Unreported Decisions – ST – August 2018

By CA Vinay Jain & Mr. Sachin Mishra, Advocate

1. Whether the cost of food supplied to the airlines which are being served by the airlines to its customers will be included in the value of taxable service?

Facts & Pleadings: M/s. EIHA (Unit of Oberoi Flight Services) (hereinafter referred to as ‘the Appellant’) is inter-alia engaged in the business of providing food to various airlines along with the responsibility of packing and handling of food, loading and transportation of food trolleys, storage and handling of dry stores, cleaning of equipment and laundry services. The Appellant pays service tax on the consideration for the said services.

It is the case of the department that the cost of food supplied by the Appellant to the airlines must also be included for the purpose of computation of service tax on the services under ‘Outdoor Catering Services’.

The Appellant submitted that the activity of supplying food in the instant case will be covered under deemed sale under Article 366 (29A) of the Constitution of India. The Appellant thus submitted that they were selling packed food to the airlines, and that they were paying VAT on the value thereof. The Appellant further submitted that notification No.12/2003-ST dated June 20, 2003 exempts the Appellant from the service tax demanded.

Judgment: The Hon’ble CESTAT distinguished ‘Outdoor Catering Services’ from ‘services rendered in a restaurant or a hotel’ on the ground that the choice of food is limited to a definite menu in case of the latter. While in case of outdoor catering services, different kinds of food/drinks are supplied as per the choice of the person availing the services.

The Hon’ble CESTAT thereafter held that the sale of eatables by the Appellant is complete as soon as the goods are loaded on the aircraft trolley. It was also opined that when food is supplied and served simultaneously, it is ‘Outdoor Catering Service’ else it is sale of goods especially when invoice presents a separate element. Following from the same, the Hon’ble CESTAT noted that in the present case the Appellant is solely supplying the food, and not serving the food to the passengers on board. Further, the invoice of the Appellant shows sale of food separately from the charges of other services rendered in addition. It was thus held that it was merely sale of goods on which VAT is payable, and the same cannot be termed as ‘Outdoor Catering Services’ to ascertain any liability of service tax.

M/s. EIHA (Unit of Oberoi Flight Services) vs. C.S.T., Delhi decided on 26-6-2018 in Appeal No. ST/54205/2014-CU [DB]

M/s. EIHA (Unit of Oberoi Flight Services)

2. Whether ‘installation of goods’ such as air conditioners, carpets etc. on motor vehicles for vehicle owners amounts to ‘production or processing of goods for or on behalf of the client’ under the category of ‘Business Auxiliary Services’?

Facts & pleadings: Prime Engitech (hereinafter referred to as the ‘assessee’) is inter alia engaged in the activity of modification and ornamentation of motor vehicles such as tempo traveller. The assessee carried out installation of goods such as air conditioners, carpets etc. as well as other minor modifications of the vehicle such as seating etc. The assessee considered the activity as supply of goods and paid VAT on the same.

It is the case of the department that as the activity under consideration does not amount to ‘manufacture’ as defined under S.2 (f) of the Central Excise Act, 1944, service tax is payable on the same. It is further argued by the department that the assessee is carrying out ‘production or processing of goods for or on behalf of the client’ and are liable to pay service tax under the category of Business Auxiliary Services (BAS).

The assessee on the other hand argued that BAS require three parties namely service provider, service recipient and a third party on whose behalf services are being provided. However, in the instant case, the assessee is carrying out the said activity for his clients directly without the involvement of a third party. Therefore, the levy of service tax under BAS is not justified. Further, it was argued that the assessee has paid VAT on the entire consideration received for the activity and therefore, service tax is not leviable.

Judgment:  The Hon’ble CESTAT noted that the present activity involves only two parties namely the assessee and its customer. The assessee has not carried out the activity on behalf of a third party. The Hon’ble CESTAT thus upheld that in the absence of a third party in the transaction, the activity cannot be termed as BAS. Further, it was held by the Hon’ble CESTAT that, once the transaction has been declared as sale of goods and liability of VAT has been discharged, it cannot be considered as a service.

CCE & ST, Alwar vs. Prime Engitech Pvt. Ltd. decided on 25-6-2018 in Appeal No ST/53476/2015-(DB) and Prime Engitech Pvt. Ltd vs. CCE & ST, Alwar decided on 25-6-2018 vide Appeal No ST/53631/2015-(DB)

Prime Engitech Pvt. Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.