While dealing with service tax liability on food supplied by hospitals, the Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that Annapoorna Health Foods’ supply of food to patients, relatives, doctors and staff at Narayana Hridayalaya Hospital was taxable as outdoor catering service under the Finance Act, 1994. The Tribunal confirmed service tax on the service component after statutory abatements, payment of VAT on the goods side did not negate the service tax liability.
Payment of VAT established that the goods component had been taxed. Since statutory abatements and deductions had already been allowed, the Tribunal held that the demand covered only the service portion of the transactions. The Tribunal also noted that Notification No. 21/2004-ST, which exempted outdoor caterers operating within medical establishments, had been rescinded by Notification No. 2/2006-ST with effect from 1 March 2006.
Further, the CESTAT noted that the entire demand rested on the appellant’s maintained records. Applying the requirement of deliberate suppression or omission intended to evade tax, it held the extended-period demand unsustainable.
Briefly, Annapoorna Health Foods supplied food to patients, their relatives, doctors and staff at Narayana Hridayalaya Hospital. The Department treated the activity as “outdoor catering service” and demanded service tax for 1 March 2006 to 30 September 2010, along with penalties. The firm challenged the demand, arguing that it merely sold food, paid VAT on those sales, and left collection and delivery of food to patients to the hospital.
Emphasising on service tax liability on food supplied by hospitals, the Division Bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) observed that the arrangement fell within the definition of outdoor catering because food was supplied from the hospital’s premises. It rejected the argument that the activity involved only sale of food and no service element. Payment of VAT covered the goods component but did not eliminate service tax liability on the service component.
The Tribunal asserted that the hospital catering arrangement was taxable as outdoor catering service, notwithstanding payment of VAT on the goods component. However, the Tribunal noted that the demand was based entirely on the firm’s own records and applied the principle that mere failure to disclose facts does not establish wilful suppression, and a deliberate omission intended to evade tax must be shown. It also relied on the protection against penalties for reasonable failure under the then-existing Section 80.
