AI Structured Summary
Not yet generated for this judgment
Judgment
N. Kumar, J.—These appeals are filed by the Assessee challenging the order passed by the learned single Judge who declined to entertain the Writ Petitions and has advised the Assessee to prefer an appeal before the Karnataka Appellate Tribunal without going into the merits of the case.
FACTS OF THE CASE
The Assessee is a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (hereinafter for short referred to as the ''KVAT Act''). The Assessee is engaged in the business of catering services, which includes preparation and supply of food, beverages and other eatables. The major customers for the Appellant are M/s Kingfisher Airlines Limited, M/s Jet Airways Limited and M/s Deviyani International Limited. The Assessee has entered into catering agreements with its customers for preparation and supply of meals of various varieties and other food items including beverages and dry stores. Under the agreement the Assessee has agreed to render supply services, like loading and unloading services, transportation services, high lifting services and allied services under separate heads. The consideration paid for towards cost of the food and other services like handling, loading, etc., are separately charged and the bills are also raised separately as agreed to between the parties. The Assessee manufactures food and delivers the packed food to Taj Sats who thereafter transport, high lift, load and unload the beverages till the final destination. The Assessee has undertaken to render such services for an agreed consideration which is payable separately by the Airlines in addition to the cost of food and beverages. The Assessee is liable to pay VAT on the sale of goods being food or any other article of human consumption or any drink. The outdoor catering services are brought to tax net under the Service Tax Act with effect from 10.9.2004. A caterer is one who is engaged in providing services in connection with catering at a place other than its own but including a place provided by way of tenancy or otherwise by the person receiving such services is liable to pay service tax at the applicable rates. Any services rendered in connection with supply of food, beverages, etc., shall be taxable under the head ''catering services'' and thus exigible to service tax u/s 65(105)(zzt) of the Service Tax Act. Therefore, the Assessee is registered under the provisions of the Finance Act, 1994. The Assessee is paying service tax on the gross amounts received by it towards handling charges, transportation, lifting, loading and unloading, etc.,
On 21.11.2009 the Assistant Commissioner of Commercial Taxes (Recovery) inspected the premises of the Assessee. They looked into the books of accounts and the agreements entered into with the customers. They also verified the receipts showing tax payments. Thereafter, a notice dated 23.1.2010 was issued u/s 39(1) of the Act for the period 01.04.2005 to 31.03.2009 calling upon the Assessee to show cause why the returns filed should not be rejected and turnover and tax re-determined. The Assessee filed his statement of objections. The Assistant Commissioner proceeded to pass a re-assessment order dated 20.2.2010 u/s 39(1) of the Act. He observed that apart from the preparation and sale of food, the Assessee has entered into contract of packing and forwarding, lifting of food, handling and offloading, store handling charges etc., The services rendered by the Assessee cannot be considered under the provisions of the KVAT Act and, therefore, did not include the amounts received by the Assessee while recomputing the turnovers and the taxes payable under the provisions of the KVAT Act. He also proceeded to propose to levy VAT on sale of tender forms and on non-food articles, i.e., packing materials and proposed to disallow the excess claim of input tax rebate apart from other disallowances. Pursuant to the said re-assessment order, the Assessee paid the additional taxes along with interest and that order has reached finality. Again the premises was visited on 17.8.2010. They called upon the Assessee to produce copies of the agreement with the Airlines, vehicle lease agreement with Taj Sats, audited financial statements and the like. The Assessee furnished all the copies and filed a reply. However, the first Respondent issued a consolidated show cause notice dated 20.9.2010 under Sections 39(1) and (2) of the Act for the periods 01.11.2005 to 31.03.2009 and 01.04.2009 to 30.06.2010 proposing to pass Anr. re-assessment order on the grounds that the Assessee has not included the amounts received towards handling charges, transportation, etc., in the returns filed by the Assessee. Over-ruling all the objections, the authorities have passed a consolidated order dated 08.10.2010 under Sections 39(1) and (2) of the Act.
Challenging the aforesaid consolidated order passed under Sections 39(1) and (2) of the Act, the Assessee preferred a Writ Petition.
Though a statutory appeal is provided against the said order to the Joint Commissioner of Commercial Taxes (Appeals), as the circular issued by him runs counter to the stand of the Assessee, the learned single Judge felt no useful purpose would be served in preferring the statutory appeal. Therefore, he permitted the Assessee to prefer an appeal directly to the Karnataka Appellate Tribunal, i.e., a second appeal by-passing first appeal. He declined to go into the merits of the claim on the ground of availability of alternate remedy. Aggrieved by the said impugned order, the Assessee has preferred these Writ Appeals.
RIVAL CONTENTIONS
Sri Sarangan, the learned senior counsel, assailing the impugned order passed by the learned single Judge contended that, the appeal is a statutory remedy provided by the statute. De hors the statute there cannot be any appeal. When the statute provides for a first appeal and a second appeal, unless the party exhausts the remedy of first appeal, the question of preferring second appeal would not arise. On mere filing, second appellate authority cannot entertain first appeal. In that view of the matter, the order of the learned single Judge though holding that the first appeal is not an efficacious remedy but advising the Appellant to prefer first appeal to the second appellate authority as the first appellate authority may not be in a position to take a different view from the one which is expressed in the circular which he has issued, is contrary to the statutory provisions. Therefore, he contended the said order per se is illegal and contrary to the statutory provisions and requires to be set aside.
In so far as the merits is concerned, he submits that the dispute between the parties involve interpretation of constitutional provisions, doctrine of pith and substance, the theory of exclusiveness as found in Article 246(1) of the Constitution of India and, therefore, he submits notwithstanding the alternate remedy available under the statute this is a fit case where this Court should entertain this Writ Petition and interpret these statutory and constitutional provisions so that the authorities would follow the interpretation and decide the issues in favour of the persons prescribed under the statute. He contends the contract in question involves the preparation of food and supply of food to the customers at his doors. The supply of prepared food to the customers at his doors involves transportation charges, handling charges and other charges which is essentially a service. Under no circumstances these acts constitute sale of goods. Therefore, as is clear from the invoices raised they have collected from the customers the value of the goods sold and the amount incurred in rendering service as aforesaid. The amount collected towards service rendered has suffered service tax. Excluding that portion of the value mentioned in the bill in respect of the remaining extent they have been paying VAT. On that basis assessment orders have been passed and it is concluded. It is by virtue of the power conferred u/s 39(1) of the Act notices were issued claiming that exclusion of the value of the service is erroneous and that the Assessee has to pay VAT even on that component. The matter was contested and over-ruling the objections of the Assessee, an order has been passed u/s 39(1) of the Act. Again a notice is issued purported to be u/s 39(2) of the Act to again re-assess without there being any further evidence. The condition precedent for invoking jurisdiction u/s 39(2) of the Act is, after the passing of an order u/s 39(1) if the authorities came in possession of any further evidence, then only they could exercise power u/s 39(2). In the instant case there is no further evidence and, therefore, the initiation of proceedings u/s 39(2) and passing of an order under that provision is one without jurisdiction and liable to be set aside. If the stand of the revenue is accepted, it will amount to double taxation. The State would be collecting sales tax even in respect of services for which service tax is already paid and, therefore, he submits the impugned order is liable to be set aside.
Per contra, the learned Government Advocate submits that, under the terms of the contract, the Assessee is expected to deliver the food articles at the customers place, i.e., aircraft. For the purpose of sales tax it is the value of the goods as determined at the time of delivery of the goods to the customer without actually the title of the goods passed is to be taken into consideration. The VAT is payable on taxable turnover. Turnover includes not only the value of the goods but also all the amounts incurred as expenditure till the delivery of goods to the customer, then only the sale is complete and, therefore, she submits as in the earlier instances, this service component was not taxed and on verification of records when it was found that the said component has escaped the assessment proceedings were initiated u/s 39(1) and is completed in accordance with law. Therefore, the contention that the sales tax is payable only on the value of the food products which necessarily exclude the service component cannot be accepted. She also submitted that Rule 6(4)(f) of the Karnataka Sales Tax Rules specifically provided for deduction of transportation charges. However, under the VAT Rules, Rule 3(2) does not provide specifically for the deduction of the said transportation charges. Therefore, the sale price includes transportation charges. Hence, she submits the case does not call for any interference.
ISSUES INVOLVED
In the light of the aforesaid facts and the rival contentions, the point that arise for our consideration is as under:
In the case of a catering contract, in particular outdoor catering, when the Assessee has claimed in the invoices specifically the value of goods as well as the value of the services rendered and paid service tax on the service component, is it open to the sales tax authorities to levy sales tax on both the components, namely the value of the goods and the value of services rendered?
LEGAL POSITION
Section 65 of the Finance Act, 1994 is the definition clause. Sub-section (24) of Section 65 defines "Caterer" as under:
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 purpose or occasion;
Sub-Section 76(a) of Section 65 defines "outdoor caterer" as under:
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].
Sub-section (zzt) of Section 65(105) defines "taxable service" as under:
"Taxable service" means any service provided or to be provided, zzt "to any person, by an outdoor caterer".
The Apex Court in the case of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in 1978 386 STC 42, at page 391 explaining the nature of business in Hotels and Restaurants, in the context of supply of means has held as under:
It has already been noticed that in regard to hotels this Court has in The State of Punjab Vs. Associated Hotels of India Ltd., ] adopted the concept of the English law that there is no sale when food and drink are supplied to guests residing in the hotel. The court pointed out that the supply of meals was essentially in the nature of a service provided to them and could not be identified as a transaction of sale. The court declined to accept the proposition that the revenue was entitled to split up the transaction into two parts, one of service and the other of sale of foods-stuffs. If that be true in respect of hotels, a similar approach seems to be called for on principle in the case of restaurants. No reason has been shown to us for preferring any other. The classical legal view being that a number of services are concomitantly provided by way of hospitality, the supply of meals must be regarded as ministering to a bodily want or to the satisfaction of a human need. What has been said in Electa B. Merrill (LRA 1915-B 481) appears to be as much applicable to restaurants in India as it does elsewhere. It has not been proved that any different view should be taken, either at common law, in usage or under statute.
In a review petition filed to review the aforesaid order, the Supreme Court reaffirmed the said position, as under:
The Appellant prepared and served food both to the residents in its hotel as well as to casual customers who came to eat in its restaurant, and throughout it maintained that having regard to the nature of the services rendered there was no real difference between the two kinds of transactions. In both cases, it remained a supply and service of food not amounting to a sale. It is important to note that the facts alleged by the Appellant were never disputed at any stage, and we find no attempt by the taxing authorities to enquire into the truth of the facts so asserted. It is in that factual context that this Court examined the question whether any liability to sales tax was attracted. Our judgment rests on that factual foundation, and must be understood in that light.
The Apex Court in the case of Tamil Nadu Kalyana Mandapam Assn v. Union of India and Ors. reported in 135 STC 2004 480, where the question arose for consideration was whether the service tax levied on service rendered by mandap keepers as defined under Sections 65, 66 and 67 of the Finance Act and in so far as it levies tax on catering service which amount to tax on sale and purchase of goods and therefore is beyond the competence of Parliament, particularly in view of the definition of tax on sale and purchase of goods contained in Article 366(29A)(f) of the Constitution, held as under:
Tax on catering services does not amount to tax on sale and purchase of goods:
As far as the above point is concerned, it is well-settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the sale of Goods Act, 1930. The Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation, transactions which could not be a sale in law. The following judgments and the principles laid down therein can be very well applied to the case on hand.
xxxxxxxx
It may be noted that in recent times the service sector has grown phenomenally all over the world and, therefore, it was recommended by the Dr. Raja Chelliah Committee in the early 90''s that it should be taxed. Pursuant thereto, service tax was first levied in 1994 by way of the Finance Act. The power to levy such tax can be traced to serial No. 97 of List I of the Seventh Schedule and this Court in Laghu Udyog Bharati and Another Vs. Union of India and Others, , found no lack of legislative competence as far as the levy of service tax was concerned.
xxxxx
In fact, mandap keepers provide a wide variety of services apart from the service of allowing temporary occupation of mandap. As per Section 65(19) of the Finance Act, 1994, mandap means any immovable property as defined in Section 3 of the Transfer of Property Act, 1882, and includes any furniture, fixture, light fittings and floor coverings therein let out for consideration for organising any official, social or business function. A mandap keeper apart from proper maintenance of the mandap, also provides the necessary paraphernalia for holding such functions, apart from providing the conditions and ambience which are required by the customer such as providing the lighting arrangements, furniture and fixtures, floor coverings, etc., The services provided by him cover method and manner of decorating and organising the mandap. The mandap keeper provides the customer with advice as to what should be in quantum and quality of the services required keeping in view the requirement of the customer, the nature of the event to be solemnised, etc., In fact the logistics of setting up, selection and maintenance are the responsibility of the mandap keeper. The services of the mandap keeper cannot possibly be termed as a hire-purchase agreement of a right to use goods or property. The services provided by a mandap keeper are professional services which he alone by virtue of his experience has the wherewithal to provide. A customer goes to a mandap keeper, say a star hotel, not merely for the food that they will provide but for the entire variety of services provided therein which result in providing the function to be solemnised with the required effect and ambience. Similarly the services rendered by outdoor caterers are clearly distinguishable from the service rendered in a restaurant or hotel inasmuch as, in the case of outdoor catering service the food/eatables/chinks are the choice of the person who partakes of the services. He is free to choose the kind, quantum and manner in which the food is to be served. But in the case of a restaurant, the customer''s choice of foods is limited to the menu card. Again in the case of outdoor catering, the customer is at liberty to chose the time and place were the food is to be served. In the case of an outdoor caterer, the customer negotiates each element of the catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalised service provided to the customer. Clearly the service element is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and drink as in restaurant. Though the service tax is leviable on the gross amount charged by the mandap keeper for services in relation to the use of a mandap and also on the charges for catering, the Government has decided to charge the same only on 60 per cent of the gross amount charged by the mandap keeper to the customer.
xxxxxx xxxxxxx
A tax on services rendered by mandap keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire-purchase activities... Article 246(1) of the Constitution specifies that the Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule of the Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In respect of the matters enumerated in List III ( Concurrent List) both Parliament and State Government have powers to make laws. The service tax is made by Parliament under the above residuary powers.
xxxxx xxxxx
It would be appropriate to quote Mr. Justice Venkatachalliah who ruled that "the law with respect to a subject might incidentally encroach after Anr. subject in some way, but that is not the same thing as the law being on the latter subject. There might be overlapping, but the overlapping must be in law. The transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. The consequences and facts of the legislation are not the same thing as legislative subject-matter.
The Constitution Bench of the Apex Court in the case of K. Damodarasamy Naidu & Bros. v. State of Tamil Nadu and Anr. reported in STC 117 2000 1 explaining the scope of the 46th Amendment to the Constitution wherein Article 366 was amended by inserting Clause 29-A, at Para 9 and Para 21 held as under:
The provisions of Sub-clause (f) of (29A) of Article 366 need to be analysed. Sub-clause (f) permits the States to impose a tax on the supply of food and drink. The supply can be by way of a service or as part of a service or it can be in any other manner whatsoever. The supply or service can be for cash or deferred payment or other valuable consideration. The words of Sub-clause (f) have found place in the Sales Tax Acts of most States and, as we have seen, they have been used in the said Tamil Nadu Act. The Tax, therefore, is on the supply of food or drink and it is not of relevance that the supply is by way of a service or as part of a service. In our view, therefore, the price that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned Counsel. The supply of food by the restaurant owner to the customer though it may be part of the service that he renders by providing good furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and a floor show, is what is the subject of the levy. The patron of a fancy restaurant who orders a plate of cheese sandwiches whose price is shown to be Rs. 50 on the bill of fare knows very well that the innate cost of the bread, butter, mustard and cheese in the plate is very much less, but he orders it all the same. He pays Rs. 50 for its supply and it is on Rs. 50 that the restaurant owner must be taxed.
xxxx xxxxxx
Parliament, when exercising the powers to amend the Constitution under Article 366, cannot and does not amend State Acts. There is no other provision in the Constitution which so permits and there is no judgment of this Court that so holds. The power to make laws for the States in respect of matters listed in List II in the Seventh Schedule is exclusively that of the Slate Legislatures. The State Legislatures alone could have amended or modified a State law levying tax under entry 54 of List II. The said Section 6 would, therefore, be bad in law if it were construed to be an essay by Parliament, exercising constituent powers, to amend the sales tax laws of the States. The said Section 6 must be read as only giving retrospective operation to the expansion of the expression "tax on the sale or purchase of goods" in entry 54 of List II to include a tax on the supply of food or drink and thus validating retrospectively State Sales Tax Acts that had therefore made provision for the levy of sales tax on the s