CESTAT: No Service Tax can be Levied on Take-Away of Food Items as No Element of Service is Involved

CESTAT: No Service Tax can be Levied on Take-Away of Food Items as No Element of Service is Involved

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench held that no service tax can be levied on the activity of take-away of food items as it would amount to sale and does not involve any element of service.

The division bench comprising of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) were adjudicating an appeal filed by the appellant- Haldiram Marketing Pvt. Ltd. against order dated 11th March, 2022 passed by the Commissioner, CGST East-Delhi confirming the demand of service tax by invoking the extended period of limitation contemplated under the proviso to section 73 (1) of the Finance Act 19943 with penalty and interest.

The appellant is engaged in running food outlets where customers can either purchase packaged foods like sweets or namkeen or avail restaurant dining facilities. Additionally, the appellant also provides the facility of 'take-away' of food items.

An audit of the appellant was conducted and it was noticed that the appellant had failed to pay due service tax on the activity of takeaway of food items as well as on the share of rent received from the associated enterprise. Accordingly, a show cause notice dated 28th September, 2020 proposing service tax demand of Rs. 23,09,45,317 with interest and penalties was issued to the appellant.

The Commissioner passed the impugned order dated 11th March, 2022 confirming the demand of Rs. 20,12,46,762 with interest and penalties.

Shri B.L. Narasimhan, learned counsel for the appellant submitted that the activity of take-away of food items is not susceptible to service tax. The transaction involving supply of goods on take-away basis is a pure sale transaction and does not entail any service element rendered to customers. The said transaction is, therefore, excluded from the definition of 'service' under section 65B(44) of the Finance Act.

Dr. Radhe Tallo, learned authorized representative appearing for the department submitted that the appellant was providing 'restaurant services', which is a declared service under section 66E(i) of the Finance Act and that the exemption under the notification dated 20th June, 2012, as amended by notification dated 1st March,2013, is for the activities performed in non-air-conditioned restaurant and any activity related to food or any article for human consumption performed in restaurants having air-conditioning facility would be subject to service tax.

The issue involved was regarding levy of service tax on the activity of take-away of food as well as on the rent shared by the associated enterprise.

Th bench noted that a Circular dated 28th February, 2011 issued by Ministry of Finance at the time when 'restaurant service' was made taxable mentions that the levy was intended to be confined to the value of services contained in the composite contract and was not to cover either the meal portion of the composite contract or mere sale of food by way of pickup or home delivery. Followed by a clarification letter dated 13th August, 2015 issued by the Deputy Commissioner also clarified that in case of transaction involving pickup or home deliveries of the food sold by the restaurant, the dominating nature of the transaction is that of sale and not service, as the food is not served at the restaurant and no other element of service is offered. The said transaction would, therefore, not be leviable to service tax, being in the nature of sale only.

The Court found, that in case of take-away of food, the appellant sells the food/packaged items, as chosen by the customer, over the counter and this would amount to sale of goods. Services such as dining facility, washing area, clearing of the tables after the food has been eaten are, therefore, not involved. The activities of preparation of food and packing thereof by the appellant in case of take-away items are conditions of sale of such food, wherein the intention of the customer is to merely buy such packaged product from the appellant, and not to avail any restaurant services.

Thus, the bench held that no service tax could be levied on the activity of take-away of food items as it would amount to sale and would not involve any element of service.

The next issue taken up by bench was, whether permitting an associated enterprise to use a part of the premises for the sale of the product would amount to sub-letting and, therefore, the consideration received would be leviable to service tax under the category of 'renting of immovable property.'

The bench noted that the appellant had entered into a rental agreement with DIAL for leasing out premises at the airport, for which it paid a rental amount to DIAL. The Court observed that the consideration received by the appellant from the associated enterprise would not be leviable to service tax under the category of 'renting of immovable property.'

The CESTAT held, "the goods of the associated enterprises are also being sold from same premises and certain portion of the rent is received from the associated enterprise. The associated enterprises is benefiting with respect to the space. This arrangement would, therefore, fall under the category of sharing of expense."

The CESTAT set aside the impugned order and accordingly, allowed the appeal.