IntroductionUnder Maharashtra Value Added Tax Act, 2002, (MVAT Act), tax is levied on the ‘sale price’. There are situations where the transactions are composite and only part of it would be liable to VAT. In case of Works Contract the situation is clear due to judicial pronouncements. However, there are new types of transactions coming up for determination of ‘sale price’. One such instance is sale price, for the purpose of MVAT Act, in case of charges for Banquet Hall. Banquet halls normally arrange programs as per requirement of clients. Entire arrangement includes various services including serving of food and drinks. For example, if a marriage function is arranged in a banquet hall, then there will be arrangement for a stage, furniture, decoration, music, etc. and also supply of food and drinks.
Banquet Hall, a composite transaction In case of banquet hall, the service provider i.e. hotels etc., are liable to pay service tax. Simultaneously there being supply of food and drinks, VAT is also applicable. An issue arises as to on what amount VAT is payable. One view can be that the entire charges are liable to VAT. Other view can be that only that portion of price, which is relating to food and drinks, can be liable to VAT.
Determination of disputed question (DDQ) in caseof Tip Top Enterprises
The dealer, M/s. Tip Top Enterprises, filed an application for determination, before the Commissioner of Sales Tax, to get the issue of ‘sale price’ for banquet hall under the MVAT Act decided. In the DDQ dated 25-05-2009, the learned Commissioner of Sales Tax, rejecting all the arguments of the dealer, held that the whole amount charged by the dealer (banquet hall) is liable to VAT.
Decision of Tribunal in above case
The matter went to Maharashtra Sales Tax Tribunal by way of appeal no. 41 of 2009. In the appeal, on behalf of appellant, following arguments were reiterated.
a) Referring to definition of ‘sale price’ in MVAT Act which reads as under:
“Section 2(25) “sale price” means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged,” it was submitted that the amount received against sale/supply of goods only can be considered and not the amount received for services as the ‘sale price’.
b) As per the definition of ‘sale’, the supply of food is deemed to be sale. The said definition of ‘sale’ is as under in section 2(24) of MVAT Act, 2002:
“Section 2 (24) “sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge; and the words “sell”, “buy” and “purchase”, with all their grammatical variations and cognate expressions, shall be construed accordingly;
Explanation,-—For the purposes of this clause,—
a. a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in section 4 of the Central Sales Tax Act, 1956;
b.
i. the transfer of property in any goods, otherwise than in pursuance of a contract, for cash, deferred payment or other valuable consideration;
ii. the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
iii. a delivery of goods on hire-purchase or any system of payment by installments;
iv. the transfer of the right to use any goods or any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
v. the supply of goods by any association or body of persons incorporated or not, to a member thereof or other valuable consideration;
vi. 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 made or given for cash, deferred payment or other valuable consideration:”
Accordingly, it was submitted that in a banquet hall transaction, only supply of food and drinks part is ‘sale’.
c) Relying upon judgment of Hon. Supreme Court in case of Builder Association of India vs. Union of India (73 STC 370), the above argument was reiterated, more particularly citing the following observation.
“The latter part of clause (29-A) of article 366 of the Constitution makes the position very clear. While referring to the transfer, delivery or supply of any goods that takes place as per sub-clauses (a) to (f) of clause (29-A), the latter part of clause (29-A) says that “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.”
Accordingly, it was submitted that under Article 366(29A)(f) only supply of goods is deemed to be a sale which can be subject matter of sales tax and not the total price of transaction. Therefore, it was urged that the levy on total amount was unconstitutional.
d) Based on judgment in case of Imagic Creative P. Ltd. (12 VST 371(SC), it was submitted that on the amount on which service tax is paid, VAT cannot be attracted, as both are mutually exclusive.
e) Citing judgment in case of Cap ‘N’ Chops Caterers vs. State of Haryana (37 VST 226) (P & H), it was submitted that the banquet transaction is in the nature of works contract and can be liable to the extent of goods value and service portion cannot be taxed.
f) Reliance was placed on the judgment in case of Bharat Sanchar Nigam Ltd. (145 STC 91) (SC). In this judgment Hon. Supreme Court has observed that the receipts towards hotel activity are divisible.
g) Reliance was also placed on following observation of Hon. Supreme Court in case of T. N. Kalyan Mandpam (135 STC 480)(SC).
“42. In regard to the submission made on article 366(29A)(f), we are of the view that it does not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise include the supply of services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article “such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods”.
Contentions of the Department
a) Relying upon judgment of Hon. Supreme Court in case of K. Damodarsamy Naidu [(2000) (117 STC 1), it was contended that the whole amount is liable to VAT. In this judgment, the Hon. Supreme Court was considering sale price in case of Restaurant.
b) Department also relied upon judgment of Bombay High Court decision in East India Hotels Ltd. (99 STC 197). In this case the restaurant was claiming reduction from sale price on account of luxuries provided in restaurant like AC facility etc., on the ground that they are towards providing extra facilities. However, the Hon. High Court has held that the whole price is liable to sales tax.
Conclusion of Tribunal
Hon. Tribunal delivered its judgment in above appeal no. 41 of 2009 dated 23-04-2013 and referred to above arguments as well as looked into the factual position. Tribunal referred to booking documents for banquet hall. It was seen that the hotel has quoted separate charges, towards rent of hall, about food and drinks and decorating etc. The charges towards food and drinks were almost at par with charges for same menu, when provided by hotel, in other than banquet hall.
In view of the above factual and legal position Tribunal held that the sale price for food and drinks will be the price agreed between the parties. In other words, Tribunal disapproved the DDQ, that whole amount towards banquet hall is liable to VAT. As per Tribunal, VAT can be levied on amount towards food and drinks as agreed between the parties. In relation to decoration charges, which were also charged separately in the quotation, Tribunal held that the same items may attract tax as lease transaction.
The above judgment will be useful to avoid double taxation. In absence of such judgment, dealer may become liable to service tax as well as VAT on the same amount. This is not expected, hence, it will certainly give relief from such double taxation.
