The Supreme Court has finally cleared the decks for levy of service tax on Kalyana Mandaps and Mandap Keepers with dismissal of petition filed by TN Kalyana Mandapam Association. The Apex Court has ruled that Section 66 and 67(O) of the Finance Act and Rule 2(1)(d)(ix) of Service Tax Rules are intra vires of the Constitution of India.

It was held that a levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to a common understanding of the word 'service' so long as it does not transgress any specific restriction contained in the Constitution. Tax on services rendered by mandap-keepers and outdoor caterers is, in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities.

Service tax levied on services rendered by the mandap-keeper as defined in the said Act under sections 65, 66 and 67 of the Finance Act was challenged by the appellants on the following two grounds:

a) That it amounts to the tax on land and, therefore, by reason of Entry 49 of List 2 of the Seventh Schedule of the Constitution, only the state government is competent to levy such tax and;

b) Insofar as it levies a tax on catering services, it amounts to a tax on sale and purchase of goods, and, therefore, is beyond the competence of Parliament, particularly in view of the definition of tax on sale and purchase of goods contained in Article 366 (29A)(f) of the Constitution.

SC ruled that if no entry is found in List 2 and List 3 of the Schedule which could cover the tax levied, the question of Parliament lacking legislative competence to do so would not arise. Tax on catering services does not amount to tax on sale and purchase of goods.

It was further held that 'for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the sale of Goods Act, 1930. Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale in law'.

'The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering. It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter'.

The Supreme Court laid down that the legislative competence of Parliament also does not depend upon whether in fact any services are made available by the mandap-keepers within the definition of taxable service contained in the Finance Act.

Whether in the given case taxable services are rendered or not is a matter of interpretation of the statute and for adjudication under the provisions of the statute and does not affect the vires of the legislation and/ or the legislative competence of Parliament.

In fact, a wide range of services are included in the definition of taxable services as far as mandap-keepers are concerned. The said definition includes services provided 'in relation to use of mandap in any manner' and includes 'the facilities provided to the client in relation to such use' and also the services 'rendered as a caterer'.

As observed by the Supreme Court, taxable services could include the mere providing of premises on a temporary basis for organizing any official, social or business functions, but would also include other facilities supplied in relation thereto.

No distinction from restaurants, hotels, et cetera which provide limited access to property for specific purpose. Making available a premises for a period of few hours for the specific purpose of being utilized as a mandap whether with or a without other services would itself be a service and cannot be classified as any other kinds of legal concept. It does not certainly involve transfer of moveable property nor does not it involve transfer of moveable property of any kind known to law either under the Transfer of Property Act or otherwise and can only be classified as a service.

SC held that 'mandap-keepers provide a wide variety of services apart from the service of allowing temporary occupation of mandap. As per Section 65 (19) of the Finance Act, 1994, 'mandap' means any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 and includes any furniture, fixture, light fittings and floor coverings therein let out for consideration for organising any official, social or business function.'

'A mandap-keeper apart from proper maintenance of the mandap, also provides the necessary paraphernalia for holding such functions, apart from providing the conditions and ambience which are required by the customer such as providing the lighting arrangements, furniture and fixtures, floor coverings etc. The services provided by him cover method and manner of the decorating and organising the mandap. The mandap-keeper provides the customer with advice as to what should be the quantum and quality of the services required keeping in view of the requirement of the customer. The nature of the event to be solemnised, etc.'

'In fact the logistics of setting up, selection and maintenance is the responsibility of the mandap keeper. The services of the mandap-keeper cannot possibly be termed as a hire purchase agreement of a right to use goods or property.'

'The services provided by a mandap-keeper are professional services which he alone by virtue of his experience has the wherewithal to provide. A customer goes to a mandap-keeper, say a star hotel, not merely for the food that they will provide but for the entire variety of services provided therein which result in providing the function to be solemnised with the required effect and ambience.'

'Similarly the services rendered by outdoor caterers is clearly distinguishable from the service rendered in a restaurant or hotel inasmuch as, in the case of outdoor catering service the food/ eatables / drinks are the choice of the person who partakes the services.'

'He is free to choose the kind, quantum and manner in which the food is to be served. But in the case of restaurant, the customer's choice of foods is limited to the menu card. Again in the case of outdoor catering, customer is at liberty to choose the time and place where the food is to be served.'

'In the case of an outdoor caterer, the customer negotiates each element of the catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalized service provided to the customer.'

'Clearly the service elements is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and drink as in restaurant.'

'Though the service tax is leviable on the gross amount charged by the mandap-keeper for services in relation to the use of a mandap and also on the charges for catering the Government has decided to charge the same only on 60% of the gross amount charged by the mandap-keeper to the customer.'

The appeal of TN Kalyana Mandapam Association was filed against the judgment and order dated 30.4.2001 in Writ Petition No. 1617 of 1998 passed by the high court in Chennai whereby the Division Bench of the Madras high court dismissed the writ petition of the Association and held Sections 66, 67(o) of the Finance Act, 1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other provisions related to Kalyana Mandapams and Mandap-Keepers to be intra vires of the Constitution of India.

The appellant is an association of various Kalyana Mandapams. The appellant-association was formed to protect the interest of the owners of Kalyana Mandapams in Chennai and elsewhere in Tamil Nadu.

The owners of Kalyana Mandapams/Mandap-Keepers let out mandapas/premises, to the clients. In addition to letting out the Kalyana Mandaps, the Mandap Keepers also provide other facilities such as catering electricity, water etc. to their clients.

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