TMI Blog2014 (5) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... intra vires the Constitution. - Decided against the assessee. RECOMMENDATIONS: There is no provision in the VAT-Act to bifurcate the amount. The State Government will do well to frame such rules to this effect. These rules may be in conformity with the bifurcation as provided under the 1994-Act or ensure that the Commercial Tax authorities do not charge VAT on that part of the value of the food and drink on which the service tax is being assessed. The restaurant and caterer are also normally charging VAT on the bill value. This is not proper. They may charge service tax on 40% or 60% as the case may be of the bill value and charge VAT at the rate of 60% or 40% of the bill value, but not on the entire bill value. - The State Government will be well advised to issue a clarification/ direction in this regard and will ensure that the consumers are not unnecessarily doubly taxed over the same amount. Decided against the assessee subject to recommendation to state governments. - Writ Petition (T) No. 95 of 2013 - - - Dated:- 6-5-2014 - Shri Yatindra Singh, C.J. And Shri Prashant Kumar Mishra,JJ. For the Petitioner : Shri Shashank Dubey, Senior Advocate with Shri A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale or purchase of goods other than the newspapers is within the domain of State. The Parliament has no legislative competence to enact a law or to impose tax on such a sale or purchase of items. 9. The value added tax is a tax on the sale and purchase of the goods. It is within the legislative competence of the State. The Value Added Tax Act, 2005 (the VAT-Act) has been enacted in pursuance of entry 54 of List-II (State-List). 10. The Parliament has legislative competence to impose a tax on the sale and purchase of the newspapers only and not on other goods sold within a State. It does not have legislative competence to impose tax on sale of food and drinks sold within a State. 11. There is no entry in any list under which the service tax can be imposed. Entry 97 of List-I is residuary entry. It is as follows: 97. Any other matter not enumerated in List-II or List-III including any tax not mentioned in either of those Lists. The 1994-Act imposing service tax has been enacted by the Parliament under this residuary entry. 12. It is clear that: A tax on the sale and purchase of food and drinks within a State is in exclusive domain of the State. The Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74: (1980) 2 SCC 163] (the Northern- Caterers case). 17. In Northern-Caterers case, the supply of food in a high class restaurant was held to be a part of the service. 18. The result of the aforesaid decisions was that no sales tax could be charged on sale of food and drinks to the person staying in a hotel or in a high class restaurant as it was held to be a part of service. 19. A review petition was filed in the Northern-Caterers case but it was dismissed. This order is reported in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi AIR 1980 SC 674: (1980) 2 SCC 163. 20. The government referred the matter to the Law Commission of India, which considered it in its Sixty-First Report and recommended for certain amendments. Thereafter, sub-article 29A was inserted in the Article 366. 21. The entire idea of inserting of Article 366(29A)(f) was to bifurcate sale of the food or drinks from the service part as interpreted by the Supreme Court, that is to say that by amending the Constitution, the supply of food or drinks to a person in a hotel or in a restaurant has been bifurcated into two parts, namely, service part and sale of goods. This is also clear from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative words of the said sub-article are supply of goods and it is only supply of food and drinks and other articles for human consumption that is deemed to be a sale or purchase of goods.' This is also clear from the 1994-Act. 27. Section 66E is titled as Declared Services. The relevant part of the same is as follows: '66E. Declared services.-The following shall constitute declared services, namely:- ... (i) 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.' 28. Section 65B(44) of the 1994-Act defines the word 'service'. The relevant part of the same is as follows: '(44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include - (a) an activity which constitutes merely, - ( ii) such transfer, delivery or supply of goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution;' 29. Section 65B(44)(ii) of the 1994-Act shows that supply of goods that is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... catering service. Difficulties 38. We have some reservations about the rule in quantifying fixed sum towards service and its functioning in the restaurant, and with the tax authorities under the VAT-Act. 39. Sale tax is being charged under the VAT-Act and is known as VAT. Generally, the hotel and restaurant owners charge service tax on 40% or 60% of the bill amount and charge VAT on the bill amount. The 40% or 60% over which service tax has been charged, cannot be subject to VAT. One does not know why they do it but it is possible that this might be resorted to, as the Commercial Tax authorities might be taking the value of the food and drinks to be the bill value. This is not proper. 40. As we have already held that no VAT can be charged over the amount meant for service. It will be open to the Petitioner to object the same before the VAT authorities. However, there should be coordination between the State and the Central Government authorities. The amount over which service tax has been charged should not be subject to VAT. 41. There is no provision in the VAT-Act to bifurcate the amount. The State Government will do well to frame such rules to this effect. These r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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