Your Queries on Service Tax

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Customer Care No. 91-11-45562222
Your Queries on Service Tax
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• Query We have obtained contract from a company
  for running two canteens. We prepare food and
  serve to employees of company. The company has
  one AC canteen which is under Factories Act as
  company employs more than 250 employees. Company
  has another non AC canteen in another unit, where
  employees are less than 250 and is not under
  Factories Act.
• The company is of the view that service tax is
  not chargeable by us to them in both the cases.
  However, department is taking a view that our
  services are 'outdoor catering services' and we
  are liable to pay service tax on 60 of value.
• Answer - Section 66E(i) of Finance Act, 1994
  defines following as 'declared service' - 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.

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• Exemption to services provided in restaurants
  without air conditioning or central
  heating - Services provided in relation to
  serving of food or beverages by a restaurant,
  eating joint or a mess, other than those having
  the facility of air-conditioning or central
  air-heating in any part of the establishment, at
  any time during the year, are exempt from service
  tax - Sr No.19 of Notification No. 25/2012-ST
  dated 20-6-2012 w.e.f. 1-7-2012 as amended w.e.f.
  1-4-2013.
• Canteen is an 'eating joint' or a 'mess'.
• Note that service provided by an eating joint or
  a mess are exempt from service tax. Who is
  running or managing that eating joint or mess is
  not relevant for purpose of this exemption.
• Exemption to food and beverages served in canteen
  in factory - Services provided in relation to
  serving of food or beverages by a canteen
  maintained in factory covered under Factories Act
  having facility of air-conditioning or central
  air heating at any time during the year is exempt
  from service tax w.e.f. 22-10-2013 Sr No. 19A
  of Notification No. 25/2012-ST dated 20-6-2012
  inserted w.e.f. 22-10-2013.
• Note that service provided by a canteen are
  exempt from service tax. Who is running or
  managing that eating joint or mess is not
  relevant for purpose of this exemption. The
  notification does not say 'canteen run by
  company' or any such similar term.
• Definition of outdoor caterer does not exist
  after 1-7-2012 - The term 'outdoor catering' has
  not been defined in valuation rules or anywhere
  else.
• The earlier definition of 'outdoor catering'
  is not effective from 1-7-2012
  see proviso inserted at end of section 65(105) of
  Finance Act, 1994 and at end of section 66 of
  Finance Act, 1994. These amended provisions have
  been notified videNotification No. 20/2012-ST
  dated 5-6-2012 andNotification No. 22/2012-ST
  dated 5-6-2012.
• Thus, the earlier definitions of 'outdoor
  caterer' and its taxability are not effective
  from 1-7-2012.

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• Hence, the term 'outdoor catering' has to be
  understood in common parlance test.
• As per Oxford Reference Dictionary, 'cater' means
  'provide food and drink at (a social event)'.
• The 'outdoor catering' means the service provider
  goes at a place where a function is held which is
  not place of business of the caterer.
• Further, as per trade parlance, 'outdoor caterer'
  means a person who provides food on casual basis
  and not on routine basis.
• In canteen, food is served on regular basis and
  hence it can be properly termed as 'eating
  joint', even if run by outside contractor.
• Thus, canteen is not outdoor catering, even if
  run by outside contractor.
• Hence, service tax can apply only if canteen is
  air conditioned and is not under Factories Act.
  If canteen is under Factories Act, service tax
  will not apply even if it is air conditioned.
• Old tax head are only for statistical purposes
  - CBEC Circular No. 165/16/2012-ST dated
  20-11-2012 clarifies that the old heads and
  accounting codes are to be used for payment of
  service tax for statistical purposes. Thus, the
  old heads have no statutory significance.
• View expressed in draft circular of CBEC - Para
  11 of draft Circular F. No 354/127/2012-TRU dated
  27-7-2012 reads as follows -
• 'Moreover, it would need to be seen whether the
  services provided by the employer are otherwise
  covered by the Negative List or exempt. For
  example, the services of food and catering
  provided by the employer in a canteen would
  normally fall outside the tax net unless such
  canteen has both the facility of air-conditioning
  as well as license to serve liquor (S. No. 19 of
  the Mega exemption)'.

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• Thus, the draft circular acknowledges the fact
  that the mega exemption notification exempts
  canteen provided by employer Even if the
  circular is only draft circular, if whatever
  stated in the circular is correct, it will
  continue to be correct even if final circular is
  not issued on this aspect.
• Note that the draft circular uses the words
  'provided by employer' and not 'run by employer'.
• Conclusion - In conclusion, my views are as
  follows -
• (a) There is no service tax on food supplied in
  canteen, if such canteen is without air
  conditioning or central heating and without bar,
  whether such canteen is in office or in any
  factory. This would be so even if canteen is run
  by outside contractor, as such canteen is 'eating
  joint' and not 'outdoor catering'. This position
  is w.e.f. 1-7-2012.
• (b) There is no service tax on food supplied in
  canteen w.e.f. 22-10-2013, even if the canteen is
  air conditioned, if such canteen is under
  Factories Act (i.e. in factory employing 250 or
  more). This would be so even if canteen is run by
  an outside contractor, as such canteen is 'eating
  joint' and not 'outdoor catering'.
• (c) Canteen contractor is not an outdoor caterer.
  The definition of outdoor caterer is not in force
  w.e.f. 1-7-2012.
• Operating buses provided by company to transport
  their employees from home to factory and back

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Customer Care No. 91-11-45562222
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