2026-VIL-1184-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax Liability on Food and Beverages in Non-Air-Conditioned Restaurant in Same Establishment - Appellant paid service tax only on food and beverages served in the air-conditioned halls, claiming exemption for the non-air-conditioned portions. The Revenue demanded service tax on the non-air-conditioned portions alleging violation of Notification No. 03/2013-ST dated 01.03.2013 - Whether the Appellant is liable to pay service tax for providing services relating to supply of food and beverage in the non-air-conditioned portion of a restaurant which is located in the same establishment as the air-conditioned portion, where food is sourced from a common kitchen but the sections are physically demarcated, separately billed, and separately named – HELD - The statutory framework reveals that service tax was intended to apply only to air-conditioned restaurants. The Board's Circular dated 28-02-2011 clarified that the levy targets high-end air-conditioned restaurants where service may assume predominance over food. The Notification No. 25/2012-ST, as amended by Notification No. 03/2013-ST, carves out an exception for restaurants not having air-conditioning facilities - The Board's Circular No. 173/8/2013-ST dated 07-10-2013 clarifies that in a complex where air-conditioned and non-air-conditioned restaurants are operational with food sourced from a common kitchen, and where the restaurants are clearly demarcated and separately named, only the service provided in the air-conditioned restaurant attracts service tax, and service in non-air-conditioned portions remains exempt - The Appellant has demonstrated physical demarcation, separate billing with distinct serial numbers, separate pricing with significant price differentials, different service levels in air-conditioned portions and higher self-service component in non-air-conditioned areas, and separate staff management. These circumstances align with the Board's clarification and subsequent Revenue practice as evidenced by similar orders granting relief to similarly situated restaurants. The provision would become arbitrary and excessively broad if it extended to customers served in non-air-conditioned areas merely because the establishment contains an air-conditioned section elsewhere, as this would contradict the legislative intent to tax only air-conditioned restaurant services – The Tax laws must be interpreted reasonably and in consonance with justice adopting a purposive approach. The appellant is not liable to pay service tax for providing services relating to supply of food and beverage in the non-air-conditioned portion of the restaurant which is located in the same establishment during the period from April 2013 to March 2015 - The impugned order is set aside and the appeal is allowed
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