VAT not leviable on portion which attracts service tax; NO VAT on ST portion of Restaurant bill
When Service tax leviable on 40% of the Restaurant bill , VAT not leviable on the portion which attracts service tax: An Analysis of Land mark Judgment of Uttarakhand High Court which addressed crucial issue of double taxation
We are sharing with you an important landmark judgment of the Hon’ble Uttarakhand High Court in the case of M/s Valley Hotels & Resorts vs. The Commissioner, Commercial Tax, Dehradun.
Recently IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL while disposing the Revision Application(Commercial Tax Revision No.02 of 2014) in case of M/s Valley Hotels & Resorts vs. The Commissioner, Commercial Tax, Dehradun [TS-129-HC2014 (UTT)-VAT] held that, where element of service has been so declared and brought under the Service Tax vide Government of India notification dated 06.06.2012, (i.e. 40% of bill amount to the customers having food or beverage in the restaurant was made liable to service tax) no Value Added Tax can be imposed thereon.
Article 366 (29A) (f):
“tax on the sale or purchase of goods” includes — 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. it can be seen from Article 366(29-A) (f) that service is also included in the sale of goods. If the constitution permits sale of goods during service as taxable necessarily Entry 54 has to be read giving the meaning of sale of goods as stated in the Constitution. If read in that fashion, necessarily service forms part of sale of goods and State Government alone will have the legislative competence to enact the law imposing a tax on the service element forming part of sale of goods as well, which they have apparently imposed .
Relevant Extracts of Notification No. 24/2012 – Service Tax dated 6th June, 2012
“2C. Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering.- Subject to the provisions of section 67, the value of service portion, in an activity wherein goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity at a restaurant or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely:-
|Percentage of the total amount|
|Service portion in an activity wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant||40|
|Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of such outdoor catering||60|
Explanation 1.- For the purposes of this rule, “total amount” means the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink(whether or not intoxicating), whether or not supplied under the same contract or any other contract, after deducting-
(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon:
Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.
Explanation 2.- For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986).”.
Brief Facts of the case:
The revisionist is a partnership firm, engaged in the business of hotel. It provides boarding and lodging facilities to its customers. It also provides restaurant services. Up to 01.07.2012, the activities of the revisionist were covered under the Uttarakhand Vat Act, 2005 in respect to supply of cooked food in the restaurant. On 06.06.2012, the Government of India, Ministry of Finance (Department of Revenue) issued a notification amending the Service Tax (Determination of Value) Rules, 2006 by introducing Service Tax (Determination of Value) Rules, 2012, by which 40% of billed value to the customer, for supply of food or any other article of human consumption or any drink in restaurant, was made liable to Service Tax.
Proceeding before Commissioner and Commercial Tax Tribunal:
the revisionist moved an application under Section 57 of the VAT Act, 2005, requesting not to charge VAT on 40% billed amount to the customer, as same has already suffered Service Tax. The said application was rejected by the Commissioner, Commercial Tax, against which appeal was filed before Commercial Tax Tribunal. Same was also dismissed.
Proceeding before High Court:
Hon’ble High court after considered the submission of learned counsel for the parties conclude that Value Added Tax can be imposed on sale of goods and not on service. Service can be taxed by Service Tax Laws. The authority competent to impose service tax has also assumed competence to declare what is service. The State has not challenged the same. Therefore, where element of service has been so declared and brought under the Service Tax vide Government of India notification dated 06.06.2012, (i.e. 40% of bill amount to the customers having food or beverage in the restaurant was made liable to service tax) no Value Added Tax can be imposed thereon.
Decision of High Court:
The High Court held that the Commissioner, Commercial Tax erred in rejecting the application of the revisionist. Thus, the revision is allowed. Judgments of Tribunal as well as of the Commissioner, Commercial Tax are set aside. The Commissioner, Commercial Tax is directed to pass order afresh in the light of above observations.
Hon’ble Uttarakhand high court has been addressed the critical issue of double taxation/Cascading effect and held that VAT cannot imposed on the value which already attracts/suffers from service tax. this is a great relief for the mass number of assesees. This decision established that two taxes (VAT & service tax) can not be imposed on same value of transaction. this landmark judgment is definitely given a big relief for the assesee when applicability of Taxes in relation to the supply/services of food in hotel industry has always been a contentious issue whether under VAT or under Service tax.
(Shailendra Saxena, B.Com, CS, FCMA, FCA, DISA (ICAI) , OM P. Maheshwari & Associates, Chartered Accountants, Cell:09377410260, Email: email@example.com)