Whether the state has right to levy VAT on 40% of the bill amount, if the said portion is traded as service portion liable to service tax under the service Tax Law ?

Valley Hotel & Resorts vs. CCT. 58 [2014] 45 taxmann.com 377 (Uttarakhand)

The revisionist provides lodging and boarding facilities and restaurant service to its customers. On 06-06-2012, the Government of India, Ministry of Finance issued a notification amending the service tax (Determination of Value) Rules, 2006 by virtue of which 40%of the billed value to the customer, for supply of food or any other article of human consumption or any drink in restaurant, wasmade liable to service tax. Thereafter, the revisionist moved an application u/s 57 of the VAT Act, 2005, requesting not to chargeVAT on 40% billed amount to the customer, as the same has already suffered service tax. The said application was rejected bythe Commissioner, Commercial Tax, against which appeal was filed before the Commercial Tax Tribunal. The same was alsodismissed. Aggrieved thereby, the present revision was filed.

Held:

The High Court held that Value Added Tax can be imposed on sale of goods and not on service, since service can be taxed only by service tax law. It further held that, the authority competent to impose service tax has also assumed competence to declarewhat is service and that the State has not challenged the same. Therefore, where element of service (i.e., 40% of the bill amount)has been so declared and brought under the service tax, no value added tax can be imposed thereon.