A caterer is providing Lunch & Tea with Snacks to the employees of Companies/ Institutions and raised bills to the Company/ Institution. Is this service a canteen service and thus exempt from service tax, or he is an “Outdoor Caterer” and thus will charge Service Tax on his bills.
27 October 2013
Section 66E(i) of Finance Act, 1994 defines following as ‘declared service’ – 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.
Thus, service tax can be imposed only on service part. It is very difficult to segregate what portion of the canteen charges comprise service and what portion transfer of goods.
Article 366(29A) of Constitution states that ‘Tax on the sale or purchase of goods’ includes – - – (f) a tax on supply, by way of or as part of any service or in any 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 – - And such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.
Canteen services is mandatory in certain cases like in factories under Factories Act, 1948. The differentiation between outdoor catering and canteen service is very narrow.
Prior to 01-07-2012 the contractor providing 'canteen services' was rendering the service of 'outdoor catering.
According to IDT guru V.S.Datey the definition of declared services in sec 66E(i) overlaps Article 366(29A) of the Constitution of India which defines "Deemed Sales".
"Deemed Sales" are not subject to Service Tax as laid down in section 65B (44)(a)(ii) of Finance Act, 1994, since it is excluded from the definition of 'service'.
Deemed sale of goods as per Article 366(29A) of Constitution of India has been excluded from definition of ‘service’ itself – see section 65B(44)(a)(ii) of Finance Act, 1994 introduced w.e.f. 1-7-2012.
Really, a tax on supply, by way of or as part of any service or in any manner whatsoever, of food is ‘deemed sale’ of goods under Article 366(29A). Thus service portion is also covered within the definition of ‘deemed sale of goods’. Hence, whether anything is left for imposing service tax is a highly debatable and litigation prone issue.
Certain High Courts like MP High Court in Hukumchand Mills case and APSTAT in Indian Airlines Staff Canteen's case have held that sale of food in canteens is not a sale, but a service and hence not subject to Sales Tax (VAT). Whereas other High Courts like Orissa and Patna in Tata Iron's case, Gauhati High Court in BRPL Canteen Co-op Society's case, Allahabad High Court in Nuclear Power Supply Canteen and WBTT in Delta Jute Industries case have all held that sale of food in canteen in subject to Sales Tax (VAT).
Therefore to avoid controversies and litigation, it would be sensible to treat the services received as Outdoor Catering Services, pay the Service Tax and utilize the input service credit.
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