19 May 2014

HC on Restaurant Service- Validity & Double Taxation

High Court on Restaurant Service

 

HC dismisses writ, upholds constitutional validity of Sec 66E(i) of Finance Act declaring service portion in activity of supply of food and drinks as "declared services"; Article 366(29-A) of Indian Constitution does not indicate subsuming of service part in sale of food, it rather separates sale of food and drinks from service; Sec 65B(44) and Sec 66E(i) only charge service tax on service part and not on sale part, which indicate exclusion of sale element from service as interpreted by SC in Associated-Hotel and Northern Caterers cases; Rejects assessee's reliance on SC ruling in K Damodarsamy, calling it irrelevant for determining Parliament's power to levy service tax on service element in sale; However, HC shows reservation in the rule quantifying fixed sum towards service and its functioning in restaurant, vis-a-vis tax under VAT Act; 40% over which service tax is charged cannot be subject to VAT; Absent provision in VAT Act to bifurcate amount between sale and service, HC advises State Govt to frame rules / issue clarification in conformity with provisions under Finance Act to avoid double taxation on same amount; Also allows assessee to object to VAT levy on service portion of bill value before VAT Authorities  : Chattisgarh HC

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