In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Delhi, has clarified that the over-the-counter sale of food and beverages within cinema complexes does not attract service tax. The tribunal emphasized that such transactions are primarily sales of goods and do not qualify as taxable services under the Finance Act, 1994.
The ruling comes as a relief to multiplex operators like PVR Limited, who had challenged service tax demands for the period spanning 2015-16 to June 2017. The core issue before the tribunal was whether the sale of food and beverages inside cinema halls constitutes a “service” or “declared service.”
CESTAT held that the supply of food in standard cinema halls—typically involving packaged or reheated ready-to-eat items sold at counters—lacks the essential service elements that would make it taxable. The bench reiterated its position from an earlier order (Final Order No. 51577-51580/2023 dated November 30, 2023), covering the 2013–2015 period, where it had ruled similarly in favor of PVR.
According to the tribunal, standard food transactions at cinemas involve minimal or no service—customers queue up at counters, buy food, and consume it at their seats. This setup resembles takeaway food services more than restaurant dining, where elaborate services such as menu assistance, waiter service, and proper table setups are involved.
The CESTAT used the ‘dominant nature’ test, concluding that the main purpose of a cinema visit is movie viewing, and the food facility is merely incidental. The availability of food is offered as a convenience, especially during short intermissions, and does not change the nature of the transaction into a service.
The tribunal supported its judgment by referencing previous legal precedents, including the Delhi High Court’s ruling in Indian Railways Catering and Tourism Corporation Ltd. vs. Govt. of NCT of Delhi [2010 (20) STR 437], which distinguished between sales of food and services. It also cited a case from the Court of Justice of the European Union (Finanzamt Bergdorf v Manfred Bog, C-497 & 499/09), which emphasized assessing whether the dominant element of a transaction is the good itself or the accompanying service.
However, CESTAT drew a clear distinction between standard cinema offerings and premium services like ‘Gold Class’ in multiplexes. These luxury services, which offer amenities like reserved seating, personal wait staff, and enhanced comfort, involve a significant service component and are rightly subject to service tax.
In conclusion, the tribunal found no new grounds to diverge from its earlier decision and allowed the appeal, setting aside the tax demand on PVR for the relevant period. This ruling underscores the importance of distinguishing between pure sale of goods and transactions dominated by service components, especially under the erstwhile service tax regime.