Service tax collected must be included in the sale price for VAT under the VAT Act, with no constitutional grounds for challenge against the relevant provisions.

ORDER :

Suddala Chalapathi Rao, J.

Since the petitioner and the lis involved in both the writ petitions is one and the same, they are being taken up for hearing together and disposed by this Common Order.

W.P.No.13863 of 2008

2. The Writ Petition vide WP.No.13863 of 2008 has been filed challenging the impugned order in Form VAT 305, dt.26.05.2008 issued by the 2nd respondent, whereby VAT was levied under the AP Value Added Tax Act, 2005 (for short ‘VAT Act’) on the Service Tax collected by the petitioner from its customers by including the same as sale price under Section 2(29) of VAT Act, and also the validity of Section 64(4)(ii) of the VAT Act of the Advance Ruling vide reference No.AR.Com/144/2006, dt.13.11.2006, as being arbitrary, violative of Article 14 of Constitution of India and principles of natural justice.

W.P.No.13864 of 2008

3. The Writ Petition vide WP.No.13864 of 2008 has been filed challenging the consequential impugned order issued by the 2nd respondent levying penalty and interest on the VAT levied in Form VAT 305, dt.26.05.2008 on the Service Tax collected by the petitioner from its customers, as illegal, void-ab-initio; prayed to set aside both the impugned orders of the 2nd respondent.

Brief facts of both the writ petitions:

4. The petitioner is engaged in the business of setting up and running hotels and resorts and the petitioner owns and runs a Five Star Hotel in the name and style of ‘ITC Hotel The Kakatiya - The Luxury Collection’ at Hyderabad. The petitioner is a registered dealer under the provisions of VAT Act vide TIN No.28880160409 and has been filing its return from time to time by paying tax to the authorities. Further, the petitioner deals with sale of food and beverages to its customers with the catalogues, as follows:

a) Sale to guests staying in the Hotel;

b) Sale to customers in the hotel who business the restaurants; and

c) Sale in the course of providing catering services in the banquet halls and business centers, which are provided for organizing the business meetings, conferences, marriages and other functions along with food and other facilities.

5. It is further contended by the learned counsel for the petitioner that while sale transactions under item (a) and (b) are mere sale of food/beverages, VAT was paid on food value, but however, the transactions under item (c) involve both supply of food and provision of services, for which the petitioner receives lump-sum considerations based on number of persons attending such meetings/functions, and the said lump sum consideration is inclusive of charges towards supply of food and beverages and also for the services, and thus the said amounts comprehensively covers all the goods including services.

6. It is further contended by the petitioner that at banquet halls and business centers along with food and beverages are exigible to service tax under the head of ‘Mandap Keeper Services” and ‘outdoor catering services’. Accordingly, the petitioner collects and pays service tax @ 12.36 % on the amounts charged to the customers and thus, the said transactions are inclusive of service factor not merely sale of any food or beverages.

7. It is further contended by the petitioner that as the services, food and beverages form total part of the sale transaction, the petitioner discharged its liability under the VAT Act by paying VAT on the 60’% of the consideration charged towards supply of food and beverages, deducing the service tax amount and paid @ 12.5% as per Sectio