Supreme Court says restaurants not subject to service tax for take away food orders
Upholds previous order of CESTAT that said sale of food or packaged items directly over the counter is akin to the sale of goods
Oct 10, 2023
SUMMARY
Experts note SC ruling has implications on issue of service tax on takeaway food
Experts note that the SC ruling has significant implications for the much debated issue of service tax on takeaway food
CESTAT had earlier held that there are only sales of the chosen food or packaged items over the counter
The Supreme Court has held that restaurants are not subject to service tax for take away food orders and sharing premises with an associated enterprise. While considering a civil appeal, the Supreme Court upheld the ruling of the Customs Excise Service Tax Appellate Tribunal (CESTAT) and dismissed the appeal preferred by the tax department against the ruling of the CESTAT as without merit.
While the issue relates to the pre-Goods and Services Tax era, experts note that the Supreme Court ruling has significant implications for the much debated issue of service tax on takeaway food.
“This affirmation by the Supreme Court holds implications on the vexed issue of taxability of take-away food category and provides insight on the presence or absence of a service element in such transactions,” said a note by PwC.
The CESTAT’s ruling placed reliance on an earlier judgment to clarify that, in the case of take away food, the essence of the transaction is the sale of food or packaged items directly over the counter, it further said, adding that this sale is akin to the sale of goods, and it does not involve additional services typically associated with dining, such as table service or facilities for washing and clearing tables.
Charanya Lakshmikumaran, Partner at Lakshmikumaran & Sridharan Attorneys, noted that the Supreme Court held that there can be no demand of service tax on take-away of food through its order dated September 25. “The customer chooses a specific dish or packaged item from the menu and orders the Appellant to pack and supply the same for take-away. Thus, in a case of take-away, the customer does not avail any restaurant facility as such,” Lakshmikumaran noted.
These transactions are nothing but sale of goods. Revenue’s attempt to levy service tax on a transaction of pure sale was contradictory to the department’s own circulars in this regard, she further said.
Additionally, apart from selling its own goods, the company also sold goods from its associated enterprises within the same premises. PwC noted that there was no contractual relationship between the associated enterprises and the taxpayer or the lessor of the premises. “It was thus concluded that the payment made by the associated enterprise to the taxpayer was not a consideration for any specific service (sub-leasing per se) but a form of cost-sharing between them,” it further said on the Supreme Court ruling.
Previously, the CESTAT had in February this year quashed the show-cause notice to Haldiram Marketing and had held that in the case of take-away food, there are only sales of the chosen food or packaged items over the counter, without providing additional restaurant services such as dining, table clearing, or washing areas. It had noted that only activities of food preparation and packaging are integral to the sale of the product in take-away scenarios, and customers intend to purchase these items without expecting additional restaurant services.
[Business Today]
