WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 1 of 51 THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on :24.05.2010 Judgment delivered on:19.07.2010 + W.P.(C) Nos. 5483/2008, & 5484/2008, 5485/2008, 5486/2008, 5487/2008, 5488/2008, 5489/2008, 6993/2009, 6994/2009, 6995/2009, 6996/2009, 6997/2009, 6998/2009,6999/2009,10972/2009, 10973/2009, 10974/2009, 10975/2009, 10976/2009, 10977/2009, 10978/2009, 10979/2009, 10980/2009, 10981/2009, 10982/2009 and 10983/2009. INDIAN RAILWAYS CATERING & TOURISM CORPORATION LTD ..... Petitioner versus GOVT OF NCT OF DELHI & ORS ..... Respondents Advocates who appeared in this case: For the Petitioner : Mr RandhirChawla with MsRenukaSehgal For the Respondents : Mr Rajesh Mahna with MrRamnand Roy and MsNavneetDhillon for the Respondents 1 & 2. Mr MukeshAnand with MrShaileshTiwari, Mr R.C.S.Bhadoria and MrSumitBatra for the ` Respondents 3 & 4. CORAM:- HON’BLE MR JUSTICE BADAR DURREZ AHMED HON’BLE MR JUSTICE V.K. JAIN 1. Whether Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in Digest? Yes V.K. JAIN, J. 1. By this common order, we will dispose of all the writ petitions referred above, which involve a common question of WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 2 of 51 law. 2. The petitioner is a Government company, providing services, including catering on board the trains run by Indian Railways, under identical contracts between the petitioner- company and Indian Railways. The petitioner has also sub- leased the contract in respect of some trains to various contractors. The consideration for these services is included in the fare charged by Indian Railways from the passengers and the petitioner-company is paid, by Indian Railways, for what it terms as the services, including catering provided by it to the passengers. The petitioner had in the past been paying VAT, in respect of the services on board the trains, including providing of food and beverages and the tax was paid up to 30th April, 2007. 3. Section 84 of Delhi Value Added Tax Act, 2004, to the extent it is relevant, provides that if any determinable question arises, otherwise than in proceedings before a court, a person may apply in the prescribed manner to the Commissioner for the determination of that question. The determinable question includes as to whether a transaction is or would be a sale. 4. The petitioner sought a determination from the Commissioner of Value Added Tax, under Section 84 of Delhi WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 3 of 51 Value Added Tax Act, 2004 (hereinafter referred to as “the Act”) on the taxability to VAT in respect of the food and beverages served to the passengers, on board the trains. The determination was sought on the following questions: “(1) Whether in the facts and circumstances and the „Agreements‟ signed between Indian Railways Catering & Tourism Corporation Limited and the Licensees, the food and beverages provided by the Licensee(s) to the passengers on moving trains for consumption is in the nature of „sale/purchase‟ of food and beverages and whether it is liable to tax under the DVAT Act or that under the CST Act in Delhi? (2) Whether in the facts and circumstances and the „Agreements‟ reached between Northern Railways and the Indian Railways Catering & Tourism Corpn. Ltd., providing of food and beverages by the Indian Railways Catering & Tourism Corpn. Ltd. to the passengers during journey on board the running trains for consumption is „sale‟ and whether the same is taxable under the DVAT Act; or that under the CST Act in Delhi? (3) Whether on the request of the Indian Railways Catering & Tourism Corpn. Ltd., the Licensees are required to issue to the Corporation, the “Tax Invoices” in terms of Section 50 of the DVAT Act and the Indian Railways Catering & Tourism Corpn. Ltd. is entitled to claim credit of input tax at the time of working out the output tax payable by it in respect of the WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 4 of 51 sales made by it to the Railways?” 5. Vide Determination Order dated 23.03.2006, the Commissioner of Value Added Tax held that VAT was payable on the services provided on board the trains, since it amounted to sale within the meaning of Section 2(zc)(vii) of the Act. He also took the view that there were three transactions of sale, one from the licensee contractor to the petitioner, the second from the petitioner to the Railways and the third from the Railways to the passengers. 6. In the Determination Order, the Commissioner, inter alia, observed as under: “Therefore, it comes out to be a clear case of sale/supply of food and beverages first by the Licensee(s)/Caterer(s) to the applicant Corporation, then by the applicant Corporation to the Indian Railways and thereafter, ultimately by the Indian Railways to the passengers on board. To put it in clear words, three sale transactions of food and beverages, first by the Licensee(s)/Caterer(s) to the applicant Corporation, second by the applicant Corporation to the Indian Railways and then the third by the Indian Railways to the passengers on board the running trains are involved in the whole process attracting tax at all stages under the Act. Further, in ease, the suppliers i.e. the Licensee(s)/Caterer(s), the applicant Corporation and then the Indian Railwaysare all located in Delhi, they all are personally liable to collect WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 5 of 51 and pay the value added tax on their sales transactions individually at 12.5% u/s 4(1)(e) of the DVAT Act, 2004 in Delhi. Likewise, if the goods i.e. food and beverages are boarded by the Licensee(s)/Caterer(s) in the trains in Delhi, despite the fact that the Licensee(s) or the Caterer(s) are stationed/located outside Delhi and also the supplies are made by them to the passengers on running trains outside Delhi, the sales shall be treated to be the Local ones attracting tax under the provisions of DVAT Act, 2004.” 7. An appeal was filed by the petitioner before the Appellate Tribunal against the determination made by the Commissioner. It was submitted by the petitioner before the Appellate Tribunal that it did not have any grievance against the answers given by the Commissioner to the questions raised by them in their application seeking determination. They, however, objected to the following observations made by the Commissioner: “However, in case, the first sellers i.e. the Licensee(s) and the Caterer(s) appointed by the applicant Corporation in such a case are located outside Delhi and also board the goods i.e. the raw materials etc. for preparing food and the beverages etc. for supplying them to the passengers on running trains outside the State, then their sales to the applicant Corporation shall be inter-State or say, outside the State while those of the applicant to the Indian Railways local and then again by WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 6 of 51 the Indian Railways to the passengers inter-State attracting tax under the provisions of the DVAT Act, 2004 and the CST Act, 1956respectively. In this eventuality, the tax liability of the Licensee(s)/Caterer(s) shall arise under the CST Act, 1956 in the State in which they board thesupplies on the trains. In such a case, the Indian Railways alone and not the applicant Corporation shall be entitled to demand from the applicant Corporation the "Tax Invoice”in term of Section 50 of the Act and then claim the credit of input tax on its basis from the Department. It is held and determined accordingly.” 8. The contention before the Tribunal was that when the matter under reference was only with regard to taxability of food and beverages loaded on trains from Delhi, there was no occasion for him to observe regarding the taxability on the sale or purchase of goods taking place outside the State. It was submitted that the observations, regarding taxability of goods on running trains outside the State, was outside the ambit of Determination Order passed by the Commissioner. The Tribunal accepted the contention and quashed the above- referred portion of the Determination Order passed by the Commissioner. 9. The Assessment Order for the year 2007-08 was passed by Value Added Tax Officer (VATO), following the WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 7 of 51 Determination Order passed by the Commissioner of Value Added Tax. A Revision Petition filed by the petitioner against the order was dismissed vide order dated 10.12.2008. 10. Service tax under Section 65(105)(zzt) of the Finance Act, 1994 is being paid by the petitioner in respect of the transactions in question. The petitioner has been advised that there cannot be levy of both, service tax as well as VAT, on the same transaction. It has also been stated in the petition that catering services provided by an outdoor caterer on a train was fully exempt from service tax vide notification dated 10.09.2004, but that notification was rescinded vide subsequent notification dated 01.03.2006, which provides for 50% abatement, to the outdoor caterer. The case of the petitioner is that if the transaction entered into by it is subject to service tax, it cannot be subjected to levy of VAT and vice versa, since one transaction cannot be subjected to levy of both VAT as well as service tax. The submission is that service tax and VAT/sales tax operate in different fields and are mutually exclusive. The petitioner claims that on account of the Determination Order/Assessment Order passed under the DVAT Act, the provisions of Section 2(zc)(vii) of the DVAT Act, 2004 had come into direct conflict with the provisions of WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 8 of 51 Section 65(105)(zzt) of the Finance Act, 1994. It has also been alleged in the petition that the respondents are seeking VAT even in respect of the food and beverages which are not loaded on the trains in Delhi. 11. The petitioner has accordingly sought a declaration that the services, rendered by it on board the trains, are not liable to Value Added Tax and are liable to service tax alone. It has been further prayed that in case it is held that the services provided by the petitioner alongwith food and beverages, amount to sale of goods, the provisions of Section 65(105) (zzt) of Finance Act, 1994 be declared ultra vires. The petitioner has also sought quashing of the Assessment Order in respect of the year 2007-08 as well as the Determination Order dated 20.03.2006, besides seeking orders restraining the respondents from levying sales tax/VAT on the services provided by the petitioner. 12. The petition has been contested only by respondent No.1-Government of NCT of Delhi and respondent No.2- Commissioner of Value Added Tax. No reply has been filed by respondents 3 to 5. The contesting respondents have taken a preliminary objection that the petitioner can file objections under Section 74 of the DVAT Act in case it is aggrieved from WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 9 of 51 the order passed by the VATO and a further remedy of appeal before the Appellate Tribunal is also available to it against the order of the Objection Hearing Authority. 13. It has been stated in the counter-affidavit that in the appeal filed by the petitioner against the Determination Order passed by the Commissioner of Value added Tax, the Appellate Authority vide order dated 29.08.2006 held that only the food and beverages loaded in trains from Delhi were liable to VAT and the sale and purchase of goods taking place outside Delhi, on the running trains, were outside the ambit of Determination Order passed by the Commissioner of VAT. The order passed by the Tribunal was not challenged by either party and, therefore, has become final. On merits, it has been alleged that the petitioner was receiving consideration from Indian Railways in respect of supply of food and beverages served to the passengers and, therefore, the transaction amounts to sale in terms of Section 2(1)(zc) of the Act. It has also been stated that services provided by the petitioner by employing staff to serve the food and beverages loaded from Delhi was incidental to the business of supply of food, etc. and the invoices, issued by the petitioner, clearly indicate that consideration was being received by it from Indian Railways for sale of food and WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 10 of 51 beverages. It has been further stated that the petitioner itself has admitted raising bills in respect of supply of cooked food, water and newspapers. It has been clarified that no VAT has been demanded in respect of supply of newspapers. 14. Since the order passed by the Tribunal has not been challenged by either party, the dispute before us is confined to payment of VAT in respect of the food and beverages which are loaded on board the trains in Delhi. 15. The procedure adopted for supply of food and beverages to the passengers is that the licensee(s)/caterer(s), who supply the food and beverages to the passengers in the running trains, raise sales bills and invoices in respect of those supplies, in favour of the petitioner-corporation which, in turn, issues a consolidated sale invoice of such supplies in the name of Indian Railways and receives the sale consideration from it. 16. It is an admitted position that the invoices are raised by the petitioner in favour of Indian Railways in respect of three items (a) food; (b) beverages; and (c) newspaper. Admittedly, no VAT is being claimed by the respondents in respect of newspapers. Admittedly, the payment is being taken by the caterers/licensee from the petitioner-company, which raises bills in favour of Indian Railways and takes payment WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 11 of 51 from it. The food is loaded in the trains as per the reservation chart finalized by Indian Railways and communicated to the petitioner. On completion of journey, the Train Superintendent of Indian Railways issues certificate as to actual occupancy of seats from one station to another. For example, in the case of August KrantiRajdhani, originating from Delhi and terminating at Mumbai, the certificate will be issued by the Train Superintendent once the train reaches Mumbai. The petitioner raises invoice upon Indian Railways towards food and water bottles on the basis of occupancy of seats, certified by the Train Superintendent. The food on board the train is served by the petitioner‟s men to the passengers. It is also the case of the petitioner that usually water bottles are served in Delhi, whereas the food items are served when the train is passing through another State. 17. As per the agreement between the petitioner-company and Indian Railways, the menu of the food items as well as their cost is fixed by the Railway Board. The revenue is shared between Indian Railways, the petitioner-company and the licensee/caterer engaged by the petitioner. For example, on a gross billed amount of Rs 1 lakh, for catering, water and newspaper, 15% of the billed amount, i.e., Rs 15,000/- is WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 12 of 51 shared between Indian Railways and the petitioner-company. Indian Railways retaining Rs 2250/- and the petitioner- company retaining Rs 12750/-. The balance amount of Rs 85,000/- is paid to the contractor. 18. It is also an admitted position that the meals cooked in the base kitchen and loaded on the trains, are kept in the train compartments which are equipped with equipments required for catering, such as boilers, freezers, hot boxes, etc. and these equipments are being provided and maintained by Indian Railways. 19. Section 2(i)(zc) of DVAT Act, to the extent it is relevant, reads as under: “(z)(c) “sale” with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the central government or of any state government, to another) and includes- (vii) 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 or service is for cash, WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 13 of 51 deferred payment or other valuable consideration; 20. Section 2(m) of the Act defines goods and to the extent it is relevant, the provision reads as under: “(m) “goods” means every kind of moveable property (other than newspapers, actionable claims, stocks, shares and securities) and includes- (i) livestock, all materials, commodities, grass or things attached to or forming part of the earth which are agreed to be severed before sale or under a contract of sale” Section 2(7) of Sale of Goods Act defines, goods as under:- “(7) “goods” means every kind of moveable property (other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale;” 21. Section 4(1) of Sale of Goods Act, which defines sale, to the extent it is relevant, reads as under:- “4. Sale and agreement to sell- (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.” (3) Where under a contract of sale the property in the goods in transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 14 of 51 condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.” 22. Section 23 of Sale of Goods Act, which deals with unascertained goods and appropriation, to the extent it is relevant, reads as under:- “23. Sale of unascertained goods and appropriation.- (1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made.” 23. Section 26 of Sale of Goods Act, which deals with risk in the goods, to the extent it is relevant, reads as under: “26. Risk Prima facie passes with property.- Unless otherwise agreed, the goods remain at the seller‟s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer‟s risk whether delivery has been made or not. Provided also that nothing in this section shall affect the duties or liabilities of WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 15 of 51 either seller or buyer as bailee of the goods of the other party. 24. Section 33 of Sale of Goods Act, which deals with delivery of goods, to the extent it is relevant, reads as under: “33. Delivery.- Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf.” 25. An analysis of the definition of sale as given in Section 2(zc) of the Act and Section 4 of the Sale of Goods Act would show that the following are the essential ingredients of sale as defined in the Act: (i) There should be transfer of property in the goods between one person to another, which means that the ownership or title of the goods must necessarily get transferred from one person to another; (ii) The transfer should be for cash or for deferred payment or for some other valuable consideration. It cannot be disputed and has not been disputed that the food articles and water, provided to the passengers in the trains, are goods within the meaning of Section 2(7) of Sale of Goods Act and Section 2(m) of the Act. WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 16 of 51 26. Since no tax is sought to be levied on Indian Railways, in the petitions before us, we are not concerned with the transaction between Indian Railways and the passengers and, therefore need not go into the question as to whether providing food by Indian Railways to the passenger, who travels in its trains as part of the ticket price, can be said to be a service provided by the Railways to the passenger or not. What we have to decide is as to whether the transaction between the petitioner-company and Indian Railways is a contract of providing service or a composite contract of providing service and selling goods or a contract only for sale/supply of goods. 27. In State of Madras Vs. Gannon Dunkerley & Co.(Madras) Limited : (1958) 9 STC 353 (SC), it was held by the Supreme Court that the expression „sale of goods‟ in Entry 48 in List II of Schedule 7 of Government of India Act, 1935 cannot be construed in its popular sense but must be interpreted in its legal sense and should be given the same meaning which it has in the Sale of Goods Act, 1930, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. Thus, passing of property in the movable goods was held to be an essential ingredients of sale. It was held that a contract WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 17 of 51 under which a contractor agreed to set up a building would not be a contract for sale since it was one contract, entire and indivisible and there was no separate agreement for sale and goods justifying the levy of sales tax by the Provincial Legislatures. It was observed that the parties could have provided for two independent agreements, one relating to the labour and work involved in the execution of the work and erection of the building and the second relating to the sale of the material used in the building in which case the latter would be an agreement to sell and the supply of materials thereunder, a sale. Where there was no such separation, the contract was a composite one. It was not classifiable as a sale. 28. In State of H.P. vs. Associated Hotels of India:(29) STC 474 (SC), the respondent-company, which carried on business as hoteliers as part of its business, received guests in its several hotels to whom, besides furnishing and lodging, it provided several amenities such as public and private rooms, bath with hot and cold running water, linen, meals during stated hours, etc. The bill tendered to the guest was an all- inclusive one, namely, a fixed amount for the stay in the hotel for each day and did not contain different items in respect of each of these amenities. The question before the Supreme WP.(C).Nos. 5483 to 5489/2008, 6993 to 6999/2009, 10972 to 10983/2009 Page 18 of 51 Court was