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Takeaway orders from restaurants do not attract Service Tax under Finance Act: Madras High Court
The Court noted that several elements that result in attraction of service tax are absent in take-away such as seating, décor, music and services of a host etc.
Service Tax serves the nation
Takeaway orders or food parcels procured from restaurants will not attract service tax under the Finance Act of 1994, the Madras High Court has ruled (Anjappar Chettinad A/C Restaurant v. Joint Commissioner).
Single-judge Justice Anitha Sumanth ruled that such provision of food and drink to be taken away in parcels by restaurants amounts to sale of food and drink and not service and would, therefore, not attract service tax.
The Court noted that several elements that result in attraction of service tax are absent in takeaway such as seating, décor, music and services of a host etc.
"Only those services commencing from the point where the food and drinks are collected for service at the table till the raising of the bill, are covered (for levy of service tax). This would encompass a gamut of services including arrangements for seating, décor, music and dance, both live and otherwise, the services of Maître D’Or, hostesses, liveried waiters and the use of fine crockery and cutlery, among others. The provision of the aforesaid niceties are critical to the determination as to whether the establishment in question would attract liability to service tax, and that too, only in an air-conditioned restaurant. In the case of take-away or food parcels, the aforesaid attributes are conspicuous by their absence," the Court said.
The Court was hearing a plea by proprietors running air-conditioned restaurants and holding service tax registration for various services such as outdoor catering, mandap keeping etc.
The dispute arose when the Department of Revenue found that service tax was not being charged for take-away services by the petitioners' restaurants.
The petitioners argued that service tax is not intended to cover sale of food that is collected or picked up for consumption elsewhere.
“There is no liability for sale of food at the take-away counter or by parcel. They would state that the sale of packaged food constitutes pure trading activity and there is no component of service involved therein," it was argued.
The petitioner placed reliance on a number of judgments which sought to distinguish between service component in the restaurant from other aspects.
The revenue on the other hand relied on Section 66E(1) of the Finance Act, 1994 which declares the activity of ‘supply of food or any other article of human consumption or any drink’ as a taxable service.
Thus, they contended that there is absolutely no infirmity in the orders that have sought to tax the receipts from parcel sales/take away sales.
The Court after hearing the rival contentions noted that legislative competence to levy tax on service involved in the sale of food and drink is no longer res integra.
In this regard, the Court adverted to various circulars including circular 173/8/2013– ST dated October 7, 2013 and circular No.334 of 2011 dated February 28, 2011.
From the above, the Court concluded that not all services rendered by restaurants in the sale of food and drink are taxable and it is only certain specified situations that attract tax.
"The sale of food and drink simplicitor, services of selection and purchase of ingredients, preparation of ingredients for cooking and the actual preparation of the food and drink would not attract the levy of tax," the Court underscored.
Further, the Court noted that in most restaurants, there is a separate counter for collection of take-away food parcels and orders are received either over telephone, by e-mail, online booking or through a food delivery service such as swiggy or zomato.
Once processed and readied for delivery, the parcels are brought to a separate counter and are picked up either by the customer or a delivery service. More often than not, take-away counters are positioned away from the main dining area that may or may not be air-conditioned, it further said.
In any event, the consumption of the food and drinks is not in the premises of the restaurant, the Court added.
"In the aforesaid circumstances, I am of the categoric view that the provision of food and drink to be taken-away in parcels by restaurants tantamount to the sale of food and drink and does not attract service tax under the Act," it ruled.
Advocates Joseph Prabakar, Hari Radhakrishnan and P. Jayalakshmi appeared for the Petitioners. Senior Standing Counsel Advocates, A.P. Srinivas Rajnish Pathiyil and Advocate V. Sundareswaran appeared for the Respondents.
[Read Order]
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