By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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Whether VAT is leviable on service portion, in sale of food and drinks, which is considered to be value of services under service, tax law? Held, No.
Facts:
The points for determination in the writ petition were whether any service tax could be charged on sale of an item or vice-versa and whether under Article 366(29A)(f) of the Constitution of India, service is subsumed in sale of food and drink. Further, whether section 66E(i) of the Finance Act, 1994 was violative of Article 366(29A)(f) of the Constitution of India?
Held:
Relying on the decision of T. N. Kalyan Mandapam Assn. vs. Union of India & Others 2006 (3) STR 260 (SC), it was observed that section 66E(i) read with section 65B(44) of the Finance Act, 1994, only charges service tax on service portion and not on sales portion and was held intra vires the Constitution. Article 366(29A)(f) separates sale and service portion and the valuation should be done as per Rule 2C of the Service tax (Determination of Value) Rules, 2006. Generally, service tax is charged on presumptive basis i.e. on 40% or 60% of the bill value. However, VAT is charged on total bill value. VAT shall not be charged over the amount determined as service portion and the which can be agitated before the State VAT authorities. VAT authorities were directed to issue necessary directions.
