VAT On Food Didn’t Bar Service Tax On Hospital Caterer’s Service Portion; CESTAT Limits Demand To Normal Period, Drops Penalties

The appellant supplied food to patients, relatives, doctors and staff of Narayana Hrudayalaya Hospital (NHPL), operating from premises within the hospital.

It paid VAT on its food sales but did not register or pay service tax.

The Department treated the activity as outdoor catering and, by order-in-original, confirmed service-tax demand and penalties for 1 March 2006 to 30 September 2010.

The appellant appealed, disputing the service-tax liability and challenging the extended limitation period and penalties.

Whether the appellant’s food-supply activity at NHPL’s premises constituted a taxable “outdoor catering service” under the Finance Act, 1994, notwithstanding payment of VAT on the food.

Whether the extended period of limitation could be invoked and penalties imposed in the circumstances of the case.

Under Sections 65(24), 65(76a) and 65(105)(zzt) of the Finance Act, 1994, a caterer supplying food in connection with catering at a place other than its own—including premises provided by the recipient—provides outdoor catering service.

The Tribunal noted that Notification No. 21/2004-ST’s exemption for outdoor caterers operating in medical establishments had been rescinded by Notification No. 2/2006-ST from 1 March 2006.

It accepted that the goods component was subject to VAT but held that, after applicable abatements or deductions for goods, service tax could be demanded on the service portion.

For limitation and penalties, it applied the principles in Anand Nishikawa Co. Ltd. v. CCE, Pushpam Pharmaceutical Co. v. CCE and Cosmic Dye Chemical v. CCE: mere failure to disclose does not establish wilful suppression or intent to evade; it also relied on Commissioner of Service Tax v. Motor World concerning reasonable failure under Section 80 of the Finance Act.

The appellant supplied food from space provided within NHPL and was therefore catering at premises other than its own; the statutory definition, as expanded to include premises provided by the recipient, covered the activity.

The Tribunal rejected the contention that VAT payment alone excluded service tax: the applicable abatements had already accounted for the goods component, leaving the service portion liable to tax.

However, the demand was based on records maintained by the appellant, and the Tribunal found that the circumstances did not establish the deliberate suppression or intent to evade necessary for the extended period.

It therefore held the extended-period demand and penalties unsustainable.

The Tribunal upheld service-tax liability for the normal period, together with applicable interest, but set aside the demand for the extended period and all penalties.