Pre-deposit prejudicial to assessee’s interest cannot be ordered on a debatable issue

 Brief of the case:

The Hon’ble Madras HC in the case of PK Shefi vs. CESTAT held that the tribunal is not right to order pre-deposit prejudicial to the interest of the assessee when the issue was debatable and the assessee has reasonably shown the likely financial hardship to be suffered.

 Facts of the case:

• The assessee is was awarded a contract by M/s. IRCTC for supply of food to the passengers on board the trains run by the Indian Railways.
• The revenue alleged that the service provided by the assessee is covered within the definition of outdoor catering services as defined u/s 65(105)(zzt)  which become taxable w.e.f 01.03.2006.
• The department raise a demand for the services provided on trains other than (Rajdhani/Shatabadi), as the assessee made the payment of tax for services provided on other Rajdhani/Shatabadi.
• The tribunal in response to stay application filed by the assessee passed a non-speaking order asking to pre-deposit Rs. 3.75 crores as against the demand of 5.91 crores relying on the decision of Imagic Creativity Pvt. Ltd.
• The assessee is now in appeal before the High Court against the order of tribunal.
  

Contention of the Assessee:

• The appellant pleaded financial hardship and submitted that it is required more than Rs.one crore to provide the services and therefore, the demand in this case may affect the 30 year contract.
• The assessee relied on the decision of Hon’ble Delhi HC in the case of IRTC vs. Govt. of NCT of Delhi wherein the court held that the outdoor catering services provided by the contractors on board the train amounts to transfer of goods (food etc.), by the service provider (assessee )to Indian Railways, for consideration and the property in the goods also passes to Indian Railways.
• Thus, the transaction between them was a case purely of sale of goods under the provisions of Sale of Goods Act as well as Delhi Value Added Tax Act and the element of service by way of heating the food, heating/freezing the beverages and then serving them to the passengers is purely incidental required for sale of food and beverage in a transaction of this nature.

Thus, there is no service portion for levy of service tax.

Contention of the Revenue:

• The outdoor catering service provided on trains which was exempted earlier became liable to service tax levy with effect from 1.3.2006.
• The assessee even have paid service tax on catering services provided to passengers on board the Rajdhani/Shatabdi Express but have not paid service tax on catering services in respect of of the other trains (i.e. other than Rajdhani/Shatabdi Express trains). This fact by itself makes but clear that even when the activities are similar, M/s P.K.Shefi have paid service tax in some cases and have not done so in other cases.
• The reliance was placed on the decision of the Hon’ble Kerela High Court in the case of SAJ Flight Services Pvt. Ltd. wherein the court held that the activity of supplying food on trains by the contractor under contract with IRCTC was not an outright sale activity but an outdoor catering plus sale on which service tax is also chargeable

Decision of the Hon’ble High Court:

• The issue as to taxability of the food supplied on board the train by the contractors engaged by IRTC is a debatable issue because there are contrary judgements of two High courts-Delhi and Kerala, the former favoring the assessee and the latter favoring the department.
• The assessee has also shown the financial hardship caused due to huge pre-deposit pending appeal.
• Thus, considering the uncertainty of levy of service tax and likely financial hardship to the assessee , the court modify the order of tribunal to direct the pre-deposit of 50% of 2.5 crores within 4 weeks of the receipt of the court’s order and balance 50% of 2.5 crores 4 weeks after first deposit. On compliance of the above the balance amount demanded shall stand waived and its collection shall remain pending till the appeal decided.
• Assessee’s appeal is partly allowed.