ANNAPOORNA HEALTH FOODS vs BANGALORE SERVICE TAX- I

ST/971/2012



CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1

Service Tax Appeal No. 971 of 2012

(Arising out of Order-in-Original No. 03/2012 dated 18.01.2012
passed by the Commissioner of Service Tax, Bangalore.)

M/s. Annapoorna Health Foods,
Represented by its partner
Sri. M. Srinivasa Rao,
No. 258/A, Bommasandra Industrial Area,
Anekal Taluk,
Bangalore – 560 099.
Appellant(s)

VERSUS
Commissioner of Central
Excise and Service Tax,
th
No. 16/1, 5 Floor, S.P. Complex,
Lalbagh Road, Bangalore.
Respondent(s)
APPEARANCE:


Mr. S. Annamalai, Advocate for the Appellant
Mr. Malatesh S Kulkarni, Assistant Commissioner (AR) for the
Respondent

CORAM:
HON'BLE MR P.A. AUGUSTIAN, MEMBER (JUDICIAL)
HON'BLE MRS R. BHAGYA DEVI, MEMBER (TECHNICAL)


Final Order No. 21238 /2026

DATE OF HEARING: 27.05.2026
DATE OF DECISION: 23.10.2026

PER : P. A. AUGUSTIAN


The issue in the present appeal is regarding demand of
service tax by considering the activity carried out by the
Appellant as falling under outdoor catering service.

2. The Appellant is engaged in the activity of supply of food
to patients of M/s Narayana Hridayalaya Pvt Ltd. (NHPL for
short), patient’s relatives and Doctors and other staff of M/s
Page 1 of 14

ST/971/2012



NHPL. Both the firms are situated at the same premises. Alleging
evasion of service tax for the period from March, 2006 to 2010-
11 (upto 30.09.2010), proceedings were initiated and show
cause notice was issued on 21.04.2011. Thereafter Adjudication
authority as per the impugned order dated 23.01.2012
confirmed the demand and also imposed penalties under various
provisions of law. Aggrieved by said order, present appeal is
filed.

3. When the appeal came up for hearing, Learned Counsel for
the Appellant draws our attention to the show cause notice and
submits that once it is an admitted fact that the Appellant were
paying VAT by considering it as sale of goods, demand of service
tax is unsustainable by referring to the Form VAT 120
composition tax return filed by the appellant under the VAT Act,
2003. In this regard, he also draws our attention to the
definition of outdoor caterer which is reproduced below:-
60.1. The Outdoor Caterer as defined under Section
65 (76a) of the Finance Act, 1994 is as under:
"outdoor caterer means a caterer engaged in
providing services in connection with catering at a
place other than his own but including a place
provided by way of tenancy or otherwise by the
person receiving such services".
60.2. The term 'Caterer' is defined under Section 65
(24) of the Finance Act, 1994 as under;
or any "caterer means any person who supplies, either
directly indirectly, food, edible preparations, alcoholic
or non-alcoholic beverages or crockery and similar
articles or accoutrements for any purpose or
occasion".
60.3. Taxable service relating to Outdoor Catering
service is defined under section 65(105)(zzt) of the
Finance Act, 1994 as under;

Page 2 of 14

ST/971/2012



"taxable service means any service provided or to be
provided to any person, by an outdoor caterer".

4. Learned Counsel for the appellant further submits that the
appellant is not registered with the service tax authorities and
not providing any catering services as defined under the Finance
Act 1994 and it is not covered by the notification No.2/2006 ST
dated 01.03.2006. He also draws our attention to the Circular
No. 96/7/2007-ST dated 23.08.2007 where in response to
question whether spare parts sold by service station during the
servicing of vehicle is liable to payment of service tax, it is
clarified that service tax is not leviable on a transaction treated
as sale of goods and subject to levy of sales tax/VAT. It is also
clarified that whether a given transaction between the service
station and the customer is a sale or not is to be determined,
taking into accounts the real nature and material facts of the
transaction and payment of VAT/sales tax on a transaction
indicates that transaction is treated as sale of goods.

5. Learned Counsel also draws our attention to the agreement
entered by the Appellant with M/s Narayana Hridayalaya dated
02.12.2005 where it is specifically stated that the Appellant will
be responsible for sale of fresh and quality food items at all
times to the public visiting the hospital, hospital staff, patients
and hospital inpatients and appellant is responsible for collecting
the sale proceeds. It is also stated that the details of the VAT
paid for the period from 01.04.2006 to 31.03.2007, the
statement recorded from Sri. G. Ramachandran on 30.04.2007
relied in the show cause notice wherein it is categorically stated
that the Appellant is paying VAT as applicable on total sales
made to M/s Narayana Hridayalaya Hospital and Central Lab.
Further it is clarified that the activities of appellant are limited to
sale of food items at its counter and all further services such as
collection of food items and supply to the respective patients are
undertaken by M/ s Narayana Hridayalaya Hospital. Thus, it is
Page 3 of 14

ST/971/2012



sale of food and same is not covered by the above said
notification. Relies on the judgment of Hon’ble High Court of
Karnataka in the matter of M/s Sky Gorment Catering Pvt
Ltd vs Assistant Commissioner of Commercial Taxes &
others in Writ Appeal No. 671-726/2011 dated 18.04.2011, the
judgment in the matter of Grand Ashok (2011) 32 STT 223
(Kar) and on the decision of M/s. Idea Mobile
Communications Ltd-2006 (4) STR 132 (Tri-Del) wherein
the Tribunal has held that no service tax is payable when sales
tax has been already paid.

6. Learned Counsel further places reliance on the decisions of
the Hon'ble Tribunal in the case of Daspalla Hospitals Ltd Vs.
Commissioner of Central Excise, Vishakapatnam (2010)
36 VST 587 (CESTAT-Bang) where the Hon'ble Tribunal held
that:-
“5. In the instant case, the appellants have produced
evidence to substantiate their claim that they have paid
value added tax on the value of food and beverages
sought to be taxed under "convention service" vide the
impugned order. In the light of the Constitutional
provisions relied on by the Tribunal in Sky Gourmet Pvt.
Ltd. case (2010) 36 VST 557 (CESTAT-Bang); [2009] 14
STR 777 (Tri-Bang) and the ratio thereof to the effect that
once the sales tax had already been discharged on food,
beverages, etc., the appellants could not be required to
pay service tax on the same value, the impugned demand
of service tax is not sustainable in law. We find that the
appellants have rightly relied on the judgment of the
honourable apex court in Bharat Sanchar Nigam Ltd. v.
Union of India [2006] 3 VST 95".

7. it is further submitted that vide Notification No.12/2003
service tax dated 20.06.2003, exempts so much of the value of
goods and material sold by the service provider to the recipients
Page 4 of 14

ST/971/2012



of service, from the service tax leviable thereon under section 66
of the Finance Act, subject to condition that there is a
documentary proof specifically indicating the value of the said
goods and material and in support of the same paces on record
the copy of the VAT returns.

8. With regard to limitation it is submitted that substantial
part of the demand is barred by limitation under Section
73(6)(c) of the Finance Act, 1994. The show cause notice for the
said period ought to have been issued within 31.03.2011 but
was issued on 21.04.2011 for the period March 2006 is barred
by limitation. The appellant places reliance on the decision of the
Hon'ble Apex Court in the case of Indian Farmers Fertilizer
Co-Op Ltd Vs. CCE, Bareilly (UP) 2007 (5) STR 281 (Tri-
Del) . The appellant also places reliance on the decision of the
Hon'ble Jurisdictional High Court in the case of Commissioner
of Service Tax Vs. The Grand Ashok reported in (2011)32
STT 223 (Kar).

9. Learned Authorized Representative (AR) reiterated the
findings in the impugned order and submits that as per the
definition of outdoor caterer under Section 76(a) ‘means a
caterer engaged in providing services in connection with the
catering at a place other than his own’ and as per the
amendment with effect from 16.06.2005, it is added that but
including a place provided by way of tenancy or otherwise a
person receiving such services. He further submits that the
Annual Report of NHPL for 2005-06 indicated that Dr. Devi
Prasad Shetty is Chairman & Managing Director and Smt.
Shakuntala Shetty is Director of NHPL and that during the said
period NHPL has purchased Patient Food items amounting to Rs.
52,96,129.00 from AHF, a firm where the Directors son (Mr.
Varun Shetty) is a partner and that NHPL has shared House
Keeping Expenses with AHF. In the Balance Sheet of NHPL for
the F.Y. 2005-06 expenditure of Rs. 1,14,01,739.00 has been
Page 5 of 14

ST/971/2012



shown towards Patient Food Expenses and Rs. 91,86,250.00 in
respect of previous year i.e., 2004-05. He further submits that
as per Canteen Sales Extract for the month of March 2006
furnished by the appellant, Canteen sales including sales to
NHPL, staff and others is Rs. 22,80,195.00.

10. Learned AR further submits that as per Section
65(105)(zzt) of the Finance Act, 1994, the term taxable service
for outdoor caterer services reads as "Taxable service means any
service provided or to be provided to any person, by an outdoor
caterer" and the term outdoor caterer is defined under section
65(76a) of the said Act as "outdoor caterer" means a caterer
engaged in providing services in connection with catering at a
place other than his own but including a place provided by way
of a tenancy or otherwise by the person receiving such services.
He also submits that while the conventional meaning of the term
catering would refer to the preparation or the service of food,
the definition under the service tax law has been substantially
expanded to cover even cases of supply of food. The term
caterer is defined under section 65(24) of the said Act which
reads as "caterer" means any person who supplies, either
directly or indirectly, any food, edible preparations, alcoholic or
non-alcoholic beverages or crockery and similar articles or
accoutrements for any purpose or occasion. As per Section 67 of
the Act, the value of the taxable service shall be the gross
amount charged to the client which include any amount received
towards the taxable service before, during or after provision of
such service but in respect of outdoor catering services, 50%
abatement is granted towards the cost of food, when bill is
inclusive of the charges for food vide Notification No. 20/04-ST,
dated 10.09.2004. Thus, the appellant was admittedly operating
from premises provided by NHPL and the food was prepared as
per specifications and requirements of the hospital and supplied
for consumption within the hospital ecosystem. The activity was
therefore not a mere sale of food from an independent
Page 6 of 14

ST/971/2012



restaurant (even which the appellant is not claiming) but a
catering arrangement undertaken from the premises of the
service recipient thus the essential ingredients of the taxable
service are fully satisfied.

11. He further states that in the present case, the Appellant is
operating out of 1,000 sq. ft. space in the basement floor
provided entirely by NHPL, the recipient establishment, food is
prepared on day-to-day orders placed by the respective ward in-
charges of the hospital, customized to patient specifications, and
billed directly to the hospital on a monthly basis. Since the
activity is carried out at a location provided "by way of tenancy
or otherwise" by the recipient of the service, it perfectly fits the
statutory definition of an outdoor caterer. He also submits that
the statute is not merely on preparation of food but on provision
of catering at a place other than the caterer's own premises and
the records reveal that the appellant was carrying out the
activity from hospital premises made available by NHPL. The
food was prepared and supplied pursuant to an arrangement
with the hospital for catering to patients and other persons
within the hospital premises. Under the agreement, the hospital
management dictates the operating hours, approves the specific
menu items offered for sale, and enforces rules regarding
cleanliness and service quality. Furthermore, the accounting in-
charge of the Appellant admitted in his statement that sales are
heavily restricted to meeting the inpatient requirements of NHPL,
and the bills are raised directly on the hospital entity rather than
individual walk-in customers. Because the place of service
belongs to the recipient and the operations are strictly regulated
by the recipient, the transaction loses the characteristics of an
over-the-counter retail sale and emerges strictly as an
institutional catering service executed inside a medical
establishment.
Page 7 of 14

ST/971/2012



12. Learned AR further submits that the appellant is
attempting to characterize the activity as a simple counter sale
of food ignoring the true nature of the contractual arrangement.
The activity cannot be viewed in isolation as a sale transaction
when the entire arrangement involved preparation and supply of
food from the recipient's premises in accordance with the
requirements of NHPL. The substance of the transaction clearly
answers the description of outdoor catering service. Regarding
the submission that because they have paid Value Added Tax
(VAT) to the state sales tax authorities, no service tax can be
levied on the exact same transaction value, it is submitted that
this line of argument completely overlooks the well-settled
"Aspect Theory" validated by the Hon'ble Supreme Court. The
Apex Court in Federation of Hotel & Restaurant Association
of India v. Union of India [1989 (3) SCC 634], held that a
single composite transaction can possess multiple legal
dimensions, allowing both the Union and the State to legislate
and levy tax on distinct components of that transaction without
violating constitutional mandates. The legislative intent behind
taxing outdoor catering recognizes that it involves both a service
aspect (preparation, institutional delivery, procurement, and
customization) and a goods aspect (the food and drink
consumed). Regarding the judgment of Hon’ble Supreme Court
in the matter of Bharat Sanchar Nigam Ltd. (BSNL) v. Union
of India [2006 (2) STR 161 (SC)] to claim absolute immunity
from service tax, it is submitted that it is wholly misplaced. The
BSNL case addressed the "transfer of right to use goods" under
telecommunication services and laid down tests to determine the
dominant nature of a transaction to prevent the artificial splitting
of an indivisible contract. The Hon’ble Supreme Court in Bharat
Sanchar Nigam Ltd. v. Union of India reported in 2006 (2)
STR 161 (SC) had examined the constitutional principles
governing overlapping taxation and recognized the doctrine of
“Aspect Theory”. The Hon’ble Court held that the same
Page 8 of 14

ST/971/2012



transaction may involve different taxable aspects and each
aspect can be subjected to a distinct levy. The Court observed
that there is no overlapping when the taxes are imposed on
different aspects of the same transaction. However, the service
of catering operates under an entirely different statutory fiction.
13. Learned AR further submits that in the case of Tamil
Nadu Kalyana Mandapam Assn. v. Union of India [2004
(167) ELT 3 (SC)], the Hon’ble Supreme Court explicitly
evaluated the constitutional validity of service tax on catering
services. The Apex Court held that catering undeniably involves
a substantial element of service, including the specialized
preparation, layout, and supply of food tailored to the specific
needs of an organization or event. The court clarified that the
tax is not on the sale of food articles, but rather on the activity
of catering provided to a person or client. The statutory
definitions under Section 65(24) and 65(76a) were specifically
expanded to cover institutional supply arrangements exactly like
the one executed by the Appellant inside the medical
establishment. Thus, the principal contention of the appellant
that once VAT/Sales Tax has been discharged on the impugned
transaction, Service Tax cannot be levied on the same
consideration is contrary to the settled constitutional and legal
position laid down by the Hon’ble Supreme Court. It is well
settled that a single transaction may contain multiple taxable
aspects. Different legislatures may validly tax different aspects
of the same transaction. Levy of VAT on the transfer of property
in goods does not prohibit levy of Service Tax on the service
element embedded in the same transaction. The significance of
the BSNL judgment is that payment of Sales Tax/VAT on one
aspect of a transaction does not automatically exclude taxation
of the service aspect. The appellant’s reliance on payment of VAT
is therefore misplaced. The real test is whether the transaction
contains an identifiable service element which is liable to tax
under the Finance Act, 1994.
Page 9 of 14

ST/971/2012



14. Learned AR further submits that the issue was considered
in greater detail by the Hon’ble Supreme Court in Association
of Leasing & Financial Service Companies v. Union of
India reported in 2010 (20) STR 417 (SC). The challenge
therein was that leasing and hire-purchase transactions were
already subjected to Sales Tax/VAT and therefore Service Tax
could not be imposed on the same transactions. Rejecting the
challenge, the Hon’ble Supreme Court upheld the levy of Service
Tax and reiterated that Sales Tax and Service Tax operate in
different fields. The Court held that the finance and service
element in leasing transactions can be separately subjected to
Service Tax even though the goods component may
simultaneously suffer Sales Tax/VAT. The judgment is a direct
authority for the proposition that dual levy is constitutionally
valid when the taxes are imposed on different aspects of the
same transaction. Thus, composite transaction may contain
separate goods and service elements. VAT is leviable on the
goods aspect. Service Tax is leviable on the service aspect.
Payment of VAT does not grant immunity from Service Tax.
Aspect Theory permits simultaneous taxation of different aspects
of the same transaction. Therefore, the argument that the entire
consideration has suffered VAT and consequently cannot suffer
Service Tax is legally unsustainable.
15. As regarding extending the Benefit of Abatement , it is
stated that while quantifying the demand, the Department has
already extended the abatements and deductions available under
the statutory scheme governing outdoor catering services. The
value attributable to goods has thus already been taken into
consideration in the manner prescribed under law. Having
availed the benefit intended to neutralize the value of goods
involved in the transaction, the appellant cannot further contend
that the entire consideration escapes service tax merely because
VAT was paid. Acceptance of such a proposition would defeat the
statutory scheme itself.
Page 10 of 14

ST/971/2012



16. As regarding the submission that the demand confirmed by
invoking the Extended Period of Limitation, Learned AR submits
that the Department had no prior knowledge of their activities
and only through statements recorded during the investigation,
appellant had disclosed that transactions in their local VAT
returns. Further this argument fails on basic principles of non-
registration under the Finance Act, 1994. The service tax regime
relies entirely on the honesty and proactive compliance of the
assessee. The Appellant was operating inside a private hospital
facility, executing specialized contracts, and collecting
commercial consideration from NHPL without even seeking
registration with the Service Tax Commissionerate or filing
statutory ST-3 returns during the material period. The mere fact
that they were registered with and filing returns before the state
VAT authorities does not translate into a disclosure to the Service
Tax authorities, as the two administrative machineries are
completely independent. In this regard, Learned AR relied on the
judgment of Hon'ble Supreme Court in Madhumilan Syntex
Ltd. v. Union of India [2007 (210) ELT 484 (SC)], where it
is held that once a statute requires a party to pay tax and
stipulates the period within which such payment is to be made,
the payment must be made within that period, and any failure
constitutes a clear default. Further, as established in Chaitanya
Advertising v. CCE & C, Ahmedabad [2007 (5) STR 204
(Tri-Ahmedabad)] , 'mens rea' or a specific evil intent is not a
necessary ingredient for imposing penalties or invoking statutory
liability when there is a clear breach of civil obligations. Failure
to register, failure to file statutory returns, and complete non-
disclosure of taxable revenues earned from institutional
contracts amount to a deliberate suppression of facts with an
intent to evade tax. Consequently, the invocation of the
extended period of limitation under the proviso to Section 73(1)
is completely valid, legal, and justified. The adjudicating
authority has recorded detailed findings on suppression and the
Page 11 of 14

ST/971/2012



appellant has not produced any evidence establishing bona fide
disclosure of taxable activity before the Department during the
relevant period.
17. Heard both sides. The period of dispute is from 01.03.2006
to 30.09.2010 and during the said period, definition of outdoor
catering service as defined under Section 65 (76a) of the
Finance Act, 1994 reads as -
"Outdoor caterer means a caterer engaged in providing services in
connection with catering at a place other than his own but including a
place provided by way of tenancy or otherwise by the person receiving
such services". As per Section 65(105)(zzt) of the Finance Act,
1994, the term taxable service meant "Taxable service means
any service provided or to be provided to any person, by an outdoor
caterer". The caterer as per Section 65(24) of the said Act
was defined as "caterer means any person who supplies, either
directly or indirectly, any food, edible preparations, alcoholic or non-
alcoholic beverages or crockery and similar articles or accoutrements for
any purpose or occasion”.

18. Based on the above definitions a person undertaking
catering in his own premises or premises offered by the
clients and who supplies food directly or indirectly falls
under the definition of outdoor caterer. In this case it is an
admitted fact that the appellant was to supply food at
Narayana Hrudayalaya Hospital to their clients and the
definition of the outdoor caterer has been expanded to cover
all types of canteen contractors with effect from
16.06.2005, hence appellant’s submission that no service
element is involved is not tenable and that they are
engaged only in the sale of food is unfound. Further, the
very important segment of the definition of outdoor caterer
is that the caterer must supply the specified items at a place
other than his own and in this case admittedly it is served
from the Hospital premises. Further the appellant has
emphasized payment of VAT on the contract value which
Page 12 of 14

ST/971/2012



establishes that the goods component has suffered VAT but
no service tax is paid on the services rendered by them. We
also find that the adjudicating authority has already
extended the benefit of statutory abatements/deductions on
the goods while quantifying the demand and abatements
are granted on the value attributable to goods which stands
excluded to the extent permissible under law. Consequently,
the demand pertains only to the service portion of the
transactions. Further we find that the Notification
No.21/2004-ST had previously exempted outdoor caterers
operating within medical establishments, but this specific
exemption was consciously rescinded by the legislature via
Notification No. 2/2006-ST with effect from 01.03.2006 and
therefore the appellant is liable to pay service tax
considering the fact that these activities carried out by him
are rightly classifiable under the definition of the “Outdoor
Catering Service”. We also find that the case laws relied
upon by the appellant are different from the present set of
facts and the provisions of laws existing during the relevant
period.

19. As regarding the demand confirmed by invoking extended
period of limitation and penalty, we find that entire demand is
made based on the records maintained by appellant. We find
that Hon'ble Supreme Court in the matter of M/s. Anand
Nishikawa Co. Ltd Vs. Commissioner of Central Excise,
Meerut -2005 (188) E.L.T 149 (S.C), held that mere failure to
declare the facts does not amount to willful suppression of facts.
Further the judgment of Hon'ble High Court of Karnataka
rendered in the case of Commissioner of Service Tax,
Bangalore Versus Motor World [2012 (27) S.T.R 225
(Kar)] , wherein it was held that notwithstanding anything
contained in Sections 76, 77 and 78 of the Act, penalty is not
imposable if the non-payment of service tax is on account of
reasonable failure as per Section 80 of the Act which was in
Page 13 of 14

ST/971/2012



existence. Further as held by the Hon’ble Supreme Court in the
matter of M/s Pushpam Pharmaceutical Company Vs. CC
(1995 (78) E.L.T 401 (SC) , extended period of limitation is
not invokable if for just any omission of Appellant unless it is
deliberate to escape from payment of duty. Also, Hon’ble
Supreme Court decision in the matter of M/s Cosmic Di
Chemicals vs CCE, Mumbai (1995 (6) SCC 117 ) held that
intention to evade duty must be proved for invoking the
provision of Section 11A(1) for extended period of limitation.
Accordingly, the demand confirmed by invoking extended period
of limitation and penalty are unsustainable.

20. Accordingly, appeal is partially allowed by confirming the
demand only for the normal period along with interest as
applicable. All penalties are set aside.

(Order pronounced in Open Court on 23.10.2026)



(P.A. AUGUSTIAN)
MEMBER (JUDICIAL)




(R. BHAGYA DEVI)
MEMBER (TECHNICAL)
Raja…
Page 14 of 14