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2015 (12) TMI 1041 - SUPREME COURT

2015 (12) TMI 1041 - SUPREME COURT - 2016 (331) E.L.T. 23 (SC), [2016] 87 VST 528 (SC) - Taxability of Sodexo Meal Vouchers - whether in the nature of goods - consumability within the municipal limit is relevant or not - levy of entry tax / octroi duty / Local body tax (LBT) - Paper based vouchers - affiliates are bound to honour vouchers - On receipt of the vouchers, the Petitioner reimburses the affiliates after deducting service charges - Maharashtra Municipal Corporations Act, 1949 - Held th .....

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nsofar 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 appellan .....

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ed 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.

Without the sanction/ authorisation of the RBI to operate such a payment system under the Payment and Settlement Systems Act, 2007, nobody can operate such a system, as the purpose of the said Act is to r .....

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only for making payments to the participating merchant establishments and other permitted payments. - 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.

Value of such free food and non-alcoholic beverage provided by an employer to an employee is treated as expenditure incurred by the employer and amenity in the hands of the employee. It is .....

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fore, not liable for either Octroi or LBT. - Decided in favour of Assessee. - Civil Appeal Nos. 4385-4386 of 2015 - Dated:- 9-12-2015 - A. K. Sikri And Rohinton Fali Nariman, JJ. JUDGMENT A. K. Sikri, J. The appellant company is conducting the business of providing pre-printed meal vouchers which are given the nomenclature of 'Sodexo Meal Vouchers'. As per the appellant, it enters into contracts with its customers for issuing the said vouchers. These customers are establishments/companie .....

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s, 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 .....

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purpose of levy of Octroi or Local Body Tax (LBT) or the aforesaid activity only amounts to rendering service by the appellant. The issue has to be examined as per the relevant provisions of the Maharashtra Municipal Corporation Act [Act No. LIX of 1949] under which the Municipal Corporation is entitled to levy and collect Octroi or LBT. 3) Before we advert to the relevant provisions of the Act, it would be worthwhile to mention that in order to carry on the aforesaid business, the appellant is .....

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upervision of payment systems in India and designates RBI as the authority for that purpose and all related matters. Under Section 2(1)(i) of the Payment and Settlement Systems Act, 2007, a 'payment system' is defined as a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them but does not include a stock exchange. The appellant is also required to adhere to the Pre-paid Issuance and Operation of the .....

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y the customers is always kept in escrow account and is used strictly only for settlement of vouchers and never accounted for or used as income in the hands of the appellant. Accordingly, the Certificate issued to the appellant contains 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 o .....

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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 vouchers) to the customers; (ii) customers grant said vouchers to their employees (beneficiarie .....

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etains a service fee in order to compensate for the attractiveness of the system which has benefited to the affiliate's business. The appellant pays service tax on such service fee charged. 6) Having taken note of the nature of business operation of the appellant herein and the manner the same is statutorily regulated by the Payments and Settlement Systems Act, 2007 and the Rules framed thereunder, we revert to the issue that has to be answered in the present case, namely, whether these Sode .....

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t, unless there be something repugnant in the subject or context, - xx xx xx (25) goods includes animals; xx xx xx (31A) Local Body Tax means a tax on the entry of goods into the limits of the City, for consumption, use or sale therein, levied in accordance with the provisions of Chapter XIB, but does not include cess as defined in clause (6A) and octroi as defined in clause (42); xx xx xx (42) octroi means a cess on the entry of goods into the limits of a city for consumption, use or sale there .....

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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-secti .....

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le therein, in lieu of octroi or cess, if so directed by the State Government by Notification in the Official Gazette; 10) Procedure for levying such a tax is contained in Section 149 and we would like to reproduce sub-section (1) thereof, which is as under: 149. Procedure to be followed in levying other taxes. (1) In the event of the Corporation deciding to levy any of the taxes specified in sub-section (2) of section 127, it shall make detailed provision in so far as such provision is not made .....

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ability to the tax; (d) the penalties to which persons evading liability or furnishing incorrect or misleading information or failing to furnish information may be subjected; (e) such other matters, not inconsistent with the provisions of this Act, as may be deemed expedient by the Corporation: Provided that no rules shall be made by the Corporation in respect of any tax coming under clause (f) of sub-section (2) of section 127 unless the State Government shall have first given provisional appro .....

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lect Local Body Tax on the entry of goods specified by the State Government by notification in the Official Gazette, into the limits of the City, for consumption, use or sale therein, at the rates specified in such notification. 12) What follows 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 .....

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chers 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 that these vouchers are capable of being sold by the appellant .....

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h Court by adopting these reasons as his arguments. Learned counsel for the appellant, on the other hand, referred to the intrinsic nature of the transaction with the aid of RBI Policy on the subject and certain judgments of this Court, on the basis of which he was vociferous in his submission that in reality it was only a service which was provided by the appellant with no element of 'goods' involved in the transaction. 15) We have already taken note of the nature of the transaction. Af .....

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been committed by the High Court is to proceed on the basis that after printing of the paper vouchers, these are sold by the appellant to its customers. A diagramatic representation of the business model of the appellant, already depicted above, would make it manifest that the vouchers are not the commodity which are sold. If the face value of the said vouchers is rps 50, by giving these ₹ vouchers to its customers, the appellant only takes specified service charges from its customers, whi .....

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ed, 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 .....

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nt, who only gets service charges for the services rendered, both to the customers as well as the affiliates. 17) It is to be borne in mind that the vouchers are not 'sold' by the appellant to its customers, as wrongly perceived by the High Court, and this fundamental mistake in understanding the whole scheme of arrangement has led to wrong conclusion by the High Court. The High Court has also wrongly observed that vouchers are capable of being sold by the appellant after they are brough .....

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payment and settlement thereof by means of 'Paper Based Vouchers'. An insight into the Policy Guidelines dated March 28, 2014 issued by the RBI to regulate such transactions would also clinchingly bears out that the real nature of the transaction is to provide service and by no stretch of imagination these vouchers can be termed as 'goods'. The very first para, viz. Para A, stipulates the purpose of these Guidelines and Rules as follows: A. Purpose To provide a framework for the .....

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hese Guidelines mentions that the same are passed after a comprehensive review of the extant Guidelines and Instructions for the purpose of laying down the basic eligibility criteria and the conditions for operations of such payment systems in the country. Some of the definitions given in para 2 are reproduced below for better understanding of the system: 2. Definitions 2.1 Issuer: Persons operating the payment systems issuing pre-paid payment instruments to individuals/organizations. The money .....

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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 i .....

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ration of such instruments are not classified as payment systems. 2.5 Semi-Closed System Payment Instruments: These are payment instruments which can be used for purchase of goods and services, including financial services at a group of clearly identified merchant locations/establishments which have a specific contract with the issuer to accept the payment instruments. These instruments do not permit cash withdrawal or redemption by the holder. 2.6 Open System Payment Instruments: These are paym .....

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nt of money collected. As per this, the amount thus collected has to be kept in the escrow account and the persons, like the appellant herein, are under obligation to use this amount only for making payments to the participating merchant establishments and other permitted payments. 21) Read in the aforesaid context, insofar as the appellant is concerned, it is only a service provider on the touchstone of the test laid down in Bharat Sanchar Nigam Ltd. & Anr. v. Union of India & Ors. (200 .....

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iders, 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 .....

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, paras 30-31) '...subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power'. xx xx xx There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects. 22) Further, para 20 of the judg .....

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position as the appellant itself subsequently has been paying service tax for the entire collection as processing charges for activating cellular phones and paying the service tax on the activation. The appellant also accepts the position that activation is a taxable service. The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards the SIM cards will form part of the taxable value for levy of service tax, for the SIM cards are .....

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be treated as goods and after discussing the earlier judgment in H. Anraj v. Government of Tamil Nadu (1986) 1 SCC 414, pointed out that the primary test would be as to whether such lottery tickets would constitute a stock in trade of every dealer and, therefore, is a merchandise which can be bought and sold in the market. This was followed in another judgment in Yasha Overseas v. Commissioner of Sales Tax & Ors. (2008) 8 SCC 681, wherein again the test of 'flexibility in its utilisation .....

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7 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 o .....

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