TMI Blog2010 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner and Indian Railways does not amount to a contract of providing outdoor catering, but, is a transaction of sale of food and beverages by the petitioner-company to Indian Railways. the transaction between the petitioner-company and Indian Railways for providing food and beverages to the passengers, on board the trains, is a transaction of sale of goods by the petitioner-company to Indian Railways. It is neither a contract for providing services nor a composite contract for supply of goods and providing of services. We also hold that sale in respect of goods loaded on board the trains in Delhi, takes place, when the goods are loaded in the trains. - W.P.(C) Nos. 5483/2008, - - - Dated:- 19-7-2010 - Badar Durrez Ahmed And V K Jain, JJ Mr Randhir Chawla with Ms Renuka Sehgal., Advocates for the appellant Mr Rajesh Mahna with Mr Ramnand Roy and Ms Navneet Dhillon, Mr MukeshAnand with Mr Shailesh Tiwari, Mr R.C.S. Bhadoria and Mr Sumit Batra., Advocates for the Respondent JUDGEMENT Per : V K Jain, J : 1. By this common order, we will dispose of all the writ petitions referred above, which involve a common question of law. 2. The petitioner is a Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Invoices in terms of Section 50 of the DVAT Act and the Indian Railways Catering Tourism Corpn. Ltd. is entitled to claim credit of input tax at the time of working out the output tax payable by it in respect of the sales made by it to the Railways? 5. Vide Determination Order dated 23.03.2006, the Commissioner of Value Added Tax held that VAT was payable on the services provided on board the trains, since it amounted to sale within the meaning of Section 2(zc)(vii) of the Act. He also took the view that there were three transactions of sale, one from the licensee contractor to the petitioner, the second from the petitioner to the Railways and the third from the Railways to the passengers. 6. In the Determination Order, the Commissioner, inter alia, observed as under: Therefore, it comes out to be a clear case of sale/supply of food and beverages first by the Licensee(s)/Caterer(s) to the applicant Corporation, then by the applicant Corporation to the Indian Railways and thereafter, ultimately by the Indian Railways to the passengers on board. To put it in clear words, three sale transactions of food and beverages, first by the Licensee(s)/Caterer(s) to the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he credit of input tax on its basis from the Department. It is held and determined accordingly. 8. The contention before the Tribunal was that when the matter under reference was only with regard to taxability of food and beverages loaded on trains from Delhi, there was no occasion for him to observe regarding the taxability on the sale or purchase of goods taking place outside the State. It was submitted that the observations, regarding taxability of goods on running trains outside the State, was outside the ambit of Determination Order passed by the Commissioner. The Tribunal accepted the contention and quashed the above-referred portion of the Determination Order passed by the Commissioner. 9. The Assessment Order for the year 2007-08 was passed by Value Added Tax Officer (VATO), following the Determination Order passed by the Commissioner of Value Added Tax. A Revision Petition filed by the petitioner against the order was dismissed vide order dated 10.12.2008. 10. Service tax under Section 65(105)(zzt) of the Finance Act, 1994 is being paid by the petitioner in respect of the transactions in question. The petitioner has been advised that there cannot be levy of both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counter-affidavit that in the appeal filed by the petitioner against the Determination Order passed by the Commissioner of Value added Tax, the Appellate Authority vide order dated 29.08.2006 held that only the food and beverages loaded in trains from Delhi were liable to VAT and the sale and purchase of goods taking place outside Delhi, on the running trains, were outside the ambit of Determination Order passed by the Commissioner of VAT. The order passed by the Tribunal was not challenged by either party and, therefore, has become final. On merits, it has been alleged that the petitioner was receiving consideration from Indian Railways in respect of supply of food and beverages served to the passengers and, therefore, the transaction amounts to sale in terms of Section 2(1)(zc) of the Act. It has also been stated that services provided by the petitioner by employing staff to serve the food and beverages loaded from Delhi was incidental to the business of supply of food, etc. and the invoices, issued by the petitioner, clearly indicate that consideration was being received by it from Indian Railways for sale of food and beverages. It has been further stated that the petitioner its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged by the petitioner. For example, on a gross billed amount of Rs 1 lakh, for catering, water and newspaper, 15% of the billed amount, i.e., Rs 15,000/- is shared between Indian Railways and the petitioner-company. Indian Railways retaining Rs 2250/- and the petitioner-company retaining Rs 12750/-. The balance amount of Rs 85,000/- is paid to the contractor. 18. It is also an admitted position that the meals cooked in the base kitchen and loaded on the trains, are kept in the train compartments which are equipped with equipments required for catering, such as boilers, freezers, hot boxes, etc. and these equipments are being provided and maintained by Indian Railways. 19. Section 2(i)(zc) of DVAT Act, to the extent it is relevant, reads as under: (z)(c) sale with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the central government or of any state government, to another) and includes- (vii) supply, by way of or as part of any servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before or after the appropriation is made. 23. Section 26 of Sale of Goods Act, which deals with risk in the goods, to the extent it is relevant, reads as under: 26. Risk Prima facie passes with property.- Unless otherwise agreed, the goods remain at the seller?s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer?s risk whether delivery has been made or not. Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as bailee of the goods of the other party. 24. Section 33 of Sale of Goods Act, which deals with delivery of goods, to the extent it is relevant, reads as under: 33. Delivery.- Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf. 25. An analysis of the definition of sale as given in Section 2(zc) of the Act and Section 4 of the Sale of Goods Act would show that the following are the essential ingredients of sale as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the latter would be an agreement to sell and the supply of materials thereunder, a sale. Where there was no such separation, the contract was a composite one. It was not classifiable as a sale. 28. In State of H.P. vs. Associated Hotels of India:(29) STC 474 (SC), the respondent-company, which carried on business as hoteliers as part of its business, received guests in its several hotels to whom, besides furnishing and lodging, it provided several amenities such as public and private rooms, bath with hot and cold running water, linen, meals during stated hours, etc. The bill tendered to the guest was an all-inclusive one, namely, a fixed amount for the stay in the hotel for each day and did not contain different items in respect of each of these amenities. The question before the Supreme Court was whether the respondent-company was liable to pay the sales tax under the Punjab General Tax Act, 1948 in respect of meals served in the hotel, to guests coming there for stay. The Supreme Court observed that the transaction being essentially one and indivisible, namely, one of receiving a customer in the hotel to stay, it was essentially one service by the hotelier, in the performan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. As regards sale in restaurants, the Supreme Court, inter alia, held as under: Indeed, we have no hesitation in saying that where food is supplied in an eating house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services is merely incidental, the transaction would undoubtedly be exigible to sales-tax. In every case it will be for the taxing authority to ascertain the facts when making an assessment under the relevant sales tax law and to determine upon those facts whether a sale of the food supplied is intended. 30. Pursuant to the Report of the Law Commission, Article 366 of the Constitution was amended by inserting, vide Clause 29A, a definition of tax on the sale or purchase of goods used in Entry 54 in the II list of the Schedule 7 of the Constitution, and to provide that such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods, by the person making transfer delivery or supply and to the person to whom such transfer delivery or supply is made. 31. Clause 29A of Article 366, to the extent it is relevant, read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutlery and could even provide music and dance floors. It was contended that the bill that the customer paid, had therefore, to be split up between what was charged for such service and what was charged for the food. Repelling the contention, Supreme Court, inter alia, held as under: 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 a 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 mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igam Ltd. and Anr. vs. Union of India and Ors.:145 STC 91 (SC), the principal question involved in the case was the nature of the transaction, by which mobile phone connections are enjoyed, whether it was a sale or a service or both. The case of the service providers before the Court was that there was no sale transaction involved and the attempt of some States to levy tax on the provision of mobile phone facilities by them, to the subscribers, was constitutionally incompetent, the transaction in question being merely a service. The States, on the other hand, contended that the transaction was a deemed sale under Article 366(29A)(d) of the Constitution, read with the charging sections in the various sales tax enactments and, therefore, they were competent to levy sales tax on the transactions. It was held by the Supreme Court that the goods do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29A)(d) and the goods in telecommunication are limited to the handsets, provided by the service provider. As far as SIM cards were concerned, the issue was left for determination by the Assessing Authority. It was further held that nature of the transaction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red decisions, can be summarized as under:- (a) It is open to the States to levy sales tax/Value Added Tax, on the whole of the consideration, in transactions of sale of goods, such as sale to a customer in a restaurant, irrespective of the incidental element of service which is necessarily involved in sale of goods of this nature; (b) If the transaction between the parties is covered under Article 366 (29A) of the Constitution, it is permissible for the States to levy and collect sales tax/Value Added Tax on the value of the goods involved in the execution of the transaction. It is not permissible to levy sales tax/ Value Added Tax in respect of service component of such composite transactions and; (c) In respect of composite transactions, other than those covered by Article 366(29A) of the Constitution, if it is found that the intention of the parties was to segregate the element involving sale of goods from the element involving providing of service and actually the transaction represents distinct contracts which are clearly discernible, the State would have the power to separate the agreement involving sale of goods, from the agreement to provide services, and impose t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passenger has any choice in respect of articles to be served in the trains or with respect to the quantity each passenger gets. It is not open to a passenger to ask for a food article of his choice, since neither such a food article is available in the train nor is the preparation or supply of food article as per the choice of the passenger, envisaged under the contract between the petitioner-company and Indian Railways. If the fixed menu provides, for say, supply of one samosa and one cake to a passenger, he cannot ask for more than one samosa or more than one cake even on payment basis. He cannot even ask for a samosa in lieu of cakes or vice versa. He has absolutely no choice in the matter. The passenger has no role to play even with respect to the time and/or place at which the meals/snacks will be served to him. In fact, the passenger has absolutely no say in the matters relating to food/snacks, etc. provided to him in the train. He gets no refund from the Railways if he does not like or does not take the meals offered to him in the compartment. The requisite charges in this regard are taken from him by Indian Railways at the time of purchase of ticket by him and he pays the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. The value of a taxable service in relation to the service provided by a Mandapam-keeper was prescribed as the gross amount charged by such keeper from the client for the use of Mandapam, including the facilities provided to him in relation to such use and also the charges for catering, if any. The Central Government issued a notification exempting an amount of service tax leviable on a Mandapam-keeper in excess of amount of service tax, calculated on 60% of the gross amount charged from the client by the Mandapam-keeper. The notification also provided that the exemption shall apply only in such cases where the Mandapam-keepers also provide catering services and the bills indicated that it was inclusive of charges for catering services. It was contended before Supreme Court that service tax on Mandapam-keeper was unconstitutional, as it was a tax on goods and/or land and not a tax on the services and, therefore, was not in the domain of the Union. It was observed by the Supreme Court 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 and the Legislature cannot enlarge the definition of sale, so as to br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l advice or expertise is given to him. No logistics, for the customers, are involved in serving the food and there is no question of organizing something for the passenger. Therefore, reliance on this judgment, in our view, is wholly misplaced. 42. The judgment in the case of Bharat Sanchar Nigam Ltd. (supra) also is of no help to the petitioner since the transaction of providing meals and snacks to the passengers, to our minds, is not a composite contract of service and sale, but is a transaction of outright sale by the petitioner-company to the Indian Railways. The service component, involved in the transaction, is purely incidental and minimal necessary for the purpose of sale of those goods. 43. The learned counsel for the petitioner has also referred to Associated Hotels of India Ltd. vs. Excise and Taxation Officer and Anr.: (1966) 17 STC 555 and State of Punjab vs. Associated Hotels of India: (1967) 20 STC (1), where it was held that the hoteliers, who make consolidated charge for providing their clients with residential accommodation, services, linen, food, etc. and who do not allow any rebate if food is not taken or served transfer the food to the customers for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Travel House Ltd. In that case, the respondent had entered into an agreement with NDPL for hire of Omni vans. As per the contract, the respondent was to provide Omni vans on 24 hours/2500 Km per month per vehicle on a monthly cumulative basis @ Rs. 23,000/- per vehicle per month and 16 (sixteen) non-AC Omni vans on 12 hour/3000 Km basis @ Rs. 16,000/- car/per month. Extra Km above the cumulative 48000 Km per month was to be paid @ Rs. 4/Km and extra hours of duty in excess of 12 hours/day of duty @ Rs. 15/hr. The respondent was also obliged to ensure a number of other things, including uniform of chauffeurs and mobiles to them. The issues before this Court were (a) whether the transaction in question was sale within the meaning of Article 366(29A)(d); and (b) whether the contracts in question were contracts for service? It was contended before this Court that the contract satisfied the requirement of sale since there was a transfer of right to use the goods for valuable consideration and effective control and possession of cabs had been given to NDPL. The contention of the respondent, however, was that the transaction in question was not a transaction of sale because the effectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction was not a sale, was that the customer had no right to take away the unconsumed food. There is no such prohibition on the passengers travelling in trains. Since the transaction in a restaurant has, in subsequent decisions, been held to be a sale, despite the Court taking the view that the customer had no right to take away the unconsumed food, these is no good reason to take a different view in a transaction involving a train passenger, to whom even such a disability is not attached. 48. It was contended by the learned counsel for the petitioner that merely on loading of the cooked food in the trains, the property or title in the goods does not get transferred to Indian Railways and since the meals and snacks are served after the train leaves Delhi, it cannot be said that the sale, if any, to the Indian Railways is made in the territory of Delhi. We are unable to accept the contention. Admittedly, the meals and snacks are kept in the hot boxes and refrigerators, belonging to the Indian Railways and provided in the train compartments. The moment the goods are loaded in train and are kept in those equipments, belonging to Indian Railways, the property in the goods gets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if unfortunately some accident is to take place before the food is served to the passengers, the petitioner will not get paid for the food loaded in the train which shows that the property in the goods does not pass to the Railways till they are served to the passengers. We, however, find that no such stipulation in the agreement of the petitioner with Indian Railways. In view of the provisions of Section 26 of the Sale of Goods Act, the risk in the goods would be of Indian Railways once they are loaded on the train and kept in the equipment, belonging to the railways since the statutory provision is subject to agreement between the parties, nothing prevents the petitioner agreeing to bear the risk, despite property in the goods having already been transferred to the purchaser. It is important in such cases, to separate the risk factor, from passing of title in the goods. The seller may, if he so decides, agree to bear the risk even in those cases, where the property in the goods has passed to the buyer, and acceptance of risk by the seller does not necessarily exclude passing of property in the goods to the buyer. The ownership of the goods in such cases vests in the buyer, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, indicating transfer of property in the goods to the Indian Railways on their being loaded on the train and are being kept in the gadgets of Indian Railways. 52. It was vehemently urged by the learned counsel for the petitioner that since the petitioner is already assessed to service tax in respect of the same transaction albeit with 50% abatement, it cannot be subjected to levy of Value Added Tax and in any case, the Value Added Tax can be levied only in respect of 50% of the transactional cost which is given as abatement to the petitioner-company. Since in our view, the transaction between the petitioner-companyand Indian Railways, is a transaction purely of sale of goods and not a composite transaction for sale of goods and rendering of services, we cannot accept the contention advanced by the learned counsel. Section 2(zd) of the Act, to the extent it is relevant provides that sales price means the amount paid or payable as valuable consideration for any sale, including any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof. Therefore, the respondents, in our view, are entitled to levy and demand Value Added Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngers boarding the train. It is, therefore, a business decision taken by the petitioner-company, considering all pros and cons to charge from Indian Railways, only for that much quantity which is attributable to the number of persons actually boarding the train. 54. For the reasons given in the preceding paragraphs, we hold that the transaction between the petitioner-company and Indian Railways for providing food and beverages to the passengers, on board the trains, is a transaction of sale of goods by the petitioner-company to Indian Railways. It is neither a contract for providing services nor a composite contract for supply of goods and providing of services. We also hold that sale in respect of goods loaded on board the trains in Delhi, takes place, when the goods are loaded in the trains. Accordingly, we find no merit in the writ petitions and the same are hereby dismissed. It will, however, be open to the petitioner to claim refund of service tax already paid by it in respect of such transactions. If the refund is declined, the petitioner will be at liberty to initiate such proceedings, as may be open to it in law in this regard. If service tax is sought to be levied, upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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