CESTAT Chennai on Service Taxability of Beverage Vending at Client Premises as Outdoor Catering

Overview of the Decision

The CESTAT Chennai, in Perfect Vending (India) Private Limited Vs Commissioner of Service Tax (CESTAT Chennai), examined whether supplying coffee, tea and milk at client locations through vending machines amounts to “outdoor catering service” under the Finance Act, 1994.

The Tribunal upheld the adjudication orders and confirmed the service tax demands raised under the category of outdoor catering service, rejecting the assessee’s stand that the transactions were merely sales of beverages and ingredients liable only to VAT.

Factual Background

Perfect Vending (India) Private Limited was engaged in:

  • Manufacturing and selling coffee and tea vending machines;
  • Placing such vending machines at the premises of its clients;
  • Supplying premix coffee, tea, sugar, milk and other ingredients required for preparing beverages;
  • Maintaining the machines, ensuring cleanliness and hygiene;
  • Deploying pantry staff at the client locations; and
  • Charging its clients on a per-cup basis, with consolidated billing at the end of each month.

The assessee had already obtained service tax registration under the heads of “outdoor catering” and “maintenance and repair service” and had been regularly discharging service tax on the above activity up to September 2008. From October 2008, the assessee stopped paying service tax on this activity.

During audit, the Department noted that the assessee continued to operate the same model of supplying beverages at client premises but had ceased paying service tax under outdoor catering. Based on this, six notices were issued covering different periods between October 2008 and June 2012, proposing to demand service tax on the value received for beverage supplies at client premises.

Show Cause Notices and Demand Periods

The following notices were issued proposing service tax liability under outdoor catering service:

  • SCN No. 594/2010 dated 05.10.2010 for the period October 2008 to March 2009: Rs. 16,22,687/-
  • SCN No. 705/2010 dated 21.10.2010 for the period April 2009 to December 2009: Rs. 39,66,733/-
  • SCN No. 765/2010 dated 14.12.2010 for the period January 2010 to March 2010: Rs. 21,13,336/-
  • SCN No. 308/2011 dated 06.09.2011 for the period April 2010 to March 2011: Rs. 80,13,382/-
  • SOD No. 290/2012 dated 11.10.2012 for the period 2011 to 2012: Rs. 92,87,442/-
  • SOD No. 125/2014 dated 15.05.2014 for the period April 2012 to June 2012: Rs. 25,64,853/-

These notices culminated in Order-in-Original No. 134 to 137 of 2012 dated 27.12.2012 and Order-in-Original No. CHN-SVTAX-001-COM-1 & 2 – 2014-15 dated 28.11.2014, confirming demands under outdoor catering service. The assessee appealed before the Tribunal.

Core Issue Before the Tribunal

The CESTAT framed the sole question as follows:

Whether the assessee’s activity of supplying non-alcoholic beverages at its clients’ premises, using vending machines installed there, falls within the statutory definition of “outdoor caterer”, and accordingly, whether the consideration received is chargeable to service tax under outdoor catering service?

Assessee’s Primary Contentions

The assessee disputed its liability under outdoor catering on several grounds, broadly contending that the transaction was one of sale and not service:

  • The assessee was principally a manufacturer and seller of vending machines, and of consumable materials such as premix coffee, tea, sugar and milk.
  • It had charged and paid VAT on the sale of these consumable items and, therefore, regarded the transaction as sale of goods, not provision of service.
  • The activity, according to the assessee, resembled that of a shop-keeper or supplier of beverages/ingredients rather than an outdoor caterer.
  • Merely because billing was on a per-cup basis could not, in its view, change the nature of the transaction into outdoor catering.
  • It argued that there was an indivisible sale-cum-service element and, alternatively, the arrangement should be treated as a works contract, not liable under the specific outdoor catering category.

In support of its arguments, the assessee relied on several judicial precedents, including:

  • Bharat Sanchar Nigam Ltd. v. Union of India [2006 (2) S.T.R. 161 (S.C.)]
  • Imagic Creative P. Ltd. v. Commissioner of Commercial Taxes [2008 (9) S.T.R. 337 (S.C.)]
  • Tamil Nadu Kalyana Mandapam Assn. v. Union of India [2004 (167) E.L.T. 3 (S.C.)]
  • `Indian Railways C&T Corpn. Ltd. v. Govt. of NCT of Delhi [2010 (20) S.T.R.