9911796707
TMI Blog2014 (11) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... p; "(zzzzv) services provided or to be provided, to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has license to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises; (zzzzw) Services provided or to be provided, to any person, by a hotel, inn, guest house, club or camp-site, by whatever name called, in relation to providing of accommodation for a continuous period of less than three months;" The aforesaid amendment was brought by the Union, in exercise of the residuary power under Entry 97 of List I of the Seventh Schedule to the Constitution. Entry 97 reads as follows: "Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists." By virtue of the aforesaid amendment, the services enumerated in the clauses referred to above were brought within the service tax net. Consequently, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e found that the matters covered by sub clauses (zzzzv) and (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011, are matters enumerated in Entries 54 and 62 respectively, of List II of the Seventh Schedule to the Constitution and hence, beyond the legislative competence of the Union to impose tax on such matters, invoking Entry 97 of List I of the Seventh Schedule of the Constitution. Hence, these appeals by the Union of India. 4. Heard Adv.Sri.John Varghese, Adv.Sri.Thomas Mathew Nellimoottil, Adv.Sri.Saiby Jose Kidangoor and Adv. Sri.Tojan J.Vathikulam, for the appellants and Senior Counsel Sri.N.Venkataraman, for the respondents. 5. To appreciate the case of the petitioners in the writ petitions, the interpretations given by the Apex Court on the concept of "sale of goods", in the context of "works contract" and "supply of food in restaurant", prior to and after the Constitution (Forty Sixth Amendment) Act need to be understood. In State of Madras v. Gannon Dunkerley & Co. (1958 (9) STC 353), the Apex Court considered the question as to the legislative competence of the provisional legislatures under the Government of India Act, 1935 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 food-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 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." It is thus evident that in the case of building contract, the law was that the transaction is indivisible and therefore, the same would not come within the scope of "sale of goods" for imposition and levy of tax by the States and in the case of supply of food and beverages in a restaurant, the law was that the whole transaction is a service and therefore, the same would not come within the scope of "sale of goods", f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or supply is made. The effect of the said amendment was that works contracts were liable to be split up and the transfer of property in goods involved in the works contract was exigible to tax. The value of service involved in the works contract was not deemed to be a sale and therefore, was not exigible to tax. This position has been stated by the Apex Court in Builders Association of India v. Union of India (1989 (73) STC 370), the relevant portion of the judgment reads as follows : "Even after the decision of this Court in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353; [1959] SCR 379 it was quite possible that where a contract entered into in connection with the construction of a building consisted of two parts, namely, one part relating to the sale of materials used in the construction of the building by the contractor to the person who had assigned the contract and another part dealing with the supply of labour and services, sales tax was leviable on the goods which were agreed to be sold under the first part. But sales tax could not be levied when the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the extent it is relatable to supply of labour and services." When matters stood thus, the Parliament brought the value of services involved in the execution of works contract within the service tax net, by introducing sub clause (zzzza) in clause (105) of section 65 of the Finance Act 1994, with effect from 1.6. 2007. Rule 2A of the Service Tax (Determination of Value) Rules, would indicate that imposition of service tax was limited to the elements of services, deductible from the cost of the works contract, while imposing tax on the goods involved in the works contract. Rule 2A of the Service Tax (Determination of Value) Rules reads thus: "(1) Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner:- (i) Value of works contract service determined shall be equivalent to the gross amount charges for the works contract less th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the customer for the supply of food can be split up between what was charged for the food and for other services. It was held that the price that a customer pays for the supply of food and services in a restaurant cannot be split up and that the whole amount collected from the customer is liable for levy of sales tax. The relevant portion of the judgment reads thus : "8. Learned counsel next contended, relying upon the judgments aforementioned, that, in the eye of the law, the tax on food served in restaurants could not be levied on the sum total of the price charged to the customer. In his submission, restaurants provided services in addition to food and these had to be accounted for. Thus, restaurants provided an elegant decor, uniformed waiters, good linen, crockery and cutlery. It could even be that they provided music recorded or live, a dance floor and a cabaret. The bill that the customer paid in the restaurant had, therefore, to be split up between what was charged for such service and what was charged for the food. 9. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of service tax. In other words, having characterised constitutionally the subject matter of supply of food in a restaurant as a sale, it is not open to the Parliament to tax the very same subject matter under Entry 97 of List I. Thus, according to them, the inevitable corollary of the Constitution (Forty Sixth Amendment) Act is that the power of taxation on the supply of food and other articles of the human consumption is exclusively with the State legislatures. 9. It is beyond dispute that the impugned amendment is brought by the Union invoking the residuary field of legislation contained in Entry 97 of List I of the Seventh Schedule. It is settled that before exclusive legislative competence is claimed for the Parliament, by resorting to the residuary Entry, the legislative incompetence of the State legislature must be clearly established. As provided for in Entry 97 itself, a matter can be brought under that Entry only if it is not enumerated in List II or List III and in the case of tax, if it is not mentioned in either of those Lists. [See International Tourist Corporation v. State of Haryana [(1981) 2 SCC 318]. It is also settled by now that the power to legislate is engra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomer cannot be split as charged for the service part and as charged for the food part and that 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, furnishings and fixtures, linen, crockery and cutlery, music etc., tax is leviable for the whole amount of the consideration received by the restaurant owner. In other words, in view of the aforesaid constitutional amendment, it cannot be said that there is any service involved in the supply of food and other articles of human consumption in a restaurant. It is thus evident that the matter covered by sub-clause (zzzzv) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011 is a matter enumerated in Entry 54 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter. 11. Coming to sub-clause (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011, as found by the learned single Judge, the Constitution Bench of the Apex Court in Godfrey Philips India Ltd v. State of U.P. [(2005) 2 SCC 515, held that the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Union of India and others [(2004) 5 SCC 632], contended that Article 366(29A) (f) only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptionally or otherwise include the supply of services within the definition of sale and purchase of goods. At the outset, we must point out that the Apex Court in that case was dealing with the liability of mandap keeper to pay service tax, in relation to the use of a mandap in any manner, including the facilities provided to the client in relation to such use and also the services, if any, rendered as a caterer. Paragraph 56 of the said judgment deals with the variety of services extended by such mandap keepers to their customers. The said judgment does not deal with the supply of food in a restaurant. The supply of food and other consumables in a restaurant cannot be equated with the services rendered by a mandap keeper in relation to the use of mandaps and also the services, if any, rendered by him/her as a caterer. As such, we do not think that the said judgment is of any help to the appellants. 13. The learned counsel for the appellants relying on the decision of the Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
