The Ahmedabad Bench of CESTAT has ruled that service tax is not payable on packable or packed food sold as ‘takeaway food’ and not served in the restaurant.

The Ahmedabad Bench of Customs, Excise and Tax Appellate Tribunal (CESTAT) consisting of Ramesh Nair (Judicial Member) and Raju (Technical Member) has ruled that service tax is not payable on packable or packed food sold as takeaway and not served in the restaurant.

The appellant/assessee provides catering service at restaurants for which they hold service tax registration. On the scrutiny of records of the appellant by CERA Audit, it was noticed that the appellant had a hotel cum restaurant in which they provide catering service at the restaurant.

At the customers’ orders, they also supply the cooked food after packing the same to the customers for which they invoice as a parcel of food. Though the appellant has been paying service on food supply in the restaurant, they were not paying service tax on food cooked and supplied in the package to the customers as per their direction.

A show-cause notice was issued which stated that as per clause (i) of Section 66E of the Finance Act, 1994, service portion in any activity wherein goods, being food or any other articles of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity is a declared service.

It was further stated in the show-cause notice that cooking and supply of food as a parcel to the customers, as per the customer’s direction, is also an activity in which the food is supplied to the customers, so it is declared as service.

Counsel for the appellant submitted that the food has been sold in the packed form as takeaway and not served in the restaurant. Therefore, it is a sale of food, and no service is involved. The CESTAT has found that the food is not served in the hotel. However, it is sold in the packed form, and therefore, as per the nature of the activity, it is clearly a sale of food, no service is involved.

In the case of takeaway or food parcels, the attributes mentioned above are conspicuous by their absence. In most restaurants, there is a separate counter to collect the takeaway food parcels. Orders are received either over the telephone, by e-mail, online booking or through a food delivery service such as swiggy or zomato. Once processed and readied for delivery, the parcels are brought to a separate counter and are picked up either by the customer or delivery service.

According to the petitioners, there is no liability for the sale of food at the takeaway counter or by parcel. They would state that the sale of packaged food constitutes pure trading activity, and there is no component of service involved therein. They rely on the definition of ‘service’ under Section 65B(44), which excludes the transfer of title in goods by way of sale. In the light of this exclusion, parcel sales or takeaway food would stand outside the ambit of service tax.

The takeaway counters are often positioned away from the main dining area that may or may not be air-conditioned. In any event, the consumption of the food and drink is not on the premises of the restaurant.

“In the aforesaid circumstances, I am of the categoric view that the provision of food and drink to be taken-away in parcels by restaurants tantamount to the sale of food and drink and does not attract service tax under the Act.” the judge observed.

To download the complete text of the judgement please click here.

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