The Chennai Beverage Vs Commissioner of GST and Central Excise (CESTAT Chennai)
Summary: The appeal was filed by M/s. The Chennai Beverage against Order-in-Appeal No. 142/2016 (STA-II) dated 26.08.2016, whereby the Commissioner (Appeals) upheld the Order-in-Original confirming service tax demand of Rs.7,73,322/- together with interest and penalties. The appellant was registered under the category of “Outdoor Caterer Service” and supplied tea, coffee, Horlicks, Boost, bread sandwiches, bread toast, biscuits, tender coconuts, lime juice and other refreshments to corporate establishments including M/s. ABN AMRO Bank.
For April 2007 to August 2009, the appellant had availed the benefit of Notification No.20/2004-ST, as amended by Notification No.1/2006-ST, by discharging service tax on 50% of the gross value. The Department denied the benefit on the ground that the supplies consisted only of beverages and light refreshments and did not constitute a “substantial and satisfying meal”. A Show Cause Notice dated 15.10.2012 proposed recovery of differential service tax with interest and penalties by invoking the extended period.
The appellant contended that the contracts were composite catering arrangements involving supply of food and beverages, that VAT had been discharged on the value of goods, and that the expression “substantial and satisfying meal” could not be confined to lunch or dinner. Reliance was placed, among others, on Bharat Sanchar Nigam Ltd. v. Union of India and Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes. The Revenue relied upon the strict construction applicable to exemption notifications and upon Perfect Vending (India) Pvt. Ltd. v. Commissioner of Service Tax, Chennai.
The Tribunal considered three issues: entitlement to the benefit of Notification No.20/2004-ST as amended; whether service tax could be levied on the value representing sale of goods on which VAT had been discharged; and whether the extended limitation period, interest and penalties were sustainable.
On the first issue, the Tribunal held that the notification neither restricted “substantial and satisfying meal” to lunch or dinner nor prescribed any quantitative or qualitative standard. The expression was therefore required to receive its ordinary commercial meaning having regard to the catering arrangement as a whole. The Department had impermissibly dissected individual menu items instead of examining the composite catering service. The Tribunal relied upon Welcome Hotel v. Commissioner of Central Excise, Vadodara, where High Tea forming part of catering services was held capable of constituting a substantial meal. It distinguished Perfect Vending (India) Pvt. Ltd. because that case concerned vending-machine arrangements and did not decide the interpretation of Notification No.20/2004-ST.
On the second issue, the Tribunal held that the appellant had discharged VAT on the value of goods supplied and that the Department had not undertaken any exercise to identify the taxable service component. Referring to Bharat Sanchar Nigam Ltd., Imagic Creative Pvt. Ltd., Tamil Nadu Kalyana Mandapam Association and Indian Railways Catering & Tourism Corporation Ltd., it held that the taxable service component had to be identified and the value representing sale of goods could not simply be included in the service-taxable value without proper determination.
On limitation, the Tribunal noted that the period April 2007 to August 2009 was covered by a Show Cause Notice issued only on 15.10.2012, whereas the normal period under the proviso to Section 73(1) of the Finance Act, 1994 was one year. The appellant was registered, had filed ST-3 returns, had paid service tax after availing the notification benefit, and had maintained agreements, invoices and VAT records that were produced during audit. There was no allegation of parallel accounts, consideration outside the books or concealment of material documents. The dispute was held to be essentially interpretational, and the ingredients necessary for invoking the extended period were not established.
The Tribunal accordingly held that the appellant was entitled to the benefit of Notification No.20/2004-ST as amended by Notification No.1/2006-ST; that the demand was unsustainable on merits without identification of the taxable service component; and that the entire demand was independently barred by limitation. Consequently, interest under Section 75 and penalties under Sections 76, 77 and 78 also could not survive. Order-in-Appeal No.142/2016 (STA-II) dated 26.08.2016 was set aside and the appeal was allowed with consequential relief, if any, in accordance with law.
Cases Discussed
- Welcome Hotel v. Commissioner of Central Excise, Vadodara, 2009 (13) S.T.R. 375 (Tri.-Ahmd.)
- Perfect Vending (India) Pvt. Ltd. v. Commissioner of Service Tax, Chennai, 2023 (6) Centax 123 (Tri.-Mad.)
- Bharat Sanchar Nigam Ltd. v. Union of India, 2006 (2) STR 161 (SC)
- Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, (2008) 9 VST 337 (SC)
- Tamil Nadu Kalyana Mandapam Association v. Union of India, 2006 (3) STR 260 (SC)
- Indian Railways Catering & Tourism Corporation Ltd. v. Government of NCT of Delhi, (2010) 20 VST 437 (Del.)
- Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, (1978) 4 SCC 36
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT CHENNAI
This appeal is directed against Order-in-Appeal No.142/2016 (STA-II) dated 26.08.2016, whereby the Commissioner (Appeals) upheld Order-in-Original No.177/2015-16-ST-II dated 31.03.2016 confirming service tax demand of Rs.7,73,322/- together with interest and penalties.
2. The appellant, registered under the category of “Outdoor Caterer Service”, supplied tea, coffee, Horlicks, Boost, bread sandwiches, bread toast, biscuits, tender coconuts, lime juice and other refreshments to corporate establishments including M/s. ABN AMRO Bank. During audit, it was noticed that, for the period April 2007 to August 2009, the appellant had availed the benefit of Notification No.20/2004-ST, as amended by Notification No.1/2006-ST, by discharging service tax on 50% of the gross value. The Department viewed that the supplies comprised only beverages and snacks and did not constitute a “substantial and satisfying meal” within the meaning of the notification, and accordingly issued Show Cause Notice No.311/2012 dated 15.10.2012 proposing recovery of differential service tax of Rs.7,73,322/-, with interest and penalties, by invoking the extended period. The appellant contended that the contracts were composite catering contracts involving supply of food and beverages on which VAT had been discharged and that the value of goods could not again be subjected to service tax. The demand was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals), giving rise to the present appeal.
3. The Ld. Consultant Shri V. Swaminathan appearing for the appellant, submitted that the Department had completely misconstrued the contractual arrangement. According to him, the appellant was not merely supplying tea or coffee but a comprehensive menu comprising tea, coffee, Horlicks, Boost, sandwiches, bread toast, biscuits and other edible preparations under an organised catering contract. VAT had been discharged on the value of goods sold and service tax had been paid after availing the benefit of Notification No.20/2004-ST as amended. It was argued that the expression “substantial and satisfying meal” occurring in the notification could not be restricted only to lunch or dinner and that the authorities had adopted an unduly narrow interpretation. Reliance was placed upon Bharat Sanchar Nigam Ltd. v. Union of India, 2006 (2) STR 161 (SC), Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, (2008) 9 VST 337 (SC), Welcome Hotel v. CCE, Vadodara and other decisions to contend that composite contracts containing both sale and service elements cannot be taxed by ignoring the sale component on which VAT has already been paid. It was further submitted that the dispute was purely interpretational and therefore the extended period and penalties were wholly unsustainable.
4. The Ld. Authorized Representative Mr. M. Selvakumar reiterated the reasoning adopted in the impugned orders. According to him, Notification No.20/2004-ST as amended being an exemption notification required strict construction. The Explanation specifically defined “food” as a “substantial and satisfying meal” and admittedly the appellant supplied only beverages and light refreshments. Reliance was placed upon Perfect Vending (India) Pvt. Ltd. v. Commissioner of Service Tax, Chennai, wherein the Chennai Bench held that supply of beverages through vending arrangements constituted Outdoor Caterer Service liable to service tax. It was therefore contended that the impugned orders call for no interference.
5. Upon consideration of the pleadings, the impugned order and the rival submissions, the following questions arise for determination: –
i. Whether the appellant is entitled to the benefit of Notification No.20/2004-ST as amended?
ii. Whether the composite contracts executed by the appellant permit levy of service tax on the value representing sale of goods?
iii. Whether the demand invoking the extended period together with interest and penalties is sustainable?
6. We now proceed to examine the issues framed for determination sequentially.
Issue No. (i) : Whether the appellant is entitled to the benefit of Notification No.20/2004-ST, as amended by Notification No.1/2006-ST?
7. The controversy in the present appeal lies within a narrow compass. The appellant does not dispute its liability under the taxable category of “Outdoor Caterer Service”. The only dispute is whether the benefit of Notification No.20/2004-ST as amended was rightly availed while discharging service tax on 50% of the gross amount? The entire case of the Revenue rests upon the premise that the appellant supplied only beverages and light refreshments and, therefore, did not comply with the expression “substantial and satisfying meal” occurring in the Explanation to the notification.
8. Before examining the rival submissions, it is necessary to notice the precise foundation of the Show Cause Notice. The Department does not dispute that the appellant is an “Outdoor Caterer” within the meaning of Section 65(76a) of the Finance Act, 1994 or that the services rendered fall within the taxable category. The sole basis for denying the benefit of Notification No.20/2004-ST as amended is that the Explanation appended thereto defines “food” as a “substantial and satisfying meal”. Proceeding on the footing that the agreements, invoices and other records disclose supply only of tea, coffee, biscuits, bread toast, sandwiches, tender coconuts, lime juice and similar refreshments, the Department concluded that the appellant did not supply any “substantial and satisfying meal” as contemplated by the notification. The Show Cause Notice further refers to the statutory definitions of “Caterer” and “Outdoor Caterer” and to Section 67 of the Finance Act, 1994 to contend that, once the benefit of the notification is denied, service tax becomes payable on the gross amount charged for the taxable service. It is therefore evident that the controversy does not relate to the classification of the appellant’s activity as “Outdoor Caterer Service”, but is confined entirely to the interpretation of the conditions contained in Notification No.20/2004-ST as amended.
9. In our considered opinion, the Show Cause Notice proceeds on an incorrect premise. Notification No.20/2004-ST as amended neither restricts the expression “substantial and satisfying meal” to lunch or dinner nor prescribes any quantitative or qualitative standard for determining what would constitute such a meal. In the absence of any such restriction, the expression must receive its ordinary commercial meaning having regard to the catering arrangement as a whole. The Department has effectively read into the notification limitations which do not exist and has denied the benefit by dissecting individual menu items instead of examining the catering service in its entirety.
10. From the description of the contractual arrangement and the nature of the supplies as recorded in the Show Cause Notice and the impugned order, it is evident that the appellant was engaged in providing pantry and catering services involving supply of tea, coffee, Horlicks, Boost, bread sandwiches, bread toast, biscuits and other refreshments under a supply of tea, coffee, Horlicks etc for the employees of the corporate clients. The consideration was linked to the catering arrangement as a whole and not merely to the supply of individual beverages. The Department has proceeded on the premise that, since beverages formed part of the menu, the appellant was disentitled to the benefit of Notification No.20/2004-ST. In doing so, it has focused on individual items mentioned in the menu without examining the composite nature of the catering service as reflected in the records relied upon in the Show Cause Notice.
11. The Show Cause Notice as well as the impugned orders proceed on the basis that the appellant had discharged VAT on the value of the goods supplied. However, the relevance of this admitted factual position has not been examined while considering the appellant’s claim for the benefit of Notification No.20/2004-ST as amended. Instead, the entire reasoning proceeds on the assumption that tea, coffee, sandwiches and similar refreshments can never constitute a “substantial and satisfying meal”. We are unable to subscribe to such an interpretation. The notification itself does not distinguish between breakfast, high tea or lunch, nor does it exclude beverages or edible preparations served as part of an organised catering arrangement. In the absence of any such restriction in the notification, individual items forming part of the menu cannot be viewed in isolation for denying the benefit of the exemption.
12. Considerable support for the above view is also available from the decision of the Tribunal in Welcome Hotel v. Commissioner of Central Excise, Vadodara, 2009 (13) S.T.R. 375 (Tri.-Ahmd.) relied upon by the Appellant. The Tribunal held that the expression “substantial and satisfying meal” occurring in the exemption notification is not defined and must receive a practical and commercial interpretation. It was further held that the menu agreed between the service provider and the client is not required to be scrutinised item by item or invoice by invoice for determining eligibility to the exemption and that High Tea, provided as part of catering services, would qualify as a “substantial and satisfying meal.” The difference of opinion between the Members was ultimately resolved by concurrence, and the Tribunal finally held that High Tea is to be regarded as a substantial meal for the purpose of the notification. The ratio of the said decision fortifies the view that the benefit of the notification cannot be denied merely because the catering menu includes tea, coffee or other refreshments as part of the overall catering arrangement.
13. During the course of hearing before this Tribunal, the learned Authorised Representative placed reliance upon the decision of the Chennai Bench of the Tribunal in Perfect Vending (India) Pvt. Ltd. v. Commissioner of Service Tax, Chennai, contending that the ratio of the said decision squarely governs the present dispute. Since the said decision has been specifically cited before us, its applicability to the facts of the present case requires examination.
14. We have carefully considered the decision in Perfect Vending (India) Pvt. Ltd. v. Commissioner of Service Tax, Chennai, 2023 (6) Centax 123 (Tri.-Mad.). In that case, the Tribunal was concerned with an assessee engaged in manufacture and supply of coffee/tea vending machines, which were sold, rented or lent to customers, while the assessee itself supplied coffee, tea, sugar, milk and allied ingredients and collected charges on a per-cup basis. On those facts, the Tribunal held that the predominant object of the contract was provision of coffee, tea or milk at the clients’ premises and that supply of ingredients was merely incidental to the rendering of such service.
15. The controversy in the present appeal is materially different. There is no dispute that the appellant is rendering “Outdoor Caterer Service”. The sole issue is whether the appellant is entitled to the benefit of Notification No.20/2004-ST as amended, which depends upon the interpretation of the expression “food” means a “substantial and satisfying meal” occurring in the Explanation thereto. The Show Cause Notice itself proceeds on the basis that the appellant supplied tea, coffee, Horlicks, Boost, sandwiches, bread toast, biscuits, tender coconuts, lime juice and other refreshments and denies the exemption solely on the ground that these do not constitute a “substantial and satisfying meal”. That issue neither arose for consideration nor was decided in Perfect Vending.
16. The ratio of Perfect Vending therefore cannot be extended beyond the issue actually decided therein. While the Tribunal in that case determined the taxability of the activity on the basis of the predominant nature of the vending-machine contracts, the present appeal turns entirely on the interpretation of the conditions prescribed under Notification No.20/2004-ST as amended. Since the statutory issue, contractual arrangement and factual foundation are materially different, the said decision does not govern the present controversy.
17. For the foregoing reasons, we hold that the appellant’s claim for the benefit of Notification No.20/2004-ST as amended cannot be denied merely because beverages formed part of the catering menu. The expression “substantial and satisfying meal” must be construed in the context of the catering arrangement as a whole and not by isolating individual items supplied thereunder. Accordingly, Issue No. (i) is answered in favour of the appellant.
Issue No. (ii): Whether the composite contracts executed by the appellant permit levy of service tax on the value representing sale of goods on which VAT has been discharged?
18. The appellant’s second contention goes to the root of the demand. From the description of the contractual arrangement in the Show Cause Notice and the findings recorded in the impugned orders, it is evident that the appellant was engaged in supply of food and beverages as part of pantry and catering services and had discharged VAT on the value of the goods supplied. The Department has not disputed the payment of VAT or proceeded on the footing that there was no transfer of property in the food articles. The controversy is confined to whether the entire consideration received under the catering arrangement could nevertheless be subjected to service tax without excluding the value attributable to the sale of goods.
19. The legal position on this aspect is well settled. In Bharat Sanchar Nigam Ltd. v. Union of India, 2006 (2) STR 161 (SC), the Constitution Bench explained that after the Forty-sixth Constitutional Amendment, a composite contract may contain both sale and service elements and each component is taxable in its respective constitutional field.
20. The common thread running through the above decisions is that, in a composite contract, the taxable service component alone is liable to service tax and the value representing sale of goods cannot be ignored merely because both arise from the same transaction. In the present case, although it is not disputed that VAT was paid on the value of the goods supplied, no attempt was made to identify the service component or examine whether the demand included the value of goods already subjected to VAT. The benefit of Notification No.20/2004-ST as amended was denied solely on the ground that the appellant supplied beverages and refreshments which cannot be equated with a satisfying meal. For the reasons already recorded while dealing with Perfect Vending (India) Pvt. Ltd., the said decision does not advance the Revenue’s case.
21. Further, we are unable to approve this approach. Once the Department accepts that there was transfer of property in goods attracting VAT, it was incumbent upon it to demonstrate, with reference to the contractual terms and valuation provisions, the extent of the taxable service component. No such exercise has been undertaken either in the Show Cause Notice or in the impugned orders. The demand thus proceeds on an assumption rather than on a proper determination of the taxable value.
22. The Ld. Authorized Representative relied upon Perfect Vending (India) Pvt. Ltd. We are unable to accept the contention as the said decision was rendered on a different contractual arrangement involving supply of beverages through vending machines on a per-cup basis and did not decide the scope or interpretation of Notification No.20/2004-ST as amended, particularly the expression “substantial and satisfying meal”. It therefore does not displace the principles governing the present dispute.
23. In the present case, the appellant has consistently maintained that more than ninety per cent of the contract value represented the value of food and beverages supplied and that VAT had been discharged thereon. Whether or not the precise percentage is accepted, the undisputed existence of a substantial sale component required the authorities to examine the contract in the light of the above Supreme Court decisions. Their failure to do so vitiates the impugned orders.
24. Accordingly, Issue No. (ii) is answered in favour of the appellant. The impugned demand cannot be sustained without first identifying the taxable service component in accordance with the principles laid down in Bharat Sanchar Nigam Ltd., Imagic Creative Pvt. Ltd., Tamil Nadu Kalyana Mandapam Association and Indian Railways Catering & Tourism Corporation Ltd.
Issue No. (iii): Whether the invocation of the extended period of limitation and the consequential levy of interest and penalties are sustainable?
25. Before examining the allegation of suppression, it is necessary to notice the chronology of events. The Show Cause Notice seeks to recover service tax for the period April 2007 to August 2009, whereas the Show Cause Notice came to be issued only on 15.10.2012. During the relevant period, the normal period prescribed under Section 73(1) of the Finance Act, 1994 for issuance of a demand notice was one year. Consequently, the entire demand, including the latest period ending in August 2009, had already become barred by limitation under the normal period long before issuance of the Show Cause Notice. It therefore follows that the entire demand can survive only if the Department successfully establishes the ingredients necessary for invoking the extended period under the proviso to Section 73(1). The issue of limitation is, therefore, not incidental but goes to the very root of the proceedings.
26. The sole basis for invoking the extended period is the allegation in the Show Cause Notice that the appellant had suppressed the true nature of the services rendered with an intent to evade payment of service tax. We are unable to accept this allegation. The appellant was admittedly registered with the Service Tax Department under the taxable category of “Outdoor Caterer Service”. It had regularly filed ST-3 returns, discharged service tax after availing the benefit of Notification No.20/2004-ST as amended and maintained the agreements, invoices and VAT records in the normal course of business. These records were produced before the Department during the audit and form the very foundation of the present proceedings. There is no allegation that the appellant maintained parallel accounts, received any consideration outside the books of account or concealed any material document from the Department.
27. The dispute arises entirely from the Department’s interpretation of the expression “substantial and satisfying meal” occurring in Notification No.20/2004-ST as amended. The appellant, on the other hand, entertained the view that the organised pantry and catering services rendered by it satisfied the conditions of the notification. Thus, the dispute is essentially one of interpretation of an exemption notification. It is well settled that where all primary facts are within the knowledge of the Department and the dispute concerns only the interpretation of law, the extended period cannot be invoked merely because the Department subsequently forms a different legal opinion. Mere rejection of an assessee’s interpretation does not constitute suppression or wilful misstatement with intent to evade payment of tax.
28. We also find that the appellant’s stand was supported by judicial precedents including Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, (1978) 4 SCC 36, Bharat Sanchar Nigam Ltd. v. Union of India, 2006 (2) STR 161 (SC), Tamil Nadu Kalyana Mandapam Association v. Union of India, 2006 (3) STR 260 (SC), Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, (2008) 9 VST 337 (SC) and Indian Railways Catering & Tourism Corporation Ltd. v. Government of NCT of Delhi, (2010) 20 VST 437 (Del.). The Ld. Authorized Representative, during the hearing before this Tribunal, relied upon Perfect Vending (India) Pvt. Ltd. The existence of competing legal interpretations itself demonstrates that the issue was debatable and interpretational. Such circumstances are wholly inconsistent with an allegation of deliberate suppression or intention to evade tax.
29. Since the Department has failed to establish the statutory ingredients necessary for invoking the proviso to Section 73(1), the extended period is not available. Once the extended period is excluded, the Show Cause Notice dated 15.10.2012, covering the period April 2007 to August 2009, is entirely beyond the normal period of limitation prescribed under Section 73(1). The entire demand is therefore barred by limitation and is liable to be set aside on this ground alone, even independent of our findings on merits.
30. Consequently, the demand of interest under Section 75 and the penalties imposed under Sections 76, 77 and 78 of the Finance Act, 1994 also cannot survive. Issue No. (iii) is answered in favour of the appellant.
31. In view of the foregoing discussion, we hold that the appellant is entitled to the benefit of Notification No.20/2004-ST, as amended by Notification No.1/2006-ST. The expression “food” means a “substantial and satisfying meal” occurring in the Explanation to the notification must receive its ordinary and commercial meaning in the context of the catering service as a whole and not by isolating individual items forming part of the menu. Accordingly, the demand is unsustainable on merits.
32. The Show Cause Notice dated 15.10.2012, covering the period April 2007 to August 2009, is barred by limitation as the extended period under Section 73(1) of the Finance Act, 1994 is not invocable. Consequently, the demand of service tax, interest and penalties are set aside.
33. Accordingly, Order-in-Appeal No.142/2016 (STA-II) dated 26.08.2016 is set aside and the appeal is allowed with consequential relief, if any, in accordance with law.
(Order pronounced in open court on 12.08.2026)
