TMI Blog2011 (1) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... y whatever mode it may be made and it does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. - Decided against the assessee. It was pleaded that in absence of fraud, suppression of facts, wilful misstatement etc. with intent to evade the payment of tax penalty under section 78 ibid is not called for - Held that: there is no suppression of facts etc. on the part of the Appellant and this is a case of interpretation of exemption notification, and since the criteria for imposition of penalty under section 78 ibid is the same as the criteria for invoking extended limitation period under proviso to section 73(1), there are no grounds for imposition of penalty under section 78. - 399 OF 2009 & 462 OF 2010 - ST/26-28 OF 2011 - Dated:- 25-1-2011 - D.N. PANDA, RAKESH KUMAR, JJ. ORDER Rakesh Kumar, Technical Member - The appellant is a company engaged in the business of running a hotel in Indore under the name Sayaji Hotels . The Appellant in their Hotel have hotel rooms, restaurants, swimming pools, health fitness centre, banquet halls called Mandap etc. They provide various services like lodging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) there is documentary proof specifically indicating the value of the goods and materials sold ; and (b) no Cenvat Credit of duty paid on such goods and materials sold has been taken under Cenvat Credit Rules, 2004 and where such credit has been taken, the service provider has paid an amount equal to such credit availed before the sale of such goods and materials. 1.3 From 1-3-2005, the Appellant stated availing the benefit of Notification No. 12/03-ST, dated 20-6-2003 by splitting the bill for services in relation to use of Mandap into the charges for Mandap and the charges for food and beverages. The Department was of the view that exemption Notification No. 12/03-ST is not applicable to the Appellant and that they could avail only of exemption under Notification No. 21/97-ST, dated 26-6-1997, as amended and its successor Notification No. 1/06-ST, dated 1-3-2006 if they satisfy the condition of this notification, as the Appellant s contract with their clients providing service in relation to use of Mandap is an indivisible service contract and it is not possible to divide the same into the value of service and the value of the food served to the guests and that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner confirmed the total service tax demand of ₹ 68,54,100 alongwith interest and while penalty of ₹ 68,54,100 was imposed under section 78, penalty of ₹ 200 per day till the date of payment of tax was imposed under section 76. Vide order-in-original No. 02/Commr/ST/IND/2010, dated 8-10-2010 in respect of the show cause notice dated 15-10-2009 the Commissioner confirmed service tax demand of ₹ 1,29,44,543 holding that the appellant are not eligible for exemption order No. 12/03-ST as well as for Notification No. 1/06-ST. He imposed penalty of ₹ 1,29,44,543 on the Appellant under section 78 and penalty of ₹ 200 per day under section 76. 1.4 Appeal No. ST/374/08 has been filed against order-in-original No. 1/Commissioner/ST/IND/08 dated 14-3-2008. The Committee of Chief Commissioners, in respect of this appeal, directed the Commissioner, under section 86(4) of the Finance Act, 1994 for filing a memorandum of Cross Objection for praying the Tribunal for decision on the following points arising out of the impugned order. Whether the supply of food alongwith the Mandap keeper service amounts to sale in terms of Notification No. 12/03-ST dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Service charges for the serving of the food and beverages to the guests; and (iii) Value of the food and beverages sold. The Appellant were paying service tax on the total amounts collected under (i) and (ii) above which represented the value of Mandap keeper services. No abatement or exemption was claimed on the amounts mentioned in (i) (ii) above. On the value of food and drinks sold, the Appellant were paying Sales Tax/VAT and in respect of the sale value of food and beverages, the Appellant were availing service tax exemption under Notification No. 12/03-ST. The Appellant have not availed input duty credit in respect of food and drinks. Therefore, benefit of exemption under Notification No. 12/03-ST has been correctly availed. (2) Exemption Notification No. 21/97-ST dated 26-6-1997 and its successor Notification No. 1/06-ST dated 1-3-2006 are specifically applicable for Mandap keeper services, while Notification No. 12/03-ST is a general exemption notification available in respect of all the taxable services. The specific v. General rule does not apply when two exemption notifications are available to an assessee. The assessee is free to avail the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/03-ST has to be understood in terms of its definition as given in section 2(h) of the Central Excise Act, 1944 which, by virtue of section 65(121) of the Finance Act, 1994 is applicable to Service Tax. This definition of sale is wider than the definition of sale in section 4 of the Sale of Goods Act, 1930. The supply of food and beverages to the guests of the clients while providing the Mandap Keeper services is sale within the meaning of this term as defined in section 2(h) of the Central Excise Act, 1944, as in this case, there is transfer of possession of the goods. Thus there is sale of goods involved without invoking the concept of deemed sale under Article 366 (29A)(f) of the Constitution. (7) In any case, the expression sold in Notification No. 12/03-ST would also include transaction deemed as sale in terms of Article 366(29A) of the Constitution for the purpose of levy of sales tax by States. Same view has been taken by the Tribunal in the case of Sky Gourmet (P.) Ltd. v. CST [2009] 22 STT 422 (Bang. - CESTAT). (8) The Hon ble Supreme Court in the cases of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 245 and Imagic Creative (P.) Ltd. v. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of food and beverages and the value of services in relation to use of Mandap. (ii) Main objective of the Appellant s contract with their clients is making available to them a banquet hall space with decoration, lighting, music, catering of food and beverages and other necessary facilities for the business, social or official functions. There is no intention to sell food and beverages. Hence, there is no sale of food and beverages. Therefore Notification No. 12/03-ST is not applicable. (iii) Till February 2005, the Appellant were paying Service Tax by availing Notification No. 21/97-ST. Subsequently, they started splitting the bills into the charges for Mandap and charges for food and beverages. Letter dated 5-2-2007 of the Appellant admits that they started availing Notification No. 12/03-ST by splitting the bills for service in relation to use of Mandap, into the bill for use of Mandap and bill for food and drinks. Though the appellant claim that the charges for food and drink do not include the charges for service, and the same are included in the Mandap charge , the invoices do not show this and there is no other evidence in this regard. There is, in fact, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the Government has decided to charge service tax on Mandap Keeper s service only on 60% of the gross amount charged by the Mandap Keepers from the customers. (vii) Hon ble Supreme Court in case of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1980] 45 STC 212 has held that supply of food and beverages by caterers is a service not a sale and same view was taken by Hon ble Supreme Court in case of State of Himachal Pradesh v. Associated Hotels of India [1972] 29 STC 474 with regard to supply of food by a hotelier to his guests. Therefore in this case, serving of food and beverages by the Mandap Keeper to his client s guests in course of use of Mandap is pure service and the same cannot be split up into catering service element and cost of food and beverages. (viii) Catering service provided to the clients during their use of Mandap has an element of personalised service and the service element is more weighty, visible and predominant in case of catering. No sale of food and beverages is discernible in the activity of catering which is an ancillary activity to the activity of providing service in relation to use of Mandap i.e., making banquet hall avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lakshmi Kumaran, made the following submissions : (1) Notification No. 12/2003-ST is a general exemption notification applicable to all the taxable services in rendering which sale of goods and materials is involved. In this case, the food and beverages were sold by the Appellant to their clients and service of catering was provided only on the client s request, the charges for which are included in the charges for use of Mandap. The invoices for food and beverages are the evidence of the value of the food and beverages sold. (2) Appellant s contracts with their clients are divisible contract i.e., contracts for sale as well as service, not indivisible contract for service. (3) The Commissioner in the order-in-original Nos. 11 12/Commr/ST/IND/2009 dated 26-2-2009 in (para 28) has observed that the term sale includes deemed sale under Article 266(29A)(f) of the Constitution. This finding of the Commissioner has not been challenged. (4) Judgment of Hon ble Supreme Court in case of Tamil Nadu Kalyana Mandapam Association (supra) is in respect of the constitutional validity of levy of service tax on the service in relation to use of Mandap and the Hon ble Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12/03-ST claiming that the supply of food and beverages to the guests of their customers in course of use of Mandap is sale of food and beverages whose value is separately shown in the invoices and on which sales tax/VAT is paid. 3.1 The main thrust of the Appellant s plea is that their transactions as Mandap Keeper with their customers involve sale of food and beverages on which sales tax/VAT levied by the State Government is paid, as well as service in relation to use of Mandap and the invoices issued by them show the value of food and beverages supplied, and therefore, the benefit of exemption under Notification No. 12/03-ST cannot be denied to them. It has also been pleaded that in view of Hon ble Supreme Court s judgment in case of Imagic Creative (P.) Ltd. (supra) Sales tax/VAT and service tax are mutually exclusive and both cannot be levied simultaneously on the same value and therefore depending upon whether the value of food and beverages supplied by the Mandap keeper is upto 40% of the gross amount charged or more than 40% of the gross amount charged, the Mandap Keeper must have the option to avail Notification No. 21/97-ST or 1/06-ST or Notification No. 12/03-ST so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixtures, light fittings and floor coverings thereon let out for a consideration for organizing any official, social or business function. 4.1.1 Under section 65(67), Mandap Keeper means a person who allows temporary occupation of a Mandap for a consideration for organizing any official, social or business function. 4.1.2 Under section 65(24), 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 . 4.2 Under section 67 of the Finance Act, 1994 the taxable value for the service in relation to use of Mandap is the gross amount charged without any provision for abatement for the cost of food and beverages served. Since with effect from 16-6-2005 the definition of Mandap Keeper Service in section 65(105)(m) specifically includes the service provided by the Mandap Keeper as a caterer and a caterer, in terms of its definition in section 65(24) means any persons who supplies either directly or indirectly, any food, edible preparations, alcoholic or non-alcoholic beverages or crockery or similar articles or acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the charges for catering service. Though this notification does not say so explicitly, from its wordings it as clear that the intention of the Government behind this exemption is to avoid charging service tax on that portion of the value of the service in relation to use of Mandap, which represents the value of food and beverages served and the 40% abatement represents the average value of the food and beverages component of the service in relation of use of Mandap. But having said so, we want to make it clear that as discussed in para 4.2 above, the Central Government has powers to charge service tax on gross amount charged including the charges for catering and the abatement towards the value of food and beverages supplied allowed by issuing an exemption notification under section 93(1) of the Finance Act, 1994 is limited only to the extent it is prescribed in the exemption Notification No. 21/97-ST and its successor Notification No.1/06-ST, issued under section 93(1) even if the component of the value of food and beverages served is more than 40% of the gross amount charged. 6. The question now arises as to whether a Mandap keeper, in whose case, the value of food beve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beverages on actual basis must necessarily be allowed under Notification No. 12/03-ST our findings on these points are as under. 6.1.1 Coming to point (b) first, from the wordings of clause (f) of Article 366(29A) of the Constitution it is clear that by this provision, for the purpose of charging tax on sale or purchase of goods, the supply of food or drinks by the way of or as part of service is to be treated as sale of food and drinks. It is thus a legal fiction created for the purpose of enabling the State Governments to charge sales tax on supply of food and drinks involved in catering contracts, while otherwise had been held by the courts as services contracts, by treating the same as sale. As has been held by Hon ble Supreme Court in its judgments in the cases of (a) State of Maharashtra v. Laljit Rijshi Shah [2000] 2 SCC 699; (b) Union of India v. Sampat Raj Dugar AIR 1992 SC 1417 ; (c) K Prabhakaran v. P. Jayarajan [2005] 1 SCC 754; (d) Raymond Ltd. v. State of Chhattisgarh [2007] 3 SCC 79; and (e) Imagic Creative (P.) Ltd. (supra), in construing a legal fiction, it is not to be extended beyond the purpose for which it has been created. Since Article 366(29A) had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract for sale or for both sale as well as service or for two or more different services, depends upon the intention of the parties, which has to be ascertained from the terms of the contract. In this regard, Hon ble Supreme Court in para 4 of its judgment in case of Sentinel Rolling Shutters Engg. Co. Ltd. v. Commissioner of Sales Tax [1978] 4 SCC 260 has observed as under - 4. It may be pointed out of that a contract where not only work has to be done but the execution of such work requires goods to be used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of work for a price; it may be a contract for work in which the use of materials is accessory or incidental to the execution of work; or it may be a contract for supply of goods where some work is required to be done as incidental to sale. When the contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and other for work and labour. The second type of contract is clearly a contract for work and labour not involving sale of goods, while the third type of contract is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that serving of food or drinks by a restaurant to his customers does not partake of the character of sale of goods. Thus, the catering component of the Appellant s contract with their customer while rendering Mandap keeper service is service in which there is no object of sale of food and beverages and as such no sale of food and beverages is involved. In fact the food and beverages served to the guests of the customer while using the Mandap is consumed by them without transfer of possession of food and beverages from the Mandap keeper to his customer for some consideration. Just because a Mandap keeper charges a specified amount for serving food and beverages to the guests of its customers, that does not become sale of food and beverages, as the intention of the contract is providing service incidentally involving serving of food and drinks to the guests of the customer and the price charged for serving of food and drinks forms part of consideration of Mandap keeper service but not the price for sale of food and drinks. 6.1.2.2 Other than merely making a bald claim that the charges for food and drinks shown in the invoices represent the value of food and drinks only and do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering plea of the appellant, we are of the view that the same is devoid of merit for the following reasons. (1) Hon ble Supreme Court in case of Tamil Nadu Kalyana Mandapam Association (supra) while considering the validity of levy of service tax by the Central Government on the service in relation to use of Mandap, while dismissing the argument of the Appellants that service tax by Central Government on catering services, a part of service in relation of use of Mandap, amounts to tax on sale and purchase of goods, and upholding the levy, held that the fact that sales tax on the supply of goods involved in the said service can be levied does not mean that a service tax can not be levied on the service aspect of catering. In this regard paras 42, 43, 44 and 45 are reproduced below : 42. 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. Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter Thus the plea that service tax can not be levied on the portion of value of Mandap Keeper Service which represents the value of food and beverages served is baseless. In fact in paras 42 43 of the Apex Court judgment reproduced above it has been held in very clear terms that Article 366(29A)(f) only permits the states to impose a tax on the supply of food and drinks by whatever mode it may be made and it does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. (2) In the case of Imagic Creative (P.) Ltd. (supra), the assessee was providing advertising Agency s service and was paying sales tax on goods used in providing the service by treating the same as deemed sale. The commercial tax Department wanted to include the value of service portion also in the value of goods for the purpose of charging sales tax which was not accepted by Hon ble Supreme Court on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. As discussed in para 6.1.2.2 above, there was no evidence produced to show that there was a sale contract between the Appellant and its customers. 6.3 The Appellant relied on Tribunal s judgment in case of Sky Gourmet (P.) Ltd. (supra) wherein it was held that in view of legal fiction of Article 366(29A)(f) of the Constitution, serving of food and beverages in a catering contract is sale of food and beverages for the purpose of Notification No. 12/03-ST. But this judgment has not considered at all the judgment of Hon ble Supreme Court in case of Tamil Nadu Kalyana Mandapam Association (supra). In para 55 of the said judgment Hon ble Court has held that service element is more weighty and predominant in outdoor catering and it cannot be considered as a case of sale of food and drinks as in a restaurant and also the observations in para 43 of the judgment reproduced above the Apex court has held in clear terms that supply of food and drinks in a catering contract, which by virtue of Article 366(29A)(f) of the Constitution is deemed to be sale for the purpose of charging sales tax, cannot be treated as sale of goods for the purpose of service tax. The Tribunal s judgment in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly in appeal No. ST/374/08, the demand for the period prior to March 06 would be time barred. It is also pleaded that in absence of fraud, suppression of facts, wilful misstatement etc. with intent to evade the payment of tax penalty under section 78 ibid is not called for. 7.1 As per the provisions of section 73(1) of the Finance Act, 1994, longer limitationperiod of five years from the relevant date , as defined in section 73(6) ibid is available to the Department for recovery of short levied, short paid, not levied or paid or erroneously refunded service tax only if such non levy, short levy/short payment or erroneous refund has taken place by the reason of fraud, collusion or wilful misstatement, or suppression of facts or contravention of any provisions of Chapters V VA of the Finance Act, 1994, by the person chargeable with the Service Tax or his agent. Hon ble Supreme Court in a series of judgments in cases of - (a) Padmini Products v. Collector of Central Excise 1989 (43) ELT 195 (b) Collector of Central Excise v. Chemphar Drugs Liniments 1989 (40) ELT 276 (c) Pushpam Pharmaceutical Co. v. Collector of Central Excise 1995 (78) ELT 401 and (d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the service tax was not paid by the due date, penalty under section 76 has been correctly imposed. 9. In view of our above findings - (a) we uphold the Commissioner s findings in these cases that Notification No. 12/03-ST dated 20-6-2003 is not available to the Appellant; (b) so far as appeal No. ST/374/08 is concerned, the service tax demand alongwith interest is upheld only for the normal limitation period and the demand for period beyond the normal limitation period of one year from the relevant date is set aside and the matter is remanded to the Commissioner for quantifying the demand for normal limitation period ; (c) so far as appeal No. ST/399/09 is concerned, the service tax demand alongwith interest is upheld ; (d) so far as appeal No. ST/462/10 is concerned, the matter is remanded to the Commissioner for re-quantifying the service tax demand, after permitting abatement under Notification No. 1/06-ST subject to condition that the Appellant reverse the Cenvat Credit availed by them ; and (e) while penalty imposed under section 76 of Finance Act, 1994 in these appeals is upheld, the penalty imposed under section 78 ibid in these appeals is s ..... 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