In the case of M/s. Hotel East Park & Another vs Union of India & Others [Writ Petition (T) No. 95 of 2013] t he High Court of Chhattisgarh by order dated 06-05-2014 has ruled that Article 366(29A)(f) of the Constitution of India does not indicate that the service part is subsumed in the sale of the food; it rather separates sale of food and drinks from service and In our opinion, section 66E(i) of Chapter-5 of the relating to service tax of the Finance Act, 1994 is not ultra vires the Constitution.

Facts of the case:
M/s. Hotel East Park (the Petitioner) was a well known hotel of Bilaspur. It had normal facilities provided in a hotel including an air-conditioned, restaurant and a bar. They catered not only to the persons staying in the hotel but to the outsiders as well.

The petitioner was aggrieved by the levy of service tax by the Central Excise Department at the rate of 40% on the bill value of the food and drinks in terms of section 66E(i) of the Finance Act 1994 read with rule 2C of the Service Tax (Determination of Value) Rules, 2006. Accordingly, the Petitioner had filed the writ petition challenging the vires of section 66E(i) of 1994-Act.

The Court after hearing of the parties concerned, framed the following points of determinations:

(i) Whether any service tax can be charged on a sale of an item or vice versa;
(ii) Whether in view of Article 366 (29A)(f) service is subsumed in sale of food and drinks;
(iii)Whether section 66E(i) of the 1994-Act is violative of Article 366 (29A)(f) of the Constitution.

The Court ruled that the Parliament cannot impose tax on sale and purchase within a State (except on newspapers). Similarly State cannot tax a service. However, the Court opined in negative to the points number (ii) and (iii) as above.

The important excerpts of the judgment are as under:

“section 66E(i) of the Finance Act 1994-Act is nonviolative of Article 366 (29A)(f) of the Constitution.”

“The entire idea of inserting of Article 366(29A)(f) was to bifurcate sale of the food or drinks from the service part as interpreted by the Supreme Court, that is to say that by amending the Constitution, the supply of food or drinks to a person in a hotel or in a restaurant has been bifurcated into two parts, namely, service part and sale of goods. This is also clear from the wordings of Article 366(29A)(f) of the Constitution.”

“The objects and reasons as well as historical background of Article 366(29A)(f) of the Constitution show that the intention behind substituting this sub-article was to separate the value of sale of food and drinks from the service part. It was neither the intention that the service part should be subsumed in the definition of sale nor interpretation of Article 366(29A)(f) leads to this conclusion.”

“The relevant part of Article 366(29A)(f) of the Constitution, is as follows:

'tax on the sale or purchase of goods" includes a tax on the supply, by way of or as part of any service... of... food... for human consumption... where such supply or service, is for cash …'

This itself shows that the sales tax is on supply of food or on drinks only and not on the service part thereof.”

“We are afraid, Article 366(29A)(f) of the Constitution does not indicate that the service part is subsumed in the sale of the food; it rather separates sale of food and drinks from service.”

“our opinion, section 66E(i) of Chapter-5 of the relating to service tax of the Finance Act, 1994 [Statutory Provisions Relating to Service Tax] is intra vires the Constitution”

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