TMI Blog2015 (12) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... the affiliates for supply of goods against those vouchers. This arrangement is made to help the customers by simply facilitating the provision for making available food items, etc. of a particular amount, represented by vouchers, to the employees of these customers. No doubt, vouchers bear a particular value and for such value, goods are provided to the employees. However, these goods are not provided by the appellant, but by the affiliates. The appellant is only a facilitator and a medium between the affiliates and customers and is providing these services. The intrinsic and essential character of the entire transaction is to provide services by the appellant and this is achieved through the means of said vouchers. Goods belong to the affiliates which are sold by them to the customers' employees on the basis of vouchers given by the customers to its employees. High Court has also wrongly observed that vouchers are capable of being sold by the appellant after they are brought into the limits of the city. These vouchers are printed for a particular customer, which are used by the said customer for distribution to its employees and these vouchers are not transferrable at all. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose that the agreement is entered into by such establishments/companies with the appellant for issuing the said vouchers. After receiving these vouchers for a particular denomination, some are distributed by the companies to its employees. For utilisation of these vouchers by such employees, the appellant has made arrangements with various restaurants, departmental stores, shops, etc. (hereinafter referred to as 'affiliates'). From these affiliates, the employees who are issued the vouchers can procure the food and other items on presentation of the said vouchers. The affiliates, after receiving the said vouchers, present the same to the appellant and get reimbursement of the face value of those vouchers after deduction of service charge payable by the affiliates to the appellant as per their mutual arrangement. In this manner, the appellant, by issuing these vouchers to its customers, gets its service charge from the said companies. Likewise, the appellant also takes specified service charges from its affiliates. A diagramatic representation of the business model of the appellant is as under: 2) On the basis of the aforesaid arrangement made by the appellant with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains the following terms and conditions: The Payment System Provider shall adhere to the provisions of the Payment and Settlement Systems Act, 2007, regulations issued thereunder and the directions/guidelines issued by the Reserve Bank of India. The authorization is only for issue of meal vouchers and gift vouchers in the form of 'Paper based vouchers' and 'Smartcard' or 'Smart Meal Card' and subject to adherence of the 'Policy Guidelines for issuance and operation of Pre-paid Payment Instruments in India' (unless specific relaxation has been permitted by the RBI) Sodexo shall adhere to the provisions of the prevention of Money Laundering Act and ruled framed thereunder. Further, the guidelines on Know Your Customer/Anti-Money Laundering/ Combating Financing of Terrorism issued by the RBI to Banks, from time to time shall apply mutatis mutandis to the entity. 5) Thus, as per the aforesaid authorisation by the RBI, the business operation that is carried out by the appellant, has the following essential features: (i) the payment system operated by the appellant involves issuance of vouchers having a face value (meal and gift v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese goods are for consumption, use or sale. The tax is to be levied in accordance with the provisions of Chapter XIB. It, however, specifically excludes Octroi, as defined in Section 2(42. It also becomes clear that Octroi is a cess on the entry of goods into the limits of a city for consumption, use or sale therein, but it does not include a cess as defined in clause (6A) or LBT. Both these levies are on the goods that enter into the limits of a city for consumption, use or sale therein. 9) The charging section, for imposition of tax under the Act, is Section 127. This provision enumerates various types of taxes. Sub-section (1) thereof empowers the Corporation to impose two kinds of taxes, namely, property tax and a tax on vehicles, boats and animals. Sub-section (2) also authorises the Corporation to impose certain other kinds of taxes which, inter alia, include Octroi and a cess on entry of goods in lieu of Octroi. Clause (aaa) was inserted in sub-section (2) by way of amendment carried out vide Mah.27 of 2009, with effect from August 31, 2009, whereby LBT was also included as another form of tax which could be levied and this clause reads as under: (aaa) Local Body Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows from the conjoint reading of the aforesaid provisions is that LBT or Octroi is a tax 'on the entry of goods into the limits of the city', which goods are meant for 'consumption, use or sale therein'. In this backdrop, we have to find out the true nature of the Sodexo Meal Vouchers and to ascertain whether they are 'goods'. 13) The appellant had resisted the imposition of LBT primarily on the ground that it was providing services to the establishments with whom it had entered into contracts and, therefore, such agreements were for service and not for sale of any goods. The High Court has negated the contention primarily on the ground, which, in fact, is the sole ground, that the scheme postulates printing of the paper vouchers by the appellant which are sold to its customers. The said customers, in turn, provide the vouchers to their employees who use these vouchers in the restaurants or different places or outlets to get ready-to-eat items and beverages of the face value printed on the said vouchers. Therefore, the vouchers are used to pay the price for food items and beverages distributed to users. The High Court, in the passing, has also remarked th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouchers to the said affiliates, the appellant again takes service charges from these affiliates, which is again a sum of 2. Thus, insofar as the appellant ₹ is concerned, it has made the arrangements with the affiliates for supply of goods against those vouchers. This arrangement is made to help the customers by simply facilitating the provision for making available food items, etc. of a particular amount, represented by vouchers, to the employees of these customers. No doubt, vouchers bear a particular value and for such value, goods are provided to the employees. However, these goods are not provided by the appellant, but by the affiliates. The appellant is only a facilitator and a medium between the affiliates and customers and is providing these services. The intrinsic and essential character of the entire transaction is to provide services by the appellant and this is achieved through the means of said vouchers. Goods belong to the affiliates which are sold by them to the customers' employees on the basis of vouchers given by the customers to its employees. It is these affiliates who are getting the money for those goods and not the appellant, who only gets service c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns operating the payment systems issuing pre-paid payment instruments to individuals/organizations. The money so collected is used by these persons to make payment to the merchants who are part of the acceptance arrangement directly, or through a settlement arrangement. 2.2 Holder: Individuals/Organizations who acquire pre-paid payment instruments for purchase of goods and services, including financial services. 2.3 Pre-paid Payment Instruments: Pre-paid payment instruments are payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. The pre-paid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount (collectively called Prepaid Payment Instruments hereafter). The pre-paid payment instruments that can be issued in the country are classified under three categories viz. (i) Closed system pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel Restaurant Assn. Of India v. Union of India, (2005) 4 SCC 214: (SCC pp.652-53, paras 30-31) '...subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erability were discussed and applied in the context of REP licences' to determine whether such licences were goods or not. 24) We may mention here that the appropriate test would be as to whether such vouchers can be traded and sold separately. The answer is in the negative. Therefore, this test of ascertaining the same to be 'goods' is not satisfied. (III) Real Character Of The Transaction Is The Facility By The Customers As Employers To Their Employees: 25) Section 17 of the Income Tax Act, 1961, defines 'salary' in the hands of the employees which becomes taxable under the Income Tax Act. Various components of salary are enumerated therein. Clause (viii) of sub-section (1) of Section 17 includes 'the value of any other fringe benefit or amenity as may be prescribed' as part of salary. Rule 3 of the Income Tax Rules prescribes the method of 'valuation of perquisites'. We are concerned with Rule 3(7)(iii), which deals with the value of free food, etc. and reads as under: (iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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