Your queries on service tax

Your Queries on Service Tax
Customer Care No. 91-11-45562222
www.taxmann.com

• 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 - CBE&C 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 CBE&C - 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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