Deepak Tawania
1. The activity of supply of food at Air Conditioned Restaurant was made taxable from 01.05.2011. As per Section 66 of the Finance Act, 1994 person rendering services falling under sub clause (zzzzv) of clause (105) of Section 65 of the Finance Act, 1994, taxable service means
“any service 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 licence to service alcoholic beverages, in relation to serving food or beverages, including alcoholic beverages or both, in it premises”
2. Further from 01.07.2012 onwards vide sub section (i) of section 66E of the Finance Act, 1994 the following is notified as a declared service:
“( i ) service portion in an activity wherein goods, being food or any other article for human consumption or any drink( whether or not intoxicating) is supplied in any manner as a part of the activity.”
3. As per Article 366(29A) service wherein goods being food or any article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of service is a deemed sale. Further, the clause (29A) of Article 366 of Constitution of India was amended w.e.f 02.02.1983. However, the concept of declared service was introduced from 01.07.2012. The extract of Article 366(29A) is as follows:
“(29A) tax on the sale or purchase of goods includes
(a) a tax on the transfer, otherwise than in pursuance of a contact, of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) invoked in the execution of a works contract;
(c) a tax on the delivery of goods on hire purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;”
4. It is undisputed fact that the activity supply of food in restaurant falls under the sub clause (f) of clause 29A of the constitution of India and it is a deemed sale.
5. Further, the clause 29A has been inserted prior to introduction of service tax i.e., on 02.02.1983 and the activity of supply of foods by restaurant were also carried before service tax being leviable on the said service i.e., 01.05.2011. Even before service tax being leviable the activity was subjected to VAT (Value Added Tax) on the activity carried on by the Person.
6. The Article 265 of the Constitution states that no tax shall be levied or collected except by the authority of law. Schedule VII divides this subject into three categories-
(a) Union list (Only Central Government has power)
(b) State list (Only state Government has power)
(c) Concurrent list (both Central Government and State Government have power)
7. Under Article 246(1) of the Constitution, Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution and as per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (the State List).
8. All these three lists are mutually exclusive to one another i.e. if the tax is levied and collected under one list, then it cannot be again levied and collected under other lists. Non-compliance of this aspect of the constitution amounts to duplication of taxes apart from breach of the constitutional powers. Further, the Centre and States derives power to levy taxes from these three lists.
9. The Parliament is empowered to levy the service tax vide Entry No. 97 of List of Seventh Schedule to the Constitution of India. The Entry No. 97 is extracted here for ready reference.
“97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.”
10. After the 46th Amendment to the Constitution, the sale element of those contracts which are covered by six sub clauses of Clause (29A) of Article 366 are separable and subjected to sales tax by the States under Entry 54 of List II and there is no requirement of the dominant nature test being applied.
11. Further, the activity of supply of food in restaurant is a matter specifically enumerated in List II of the VII schedule to the constitution and is subjected to sales tax. The levy of service tax on supply of foods in restaurant cannot be made liable to service tax. Further the same view is upheld in Damodarasamy Naidu & Bros. v. State of Tamil Naidu [2000] 1 SCC 521, wherein the Constitution Bench of the Supreme Court held that when the tax is on supply of food and drink, it is not of relevance that the supply is by way of service or as part of a service.
12. Further, the same view was also upheld by Kerala high court in Kerala Classified Hotels & Resorts Associations V. Union of India [2013] 35 taxmann.com 568 (Kerala), the relavant extract of decision is as follows:
“Having come to the aforesaid findings, these writ petitions are allowed as follows:
(i) It is declared that sub-Clauses (zzzzv) and (zzzzw) to Clause 105 of Section 65 of the Finance Act 1994 as amended by the Finance Act 2011 is beyond the legislative competence of the Parliament as the sub-Clauses are covered by Entry 54 and Entry 62 respectively of List II of the Seventh Schedule.
(ii)That if any payments have been made by the petitioners on the basis of the impugned clauses, they are entitled to seek refund of the same.”
13. With regard to the above the levy of service tax on supply of food at restaurant is unconstitutional and therefore service tax itself is not payable on the supply of food made at the restaurant. Further, on the basis of the above judgement if any payment of service tax is made by the person, they are entitled to refund of the same.
14. Therefore as the food supplied at restaurant attracts VAT under state laws. When VAT is leviable on a transaction, Service tax cannot again be levied on the same tax base. This view was also supported in various supreme court judgements.
