VAT NOT LEVIABLE ON THE PORTION WHICH ATTRACTS SERVICE TAX

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.

INTRODUCTION:

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.

RELEVANT PROVISIONS:

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:-

TABLE Description		Percentage of the total amount
(1)	(2)		(3)
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