Service Tax not applicable on food served as ‘Take Away’ or ‘Parcels’: Madras High Court [Read Judgment]

The Madras High Court ruled that the Service Tax is not applicable on food served as ‘take away’ or ‘parcels’.

As many as 4 petitioners, Anjappar Chettinad A/C Restaurant, M/s RSM Foods (P) Ltd, M/s.Thalapakatti Hotels Pvt. Ltd, and M/s Prasanam Foods (P) Ltd. has raised the concern in respect of the question as to the liability to service tax under the Finance Act, 1994 on food that is ‘taken away’ or collected from restaurants or eateries, in parcels.

According to the petitioners, there is no liability for sale of food at the take-away 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 take away food would stand outside the ambit of service tax.

Restaurant service, by definition means that all attributes of a restaurant such as organised seating, air-conditioning, service at the table, live music and enhanced hospitality are included. These attributes are absent in a transaction of take-away. In fact, service tax on restaurant services have itself been restricted only to service in air-conditioned restaurants.

On the other hand, the revenue would draw my attention to the provisions ofSection 66E(1) of the Act which declares the activity of ‘supply of food or any other article of human consumption or any drink’ as a taxable service. Thus, according to them, there is absolutely no infirmity in the impugned orders that have brought to tax the receipts from parcel sales/take away sales. They rely on a decision of the Bombay High Court in Indian Hotels and Restaurant Association V. Union of India, wherein the Court holds that restaurants primarily provide service and the sale undertaken in the course of rendition of service, is only incidental. Thus, according to the revenue, the provision of take-away food and drinks involves the rendition of service and the mode of sale, that is, by parcels, has no bearing in the matter. The transaction in question should thus be bifurcated into one that involves both the components of sale and service and brought to tax accordingly.

The single bench of Justice Anita Sumanth noted that in the case of take-away or food parcels, the aforesaid attributes are conspicuous by their absence. In most restaurants, there is a separate counter for collection of the take-away food parcels. Orders are received either over 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 a delivery service. More often than not, the take-away counters are 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 in the premises of the restaurant.

The Court held 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.

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