Indian Railways catering arm has sought the Supreme Court's interference to decide whether it is liable to pay both service and sales tax on food and beverages served to train passengers on board.

Indian Railways Catering & Tourism Corporation Ltd's (IRCTC) stand is that it was not liable to pay service and sales or value added tax (VAT) on food and beverages served for a lumpsum consideration received in the inbuilt all inclusive train fare.

A Bench headed by Justice M K Sharma while seeking reply from the finance ministry, the Delhi government, the commissioner of VAT, CBEC and the commissioner of service on the issue also stayed the recovery of over Rs 40 crore as demanded by the VAT department from 2005-2009.

In the meantime, status quo ...so far as recovery is concerned, shall be maintained, the order stated.

Challenging the Delhi High Court judgment that upheld the department's demand, IRCTC said that in any case sales tax/VAT cannot be imposed upon the portion relating to services and at the best it can only be imposed in respect of the portion relating to goods in which transfer of property takes place (food and beverages).

Services then only service tax should be imposed or if it amounts to sale of food and beverages then sales tax/VAT can be imposed.

While arguing that service tax and VAT operate in different fields and were mutually exclusive, senior counsel Harish Salve argued that the Revenue was even demanding VAT for the food and beverages which was not even loaded on the trains in Delhi.

He said that it is the hospitality that was being offered and the supply of food and beverages was one of the facilities and the same is incidental to the providing of such services.

The high court finding are in total disregard to the agreement with the Railways and the notifications and clarifications issued by the Central government in August 2006 holding the services as outdoor catering, thus exigible to service tax only, the petition added.

The high court had held that the transcation between IRCTC and the Indian Railways for providing food and beverages to the passengers, on board the trains, is an transaction of sale of goods to the latter. It is neither a contract for providing services nor a composite contract for supply of goods and providing of services... As far as providing of food, snacks and water to passengers the transcation is altogether different from an outdoor catering service, the high court said.