Hospital Food Contractor Liable To Pay Service Tax As Outdoor Caterer: CESTAT Bangalore

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, has held that a contractor supplying food from hospital premises can be liable to pay service tax as an outdoor caterer, even where VAT has been paid on the goods component.

“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,” the tribunal observed.

The bench of Judicial Member P. A. Augustian and Technical Member R. Bhagya Devi, however, rejected the demand for the extended limitation period and set aside all penalties. It found that the demand was based on records maintained by the contractor and that a mere failure to declare facts did not amount to wilful suppression.

The case concerned Annapoorna Health Foods, which supplied food to patients, their relatives, doctors and other staff at Narayana Hrudayalaya Hospital. The dispute related to service tax for the period from March 2006 to September 30, 2010. The department issued a show-cause notice on April 21, 2011, demanding service tax on the activity.

Annapoorna Health Foods argued that its activity was the sale of food, on which it had paid VAT. It relied on its VAT returns and an agreement with the hospital to contend that service tax could not be levied on the same value.

The department maintained that the activity fell within the definition of an outdoor caterer because the food was supplied from premises provided by the hospital. It also relied on the company's failure to register for service tax and file returns to justify invoking the extended period of limitation.

The tribunal examined the provisions of the Finance Act, 1994, and found that the definition of an outdoor caterer covered a person undertaking catering and supplying food from premises provided by a client. The definition had been expanded with effect from June 16, 2005, to cover canteen contractors.

It noted that the adjudicating authority had already allowed statutory abatements and deductions for the goods component. The demand therefore related to the service portion of the transactions.

The tribunal also noted that an exemption previously available to outdoor caterers operating within medical establishments under Notification No. 21/2004-ST had been withdrawn through Notification No. 2/2006-ST with effect from March 1, 2006. It consequently held that Annapoorna Health Foods was liable to pay service tax on the activity during the disputed period.

On limitation, the tribunal found that the demand was based on records maintained by Annapoorna Health Foods. Relying on Supreme Court decisions, including Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, Pushpam Pharmaceutical Company v. CC and Cosmic Dye Chemical v. CCE, it observed that a mere failure to declare facts does not amount to wilful suppression. The department must establish an intention to evade tax to invoke the extended period of limitation.

The tribunal partly allowed the appeal, confirming the demand only for the normal limitation period along with applicable interest. It set aside all penalties.

For Appellant: Advocate S. Annamalai,

For Respondent: Malatesh S. Kulkarni, Assistant Commissioner (Authorised Representative)