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2(35) "sale" with all its grammatical variations and cognate experession means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes- (i)............................ (ii).......................... (iii)......................... (iv) a supply, by way of' or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply shall be deemed to be sale and the word "purchase" or "buy" shall be construed accordingly:"

2(36) "sale price" means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act."

2(40) "taxable turnover" means that part of turnover, as may be determined after making such deductions from the total turnover as may be prescribed on which a dealer shall he liable to pay tax under this Act;

2(41) "turnover" menas the aggregate amount of sale price received or receivable by a dealer including purchase price of the goods which are subject to tax under sub-section (2) of section 4 "hut shall exclude the sale price or part of sale price, if Any, in respect of sales of goods which were purchased in the State by the dealer upon payment of tax on the maximium retail price of such goods or, where tax on maximum retail price of such goods were paid in the State on an earlier occasion;

"4. Levy of tax and its rate - (1) Subject to the other provisions of this Act and the provisions of the Central Sales Tax Act, 1956 (Central Act No. 74 of 1956), the payable by a dealer under this Act, Shall be at such point or points, as may be prescribed, in the series of sales by successive dealers and shall be levied on the taxable turnover of sale of goods specified in Schedule III to Schedule VI at the rate mentioned against each of such goods in the said Schedules."

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(1)Notwithstanding anything contained in rule 22, the taxable turnover for levying tax under sub-section (1) of section 4 of the Act, in case of transfer of property in goods whether as goods or in some other form) involved in the execution of a works contract, may be determined by effecting the following deductions from tl gross value of the contract, in so far as the amounts relating to the deductions pertaining to the said works contract,-(a)...................... (h).................... (c)..................... (d)................... (e) ................... (1).................... (g).................... (h) Other similar expenses relatable to the said supply of labour and services, where the labour and services are subsequent to the said transfer of property; and............

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18. "134. The terminology used in clause (1) of Art. 366 (29A), corresponding to clause (vi) of S.2 (38) of the Act, is different from that used in clause (h) relating to works contracts. Pursuant to sub-clause (b), the tax can only he on the transfer of property in goods involved in the execution of the work contract and it is such transfbr that is deemed to be sale of those goods. But in so far as clause (0 is concerned, the tax is on the" supply" of food or drinks, whether the said supply is by way of or as part of any service or in any other manner whatsoever, and the said "supply" itself is deemed to be "sale" of those goods. In the former case since the terminology used is "transfer of property in goods" necessarily the value of the labour involved in the execution of the work contract therein has to be excluded and the tax can be only on the value of the goods whose property or title has been transferred, hut, in the latter asc, the tax is on the supply of food or drink. In this later case, even though the said supply may be by way of or as part of any service, the total consideration for the said supply itself can be taxed and there is no necessity to / exclude anything from the said total consideration on the ground that service part of it has also got sonic value. (1994) 94 STC 577 Hotel parishuthani (F) Ltd.Vs State of Tamulnadu."

19. Writ Petition No. 183/2003 Bharat Sanchar Nigam Limited V/s Union of India Dated 02.03.2006(SC)

"That doctrine merely deals with legislative competence. As has been succinctly stated in federation of Hotel and Restaurant Association of India V/s Union of India (1989) SCC 634-"Subjects which in one aspect and for one purpose fall with in the power of a particular legislature may in another aspect and for another purpose fall with in another legislative power. They might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects." No one denies the lagislative competence of states to levy sales tax on sales provided that the necessary conconitants of a sales are present in the transaction and the sale is distinctly discerenible in the transaction. This does not however allowed state to entrench U)Ofl the union list and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Art. 366 (29A), The value of the goods involved in the execution of the whole transaction can not be assessed to sales tax. As was said in Larsan & Toubro V/s Union of India (Supra) :-

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- 7 2399 2401 /2O12/T

"The cost of establishment of the contractor which is relatable to supply of labour and services can not he included in the value of the goods involve in the execution of a contract and the cost of establishment which is rclatihle to supply of materials involved in the execution of the works contract only can be included in the value of the goods." For the same reason the centre cannot included the value of the SIM Cards, if they are found unitimately to he goods, in the cost olihe service. As was held by us in Gujarat Ambuja Cement Ltd. V/s Union of India (2005) 4 SCC 214,228 "This mutual exclusivity which has been reflected in Article 246 (1) means that taxing entries must he construed so as to maintain exclusivity although generally speaking, a liberal interprepation must be given to taxing entries, this would not bring within its purview a tax on subject matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the Court will not by any principle of interpretation allow a statute covered by it to intrude upon this field."

20. Appeal ICivill 252 of 2008 Imagic Creative Pvt. Ltd. V/s Commissioner of Commercial Taxes & Ors. Dated: 09.01 .2008 (SC) "28. Payments of service tax as also the VAT are mutually exclusive Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sale tax as envisaged in composit contract as contradistinguisned hence the indiudual contract. It a may consist of different elements providing for attracting different nature of levy It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service proide. The approach of assessing authority to us, thus, appears to be correct."

21. Federation of Hotels and Rastaurants Association of India and ors. Vs Union of India WP(C) 6482/2011 dated 12.08.20 16 (Delhi HC); Pa ra: "58. The Parliament has further made the legal position explicit by inserting Section oF (i) of the FA read as it were with Section 65 (22) and 65 (44) of the FA. It states that the "service poion in an activity wherein goods, h food or any other article of human consumption or any drink (whether or not intoxicating) issLipplied in any manner as a part of the activity" is 'declared service." The legislative carving out of the service portion of the composite contract of supply of food and drinks has sound constitutionai basis as explained in the aforementioned decisions of the Supreme Court. Even if this is viewed as Parliament deploying a legal fiction, it is Iegjpermissihie. In State of U.P. v.Han Rai(Qi3) 4 SCC 280 it was held: "18. The legislature is competent to create a legal fiction, for the purpose _f assuming _existence of a fact which does not really exist.

In interpreting the provision creating a legal fiction the- court is to ascertain for what pp_ose the fiction is created and after ascertaining this, the court is to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction." 22. "59. Thus it is not .possible to accept the contention of the Petitioners that Parliament lacks the legislative competence to enact Section 65 (105) (zzzzv) of the FA with a view to bringing the service component of the composite contract of supply of food and drinks by an air-conditioned W.P.(C) No. 6482 of 2011 Page 42 of 51 restaurant within the service tax net."

23. "61. What Rule 2C does is to enable the assessing authority to put a definite value to the serVice_portion of the composite contract of supply of goods and services in an air-conditioned restaurant. Correspondingly there

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- 8 -- 3T#& Ti'i 2399 ' 2401J012/T1

is an abatement for that portion which pertains to the supply of goods in the form of food and drink which would be amenable to sales tax or value added tax. As rightly pointed out by learned counsel for the Respondent that such grant of abatement has the approval by the Supreme Court in Association of Leasing & Financial Service Companies v. Union of India (supra) wherein the abatement was 90% and the standard rate of service tax was applied on W.P1No. 6482 of 2011 Page 43 of 51 @ 10% of the cost of the leasing transaction which approximately represented the service element. It also requires to he kept in mind that the ready reckoner formula is useful where an assessee does not maintain accounts in a manner that will enable the assessing authority to clearly discern the value of the service portion of the composite contract. It hardjyjieeds emphasis that when during the course of assessment proceedings an assessec is able to demonstrate, on the basis of the accounts and records maintained by it for that purpose, that the value of the service component is different from that obtained by applying Rule 2C the assessing authority would be obliged to consider such submission and give a decision thereon. With the machinery provision for the levy and determination of service tax on the service pion clearly being spelt out in the Rules themselves, the legal requisites jghlighted in Govind Saran jjn Saran v. CST (supra) stand satisfied."

"62. Indeedperusal of one of the bills produced by the Petitioners themselves reveals that of the total sale of food for Rs. 2300. food tax (i.e. VAT) is levied 12.5% and works out to Rs. 287.50, service tax is (a), 4.94% which works out to Rs. jJ_7j. An abatement has been provided in the rate of service tac_Where the service tax should he ), 12.36% it is, after abatement, 4.94%.Thereforeitis not right that themeasure of tax is the same. This is notwithstandingjhe settled legal position that value of taxable service is not determinative of the character of the levy. In Association of Leasing & Financial Service Companies v. Union of India (supra) the Suprcw Court observed: "45 (i) The measure of taxation does not affect the natmce of taxation W.P.(C) No. 6482 of 2011 Page 44 of 51 and. _there forc the manner ol quantification of the levy of service tax has no_hearingpn the factum oficaislative competence." "63. For all the aforementioned reasons, the Court upholds the constitutional validity of' Section 65 (105) (zzzzv) and Section 66 E (i) of the FA read with Scctjon 65 (22) and 65 (44) thereof and Rule 2 C of the 2006 Rules 2000. aflcnge to the validityof Section 65 (105) (zzzzw) of the FA" 74

24. tJ 76 f4T viji Tr fr fcj[jtf:-

"76. Before concl ourt would like to observe that it has refrained from discussing the decisions of the other High Courts which have taken a view on the issues involved herein since at least three of those decisions i.e., the decisions of the Division Benches of the Kerala High Court in Union of India v. Kerala Hotel Association supra), the Bombay High Court in Indian Hotels and Restaurant Association v. Union of India (supra) and the Karnataka 1-ugh Court in Ballal Auto Agency v. Union of India (supra) are subject matter of pending appeals in the Supreme Court. Conclusions"

-fc 1IfEIT Writ Petition No. 183/2003 Bharat Sanchar Nigam Limited V/s Union of India Dated : 02.03.2006(SC) TT Appeal [Civil] 252 of 2008 Imagic Creative Pvt. Ltd. V/s Commissioner of Commercial Taxes & Ors. Dated : 09.01.2008 (SC) TT ifrq'rft'r fi (i 19 14 20

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I. CTR No. 02/2014 Ms Vjj_cy Hole! & Resorts Vs The Commissioner e.t. Decision dt. l0.04.20lA_LtJ4 trakhand

"We have considered the submission of learned counsel for the parties. Value Added Tax can be imposed on sale of goods and not on service. Service can be taxed by Service Thx Laws. The authority competent to impose service tax has also assumed competence to declare what is service. The State has not challenged the same. Therefore, where element of service has been so declared and brought under the Service Tax vide Government of India notification dated and brought under the Service Tax vide Government of India notification dated 06.06.2012, (i.e. 40% of bill amount to the customers having food or beverage in the restaurant was made liable to service tax) no Value Added Tax can he imposed thereon."

IT. Kerala classified Hotels as Resorts Assocation Vs Union of India & Others decision dt. 3.7.20 13 (2013)...64 VST 462 (Kerala HC)

Therefore it can be seen from article 366(29A)(f) that service is also included in the sale of goods. If the Constitution permits sale of goods during service as taxable necessarily entry 54 has to he read giving the meaning of sale of goods as stated in the Constitution. If read in that fashion, necessarily service forms part of sale of goods and State Government alone will have the legislative competence to enact the law imposing a tax on the service clement forming part of sale of goods as well, which they have apparently imposed. I am supported to take this view in the light of the Constitution Bench judgment in K. Damodarasamy Naidu [2000] 117 STC I (SC); [2000] 1 SCC 521."

III. Indian Hotels and Restaurant Association Vs Union of India (2014) 71 VST 386(Bombay) Judgement dt. 08.04.20 14

"The honourable Supreme Court, with respect, held that the concept of catering admittedly includes a concept of rendering service. The fact that the tax on sale of goods involved in the said service can be Page No: 419 levied, does not mean that the service tax cannot be levied on the service aspect of catering. With respect, this means that when a restaurant renders to any person a service, the tax on sale of goods involved in the said service can be levied. That does not mean that a service tax cannot be levied on the act of serving food at a restaurant. That is the tax in this case imposed by the Parliament. There could be a sale during the course of rendering of service at a restaurant and therefore, a sales tax could he imposed by the State Legislature. So long as there is no prohibition against imposition of service tax on the services rendered, then it must he held that the Parlia ment is competent to impose a service tax in question. Mr. Sridharan has not pointed out any provision which would enact a prohibition against the imposition of' service tax by the Parliament. It is not his argument that the levy in question is hit by double

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- 10

taxation. If only the lack of competence in the Parliament is the argument, then, that can be dealt with and disposed of by holding that the honourable Supreme Court does not rule out, but rather permits imposition of a tax on service even if during rendering of the same, the sale of goods takes place."

IV. Ms Hotels East Park & another Vs Union of India writ petition (T) No. 95 of 20/3 dt. 6.5.2014

"42 The restaurant and caterer arc also normally charging VAT on the bill value. This is not proper. They may charge service tax on 40% or 60% as the case may be of the bill value and charge VAT at the rate of 60% or 40% of the bill value, but not on the entire bill value."

V. The federation of 1-lotels Restaurants Assocations of India and ors. Vs Union of India (Delhi HC) W.P.(c) 6482/2011 di. 12.8.2016 (supra) "59. Thus it is not possible to accept the Contention of the Petitioners that Parliament lacks the legislative competence to enact Section 65 (105) (zzzzv) of the PA with a view to bringing the service component of the composite contract of supply of food and drinks by an air-conditioned W.P.(C) No. 6482 of 2011 Page 42 of 51 restaurant within the service tax net."

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29A "Tax on the sale or purchase of goods includes (a)............. (b)............. (c)............. (d).............. (e)"

(1) "A tax on the supply ,by way of or as part of any service or in any other manner whatsoever, of goods, being food or any toher article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, And such transfer, delivery or supply of any goods shall he deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."

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(whether or not intoxicatin)_js supplied in any manner as a part of the activity" is a 'declared service." The legislative carving out of the service portion of the composite contract of suppl\' of food and drinks has sound constitutional basis as explained in the aforementioned decisions of the Supreme Court. Even if this is viewed as Parliament deploying a 1egi fiction, it is legally permissible. In State of U.P. v. Hari Ram (2013)4 SCC 280 it was held: "18. The legislature is competent to create a legal fiction, for the purpose of assuming existence of a fact which does not really exist. In interpreting the provision mating a legal fiction, the court is to ascertain lbr what purpose the fiction is created and after ascertaining this, the court is to assume all those facts and consequences which are incidental or inevitable corollaries to the aivin effect to the fiction."

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