Sodexo claim for retrospective tax benefit on par with eateries rejected by Madras HC

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Chennai | Published: May 10, 2019 1:52:15 AM

The order came in response to an appeal filed by Sodexo against a tax tribunal order in 2012 that rejected its plea for revision of taxes for 2000-01 and 2001-02.

he court rejected an appeal for tax revision filed by French food services and facilities management company Sodexo.

Hospitality service providers or caterers cannot claim the benefit of low tax slab retrospectively enjoyed by eateries for the period prior to April 2002, the Madras High Court has ruled. The court rejected an appeal for tax revision filed by French food services and facilities management company Sodexo.

The government had amended Section 3-D of the Tamil Nadu General Sales Tax Act that deals with payment of tax by hotels, restaurants and sweet stalls, by including the clause of ‘caterers’, on April, 1, 2002.

The court’s order came in response to an appeal filed by Sodexo against a tax tribunal order in 2012 that rejected its plea for revision of taxes for the years 2000-2001 and 2001-2002 with regard to Radhakrishna Hospitality Services, the company it acquired in 2009.

The case was related to tax assessment for 2000-2001 and 2001-2002 of the company, which was completed in 2004.

Aggrieved by the fact that it was not assessed on a par with eateries which enjoyed 2% of the taxable turnover, and instead was slapped with 8%, it went to appellate authorities.

Sodexo based its arguments on the fact that since the government had amended the relevant section in April 2002, by including caterers, the benefit of the concessional rate of tax in terms of Section 3-D of the TNGST Act as amended, should be extended to the company since the amendment was by way of substitution.

It argued that there was a gross difference between the substitution and insertion. A substitution is by way of clarification which will date back to the date on which the original provision existed, whereas an insertion is always prospective unless specifically made retrospective.

Rejecting the company’s arguments, the bench of justice T S Sivagnanam and justice V Bhavani Subbaroyan held the amended Section 3-D of the TNGST Act would have no application to the case of Sodexo and the said provision was not retrospective, meaning it cannot be made applicable prior to April 1, 2002.

When contacted Sodexo in an e-mailed response to FE said: “Sodexo adheres and complies with the law of the land. We are reviewing the said order from Madras High Court post which we will evaluate further course of action.”

In the appeal, which was admitted by the high court in 2013, the company said it had run canteens in hospital, various industrial establishments, defence units and shopping malls during the assessment period and the sale of food and drinks done by it would fall within the ambit of Section 3-D of the TNGST Act.

The bench, while making it clear that the case was pertaining to a period before the amendemenet was made, observed the activities of the company were not like the activities carried out in hotels, restaurants, sweet stalls and other eating houses. Moreover, Sodexo had not run any hotels, restaurants or sweet stalls or any other eating houses. The bench also cuncurred with the state’s view that the company was a caterer and was not running any hotels, restaurants or sweet stalls and hence, they were not eligible for assessment at 2% under Section 3-D of the TNGST Act, which stood prior to April 1, 2002.

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