No Service Tax On Sale Of Packed or Reheated Food In Cinema Halls: CESTAT
Pranav B Prem
In a significant relief for cinema operators, the Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that the sale of packed or reheated food items in cinema halls is not subject to service tax as there is no service element involved. This decision comes as a major win for PVR Limited, which had challenged the levy of service tax on the sale of food and beverages within cinema complexes.
Background of the Case
The dispute arose when the Principal Commissioner, CGST, Delhi South Commissionerate, imposed service tax on the supply of food and beverages sold in PVR cinemas. The key legal question before the tribunal was whether the sale of food and beverages in cinema complexes falls within the definition of 'service' and 'declared service' under Section 65B(44) and Section 66E of the Finance Act, 1994.
PVR, represented by advocates Shri V. Lakshmikumaran, Ms. Shagun Arora, and Ms. Shrishti Yadav, argued that the sale of food and beverages in cinema halls is a pure sale transaction without any accompanying service element, and thus cannot be taxed as a service. The tribunal, comprising Hon'ble Ms. Binu Tamta (Judicial Member) and Hon'ble Mr. P.V. Subba Rao (Technical Member), ruled in favor of PVR and set aside the tax demand.
Tribunal's Findings and Rationale
The tribunal referred to its prior decision in M/s. PVR Limited, Shri Nitin Sood, Shri Ajay Bijli, and Shri Brijesh Arora vs. CST, New Delhi (Final Order No. 51577-51580/2023 dated 30.11.2023), where it was held that the sale of food and beverages in cinema halls does not involve any service element and constitutes a mere sale transaction. In its judgment, the tribunal made the following key observations:
Nature of Transaction: The tribunal highlighted that the primary objective of cinema halls is to provide movie-viewing services. The sale of food and beverages is merely incidental to the main activity. As the judgment noted: "The viewers who have come to watch the movie go to the counters during the interval period, stand in queue and buy the food items which are either already packed or are reheated and sold to people as and when their turn comes. After buying, they bring those items to their respective seats and enjoy it while watching the movie. There is no element of service in such transaction."
Limited Access to the Public: The tribunal emphasized that food counters in cinema halls are not open to the general public like regular restaurants. Only ticket holders can access these counters. This limited accessibility further reinforces the argument that these sales are simple sale transactions rather than service provisions.
Dominant or Incidental Purpose Test: Citing the decision of the Delhi High Court in Indian Railways C. & T. Corpn. Ltd. vs. Govt. of NCT of Delhi (2010 (20) STR 437), the tribunal observed that when the dominant purpose is something other than providing a service, any incidental supply cannot be classified as a taxable service.
"If we apply this principle to the cinema complex, their main purpose is to enable the public to view the movie, however, to make it more enjoyable and convenient, they provide a separate counter outside the movie hall but within the complex where the viewers can themselves go and buy some food or drinks, which implies that the later facility is only incidental and hence cannot be treated as a service within the definition of 'service' under the Finance Act, for the charge of service tax."
Distinction from 'Gold Class' Service: The tribunal distinguished the regular sale of food items from premium services like 'Gold Class' offered by PVR, where food and beverages are served to customers at their seats. The tribunal acknowledged that such services involve a direct service element and are taxable. However, the sale of packaged or reheated food without personalized service does not fall within the ambit of service taxation.
European Court of Justice Reference: The tribunal also referred to a decision of the Court of Justice (Third Chamber) in Finanzamt Burgdorf v. Manfred Bog (C-497 & 499/09), which differentiated between restaurant services and takeaway food. The court held that takeaway transactions lack the personalized service elements found in restaurant dining and, therefore, should be treated as a sale rather than a service.
Verdict
The CESTAT allowed the appeal in favor of PVR Limited, ruling that no service tax can be levied on the sale of packed or reheated food in cinema halls. This decision effectively sets aside the tax demand raised by the Principal Commissioner, CGST, Delhi South Commissionerate for the period from 2015-16 to June 2017.
Appearance
For Appellant: Shri V. Lakshmikumaran and Ms. Shagun Arora and Ms. Shrishti Yadav, Avocates
For respondent: Ms. Jaya Kumari , Authorised Representative
Cause Title: M/s. PVR Limited V. Principal Commissioner of Goods & Service Tax & Central Excise
Case No: Service Tax Appeal No.50250 of 2021
Coram: Hon’ble Ms. Binu Tamta [Member (Judicial)], Hon’ble Mr. P.V. Subba Rao [Member (Technical)]
[Read/Download order]
