VAT NOT LEVIABLE ON THE PORTION WHICH ATTRACTS SERVICE TAX

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When
Service tax leviable on 40% of the Restaurant bill, VAT not leviable on the
portion which attracts service tax: An Analysis of Land mark Judgment of
Uttarakhand High Court which addressed crucial issue of double taxation.
We
are sharing with you an important landmark judgment of the Hon’ble Uttarakhand
High Court in the case of M/s Valley Hotels & Resorts vs. The Commissioner,
Commercial Tax, Dehradun.
INTRODUCTION:
Recently
in THE HIGH COURT OF UTTARAKHAND AT NAINITAL while disposing the Revision
Application(Commercial Tax Revision No. 02 of 2014) in case of M/s. Valley
Hotels & Resorts vs. The Commissioner, Commercial Tax, Dehradun
[TS-129-HC2014 (UTT)-VAT] held that, where element of service has been so
declared and brought under the Service Tax vide Government of India
notification dated 06.06.2012, (i.e. 40% of bill amount to the customers having
food or beverage in the restaurant was made liable to service tax) no Value
Added Tax can be imposed thereon.
RELEVANT
PROVISIONS:
Article
366 (29A) (f):
“tax
on the sale or purchase of goods” includes – a tax on 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 for cash, deferred payment or
other valuable consideration, and 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. it can be seen from Article
366(29-A) (f) that service is also included in the sale of goods. If the
constitution permits sale of goods during service as taxable necessarily Entry
54 has to be read giving the meaning of sale of goods as stated in the
Constitution. If read in that fashion, necessarily service forms part of sale
of goods and State Government alone will have the legislative competence to
enact the law imposing a tax on the service element forming part of sale of
goods as well, which they have apparently imposed.”


Relevant
Extracts of Notification No. 24/2012 – Service Tax dated 6th June, 2012
“2C.
Determination of value of service portion involved in supply of food or any
other article of human consumption or any drink in a restaurant or as outdoor
catering.- Subject to the provisions of section 67, the value of service
portion, in an activity wherein goods being food or any other article of human
consumption or any drink (whether or not intoxicating) is supplied in any
manner as a part of the activity at a restaurant or as outdoor catering, shall
be the specified percentage of the total amount charged for such supply, in
terms of the following Table, namely:-
TABLE
Description
Percentage of the
total amount
(1)
(2)
(3)
Service portion in
an activity wherein goods, being food or any other article of human
consumption or any drink(whether or not intoxicating) is supplied in any
manner as a part of the activity, at a restaurant
40
Service portion in
outdoor catering wherein goods, being food or any other article of human
consumption or any drink(whether or not intoxicating) is supplied in any
manner as a part of such outdoor catering
60

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