In Anjappar Chettinad AC Restaurant v. Joint Commissioner [ W.P. Nos. 13469 of 2020, 28789 & 28095 of 2019 and 1748 & 5935 of 2021], the Madras High Court held that no Service Tax to be charged on the food served as ‘Take Away’ or ‘Parcel’.
FACTS – INTRODUCTION
The Petitioner, Anjappar Chettinad, runs Air-Conditioned restaurants under the names and styles of Anjappar Chettinad, Thalapakkatti Hotels, RSM Foods and Prasanam Foods, the latter two of which are franchisees of Sangeetha restaurant, respectively.
The Petitioner is a registered service taxpayer who provides dining, outdoor catering, and mandap- keeping services. An audit was conducted, and the Department decided that service tax hasn’t been paid in respect to ‘take away parcel services’ for different occasions prior to the implementation of the Goods and Services Tax Act, 2017 (‘GST Act’).
ISSUE BEFORE THE HIGH COURT
Whether the food that is ‘taken away’ or received from restaurants or eateries, in packages, is subject to service tax under the Finance Act, 1994?
CONTENTIONS OF THE PARTIES
The Petitioner contended that there is no obligation that food is sold at a take-away counter or via package/ parcel. The Petitioner contended that selling packaged meals is purely a commercial activity with no element of service.
The Petitioner relied on Section 65B(44) of the Finance Act, 1994 (‘the Act’) that provides for the definition of the term “Service,” which precludes the disbursement of goods through the sale. As a result, take-away food and package/ parcel sales would be exempted from levy of service tax.
The Petitioners relied upon the decision of the Supreme Court in the case of Federation of Hotel and Restaurant Associations of India V. Union of India [(2018 (359) ELT 97], wherein the federation wanted a statement that the Standards of Weights and Measures Act, 1976, and related enactments and rules did not apply to services provided in hotels and restaurants. When it comes to restaurant food service, the Supreme Court declared that there could be no artificial distinction or split between the selling and service parts.
The Respondents contended that Section 66E(1) of the Act declares the activity of supplying food, any other product for human consumption, or any drink to be a taxable service. As a result, there is no flaw in the contested orders that have imposed a tax on proceeds from parcel sales or take-away sales.
The Respondents relied on the decision of the Bombay High Court in the case of Indian Hotels and Restaurant Association V. Union of India [2014 (34) ELT 522], wherein it was held that restaurants mainly provide service, with sales occurring only as an afterthought.
As a result, providing take-out food and beverages entails providing service, and the manner of sale, which is packages, does not influence the situation. The transaction in issue should consequently be split into two halves, one for sale and one for service, and taxed accordingly.
DECISION AND FINDINGS
The Madras High Court (‘High Court’) held that a restaurant service includes all aspects of a restaurant, such as organised seating, air conditioning, table service, live music, and increased hospitality. These characteristics are not present in a take-out purchase. The service tax on restaurant services is only applicable to air-conditioned establishments.
The Supreme Court in the case of Federation of Hotel and Restaurant Associations of India (Supra) held that the legislative competence to impose a tax on service related to the sale of foods and beverages is no longer res integra.
“Though initially there was some uncertainty on the quantum of the receipts that would attract tax, in time, an abatement was provided for, in recognition of the position that the sale of food and beverages and drinks (including the sale of beverages and intoxicating drinks) does involve both aspects of the sale as well as service”.
The High Court further held that earlier the service tax was introduced on the sale of foods and drinks in all restaurants, regardless of any exception and Entry 19 of Notification No. 25 of 2012 imposed tax on services related to the serving of food and beverages by a restaurant, dining joint, or mess.
The High Court observed that according to Section 66E of the Act, Circular 173/8/2013– Service Tax released on 07.10.2013, and Circular No. 334/3/2011– TRU issued 28.02.2011, not services offered by restaurants in the sale of food and drink are taxable but only certain specific transactions are taxed.
The High Court further held that orders can be placed over the phone, using an online booking system, or through meal delivery apps. The items are taken to a separate counter after being processed and prepared for delivery, where they are picked up by the client or delivery service. Take out counters are frequently located separately from the main dining room, which may or may not be air-conditioned.
Therefore not all services provided by restaurants in the sale of food and drinks are brought under the purview of tax but only particular instances are subject to taxation. The sale of food and drink simpliciter, services of ingredient selection and purchase, ingredient preparation for cooking, and real food and drink preparation would not be subject to taxation.
The High Court has delivered a landmark judgement keeping pace with the time. In the wake of technological development and the rapid growth of internet users, service providers across all industries have made a swift movement towards the same. It’s high time that the legal regime shall also come forward to comply with this advancement.
Indeed it would involve vast discussion but it would also assist in the development of new era jurisprudence. The decision of the High Court to recognize that take away orders or food parcels procured from the restaurant would not create service tax liability under the Act is crucial in the aforementioned aspects.
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