per trade understanding, canteen is not ‘outdoor catering’. In fact, as per draft CBE&C circular dated 27-7-2012, food provided to employees for which charge is made is food served in restaurant. Hence, in my view, canteen is ‘restaurant’.
¨ If canteen is held as ‘outdoor catering’, fair market value of goods and services supplied will have to be added. Further, Cenvat credit of service tax paid on canteen services is not available.
6 Valuation of service on actual basis
¨ Charging food separately and service separately – legally permissible
¨ So held in LSG Sky Chefs v. CST (2009) 19 STT 440 and 25 STT 10 (CESTAT) –- view confirmed in CST v. The Grand Ashok (2011) 32 STT 12 223 = 12 taxmann.com 78 (Karn HC DB)