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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4385-4386 OF 2015

SODEXO SVC INDIA PRIVATE LIMITED …..APPELLANT

VERSUS

STATE OF MAHARASHTRA & ORS. …..RESPONDENTS

J U D G M E N T

A.K. SIKRI, J.

The  appellant  company  is  conducting  the  business  of  

providing  pre-printed  meal  vouchers  which  are  given  the  

nomenclature of 'Sodexo Meal Vouchers'.  As per the appellant, it  

enters  into  contracts  with  its  customers  for  issuing  the  said  

vouchers.   These  customers  are  establishments/companies  

having number of employees on their rolls.  They provide food/  

meals and other items to their employees up to a certain amount.  

It is for this purpose that the agreement is entered into by such  

establishments/companies with the appellant for issuing the said  

vouchers.   After  receiving  these  vouchers  for  a  particular  

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denomination,  some  are  distributed  by  the  companies  to  its  

employees.  For utilisation of these vouchers by such employees,  

the appellant has made arrangements with various restaurants,  

departmental  stores,  shops,  etc.  (hereinafter  referred  to  as  

'affiliates').  From these affiliates, the employees who are issued  

the  vouchers  can  procure  the  food  and  other  items  on  

presentation of the said vouchers.  The affiliates, after receiving  

the said  vouchers,  present  the same to  the  appellant  and get  

reimbursement  of  the  face  value  of  those  vouchers  after  

deduction  of  service  charge  payable  by  the  affiliates  to  the  

appellant as per their mutual arrangement.  In this manner, the  

appellant,  by  issuing these vouchers  to  its  customers,  gets  its  

service charge from the said companies.  Likewise, the appellant  

also  takes  specified  service  charges  from  its  affiliates.   A  

diagramatic representation of the business model of the appellant  

is as under:  

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2) On the basis of the aforesaid arrangement made by the appellant  

with its customers as well as its affiliates, the question that has  

arisen for consideration is as to whether these vouchers can be  

treated as 'goods' for the purpose of levy of Octroi or Local Body  

Tax  (LBT)  or  the  aforesaid  activity  only  amounts  to  rendering  

service by the appellant.  The issue has to be examined as per  

the relevant provisions of the Maharashtra Municipal Corporation  

Act [Act No. LIX of 1949] under which the Municipal Corporation  

is entitled to levy and collect Octroi or LBT.

3) Before we advert to the relevant provisions of the Act, it would be  

worthwhile  to  mention  that  in  order  to  carry  on  the  aforesaid  

business,  the  appellant  is  compulsorily  required  to  obtain  

necessary approval/ authorisation from the Reserve Bank of India  

(RBI),  which  requirement  is  spelt  out  from  Section  7  of  the  

Payment and Settlement Systems Act, 2007.  The appellant has  

been granted a Certificate of Authorisation by the RBI to operate a  

payment system for the issuance of Sodexo Meal Vouchers in the  

form of 'Paper Based Vouchers' under the aforesaid provision.

4) The Payment and Settlement Systems Act, 2007 provides for the  

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regulation  and  supervision  of  payment  systems  in  India  and  

designates RBI as the authority for that purpose and all related  

matters.  Under Section 2(1)(i)  of the Payment and Settlement  

Systems Act, 2007, a  'payment system'  is defined as a system  

that  enables  payment  to  be  effected  between  a  payer  and  a  

beneficiary, involving clearing, payment or settlement service or  

all of them but does not include a stock exchange.  The appellant  

is also required to adhere to the Pre-paid Issuance and Operation  

of the Payments Instruments in India (Reserve Bank) Directions,  

2009  issued  under  the  Payment  and  Settlement  Systems Act,  

2007 and Revised Consolidated Guidelines, 2014.  Thereunder,  

'pre-paid  payment  instruments'  are  defined  as  payment  

instruments that facilitate purchase of goods and services against  

the value stored on such installments.  The value stored on such  

instruments represents the value paid for by the holders by ash,  

by debit to a bank account, or by credit card.  The amount so paid  

by the customers is always kept in escrow account and is used  

strictly only for settlement of vouchers and never accounted for or  

used as income in the hands of the appellant.  Accordingly, the  

Certificate  issued to  the appellant  contains the following terms  

and conditions:

“The Payment System Provider shall adhere to the  provisions of the Payment and Settlement Systems  

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Act,  2007,  regulations issued thereunder and the  directions/guidelines issued by the Reserve Bank  of India.

The authorization is only for issue of meal vouchers  and  gift  vouchers  in  the  form  of  'Paper  based  vouchers' and 'Smartcard' or 'Smart Meal Card' and  subject to adherence of the 'Policy Guidelines for  issuance  and  operation  of  Pre-paid  Payment  Instruments in India' (unless specific relaxation has  been permitted by the RBI)

Sodexo  shall  adhere  to  the  provisions  of  the  prevention  of  Money  Laundering  Act  and  ruled  framed  thereunder.   Further,  the  guidelines  on  Know  Your  Customer/Anti-Money  Laundering/  Combating  Financing  of  Terrorism  issued  by  the  RBI to Banks, from time to time shall apply mutatis  mutandis to the entity.”

5) Thus, as per the aforesaid authorisation by the RBI, the business  

operation that is carried out by the appellant, has the following  

essential features:

(i)  the payment system operated by the appellant involves issuance of  

vouchers  having  a  face  value  (meal  and  gift  vouchers)  to  the  

customers;

(ii)  customers grant said vouchers to their employees (beneficiaries);

(iii)  the employees use the vouchers to obtain/pay for food, meal or  

goods;

(iv)  vouchers can only be used in an affiliated network of restaurants  

and shops (affiliates/redeemers);

(v)  the affiliated restaurant/shop having delivered the food/meal/ good,  

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receives the voucher and turns it to the appellant who issued it for  

reimbursement of the face value (redemption); and

(vi)  when the vouchers are redeemed, the appellant reimburses to the  

affiliate/redeemer  the  face  value  of  the  voucher  and  retains  a  

service fee in order to compensate for the attractiveness of the  

system  which  has  benefited  to  the  affiliate's  business.   The  

appellant pays service tax on such service fee charged.

6) Having  taken  note  of  the  nature  of  business  operation  of  the  

appellant herein and the manner the same is statutorily regulated  

by  the  Payments  and  Settlement  Systems  Act,  2007  and  the  

Rules framed thereunder, we revert to the issue that has to be  

answered  in  the  present  case,  namely,  whether  these  Sodexo  

Meal Vouchers are goods within the meaning of Section 2(25) of  

the Act.  For this purpose, it would be imperative to take note of  

the definition of goods appearing in the aforesaid provision as well  

as some other relevant provisions of this Act.

7) Section 2(25) of the Act provides the definition of 'goods',  Section  

2(31A) defines 'Local Body Tax' (LBT), and Section 2(42) contains  

the definition of 'Octroi'.  These two provisions read as under:

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“2.  Definitions.

In this Act, unless there be something repugnant in  the subject or context, –

xx xx xx (25)  “goods” includes animals;

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(31A)  “Local Body Tax” means a tax on the entry of  goods into the limits of the City, for consumption,  use or sale therein, levied in accordance with the  provisions  of  Chapter  XIB,  but  does  not  include  cess  as  defined  in  clause  (6A)  and  octroi  as  defined in clause (42);

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(42)  “octroi” means a cess on the entry of goods  into the limits of a city for consumption, use or sale  therein; but does not include a cess as defined in  clause 6A or Local Body Tax, as defined in clause  (31A).”

8) As is clear from the reading of Section 2(31A), LBT is the tax on  

the entry of goods into the limits of the city, when these goods are  

for  consumption,  use  or  sale.   The  tax  is  to  be  levied  in  

accordance  with  the  provisions  of  Chapter  XIB.   It,  however,  

specifically excludes Octroi, as defined in Section 2(42.  It also  

becomes clear that Octroi is a cess on the entry of goods into the  

limits of a city for consumption, use or sale therein, but it does not  

include a cess as defined in clause (6A) or LBT.  Both these levies  

are  on  the  goods  that  enter  into  the  limits  of  a  city  for  

consumption, use or sale therein.

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9) The  charging  section,  for  imposition  of  tax  under  the  Act,  is  

Section 127.  This provision enumerates various types of taxes.  

Sub-section (1) thereof empowers the Corporation to impose two  

kinds of taxes, namely, property tax and a tax on vehicles, boats  

and animals.  Sub-section (2) also authorises the Corporation to  

impose  certain  other  kinds  of  taxes  which,  inter  alia,  include  

Octroi and a cess on entry of goods in lieu of  Octroi.   Clause  

(aaa)  was  inserted  in  sub-section  (2)  by  way  of  amendment  

carried out vide Mah.27 of 2009, with effect from August 31, 2009,  

whereby  LBT was also included as another  form of  tax  which  

could be levied and this clause reads as under:

“(aaa)  Local Body Tax on the entry of the goods  into the limits of the City for consumption, use or  sale therein, in lieu of octroi or cess, if so directed  by  the  State  Government  by  Notification  in  the  Official Gazette;”

10) Procedure for levying such a tax is contained in Section 149 and  

we would like to reproduce sub-section (1) thereof, which is as  

under:

“149.  Procedure to be followed in levying other  taxes.

(1)  In the event of the Corporation deciding to levy  any  of  the  taxes  specified  in  sub-section  (2)  of  section 127, it shall make detailed provision in so  far as such provision is not made by this Act, in the  form of rules, modifying, amplifying or adding to the  

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rules at the time in force for the following matters,  namely:

(a)   the  nature  of  the  tax,  the  rates  thereof,  the  class of classes of persons, articles or properties  liable thereto and the exemptions therefrom, if any,  to be granted;

(b)   the  system  of  assessment  and  method  of  recovery  and  the  powers  exercisable  by  the  Commissioner or other officers in the collection of  the tax;

(c)  the information required to be given of liability  to the tax;

(d)  the penalties to which persons evading liability  or furnishing incorrect or misleading information or  failing to furnish information may be subjected;

(e)  such other matters,  not inconsistent with the  provisions of this Act, as may be deemed expedient  by the Corporation:

Provided  that  no  rules  shall  be  made  by  the  Corporation  in  respect  of  any  tax  coming  under  clause (f) of sub-section (2) of section 127 unless  the  State  Government  shall  have  first  given  provisional approval to the selection of the tax by  the Corporation.”

11) In order to have the stock of all the relevant provisions of this Act,  

another  provision  which  needs  to  be  noticed  is  Section  152P,  

which  relates  to  the  provisions  relating  to  LBT.   It  is  to  the  

following effect:

“152P.  Levy of Local Body Tax.

Subject to the provisions of this Chapter and the  rules,  the Corporation, to which the provisions of  clause  (aaa)  of  sub-section  (2)  of  section  127  apply, may, for the purposes of this Act, levy and  

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collect  Local  Body  Tax  on  the  entry  of  goods  specified by the State Government by notification in  the  Official Gazette,  into the limits of the City, for  consumption,  use  or  sale  therein,  at  the  rates  specified in such notification.”

12) What follows from the conjoint reading of the aforesaid provisions  

is that LBT or Octroi is a tax 'on the entry of goods into the limits   

of the city', which goods are meant for 'consumption, use or sale   

therein'. In this backdrop, we have to find out the true nature of  

the  Sodexo Meal  Vouchers  and to  ascertain  whether  they  are  

'goods'.

13) The appellant had resisted the imposition of LBT primarily on the  

ground that it was providing services to the establishments with  

whom  it  had  entered  into  contracts  and,  therefore,  such  

agreements were for service and not for sale of any goods.  The  

High Court has negated the contention primarily on the ground,  

which,  in  fact,  is  the  sole  ground,  that  the  scheme postulates  

printing of the paper vouchers by the appellant which are sold to  

its customers.  The said customers, in turn, provide the vouchers  

to their employees who use these vouchers in the restaurants or  

different places or outlets to get ready-to-eat items and beverages  

of the face value printed on the said vouchers.  Therefore, the  

vouchers are used to pay the price for food items and beverages  

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distributed to users.   The High Court,  in the passing,  has also  

remarked that these vouchers are capable of being sold by the  

appellant  after  they  are  brought  into  the  limits  of  the  city.  

Therefore,  the said vouchers have its  utility  and the same are  

capable of  being paid  or  sold  and same are capable of  being  

delivered, stored and possessed.  Thus, according to the High  

Court,  the  test  laid  down  by  this  Court  in  Tata  Consultancy  

Services v. State of Andhra Pradesh1 has been satisfied.

14) We may mention at this stage itself that the learned counsel for  

the  respondent  hammered the  aforesaid  reasons  given  by  the  

High Court by adopting these reasons as his arguments.  Learned  

counsel  for  the  appellant,  on  the  other  hand,  referred  to  the  

intrinsic nature of the transaction with the aid of RBI Policy on the  

subject and certain judgments of this Court, on the basis of which  

he was vociferous in his submission that in reality it was only a  

service which was provided by the appellant with no element of  

'goods' involved in the transaction.

15) We have already taken note of the nature of the transaction.  After  

going through the relevant provisions and the principle laid down  

in  various  judgments  explaining  the  features  of  'services'  and  

1 (2005) 1 SCC 308

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'goods',  we are of  the opinion that  the  Sodexo Meal Vouchers   

cannot be treated as 'goods'  for the purpose of levy of Octroi or  

LBT.  There are at least three fundamental and principal reasons  

for coming to this conclusion, which we would like to discuss in  

detail hereinafter.

(I) Exact Nature of Meal Vouchers:

16) The basic mistake which has been committed by the High Court is  

to proceed on the basis that after printing of the paper vouchers,  

these are sold by the appellant to its customers.  A diagramatic  

representation  of  the  business model  of  the appellant,  already  

depicted above, would make it manifest that the vouchers are not  

the  commodity  which  are  sold.   If  the  face  value  of  the  said  

vouchers is rps  50, by giving these vouchers to its customers,₹   

the  appellant  only  takes  specified  service  charges  from  its  

customers, which is normally 2 for 50 voucher. Likewise, when₹ ₹   

these vouchers are given by the customers to its employees and  

the employees present the same to various affiliates with whom  

the  appellant  had  made  the  arrangements  and  those  affiliates  

supply the goods against those vouchers, while reimbursing the  

cost of these vouchers to the said affiliates, the appellant again  

takes service charges from these affiliates, which is again a sum  

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of 2.  Thus, insofar as the appellant is concerned, it has made₹   

the arrangements with the affiliates for supply of goods against  

those vouchers.  This arrangement is made to help the customers  

by simply facilitating the provision for making available food items,  

etc.  of  a  particular  amount,  represented  by  vouchers,  to  the  

employees  of  these  customers.   No  doubt,  vouchers  bear  a  

particular  value and for  such value,  goods are provided to the  

employees.   However,  these  goods  are  not  provided  by  the  

appellant, but by the affiliates.  The appellant is only a facilitator  

and  a  medium  between  the  affiliates  and  customers  and  is  

providing these services.  The intrinsic and essential character of  

the entire transaction is to provide services by the appellant and  

this  is  achieved through the  means of  said  vouchers.   Goods  

belong to the affiliates which are sold by them to the customers'  

employees on the basis of vouchers given by the customers to its  

employees.  It is these affiliates who are getting the money for  

those goods and not the appellant, who only gets service charges  

for the services rendered, both to the customers as well as the  

affiliates.

17) It is to be borne in mind that the vouchers are not  'sold'  by the  

appellant  to  its  customers,  as  wrongly  perceived  by  the  High  

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Court, and this fundamental mistake in understanding the whole  

scheme of arrangement has led to wrong conclusion by the High  

Court.  The High Court has also wrongly observed that vouchers  

are capable of being sold by the appellant after they are brought  

into  the  limits  of  the  city.   These  vouchers  are  printed  for  a  

particular  customer,  which  are  used  by  the  said  customer  for  

distribution  to  its  employees  and  these  vouchers  are  not  

transferrable at all.

(II) Transaction Regulated By RBI Guidelines:

18) As already pointed out above, without the sanction/ authorisation  

of the RBI to operate such a payment system under the Payment  

and Settlement Systems Act, 2007, nobody can operate such a  

system, as the purpose of the said Act is to regulate the payment  

and settlement thereof by means of 'Paper Based Vouchers'.  An  

insight into the Policy Guidelines dated March 28, 2014 issued by  

the RBI to regulate such transactions would also clinchingly bears  

out that the real nature of the transaction is to provide service and  

by no stretch of  imagination these vouchers can be termed as  

'goods'.  The very first para, viz. Para A, stipulates the purpose of  

these Guidelines and Rules as follows:

“A.  Purpose To  provide  a  framework  for  the  regulation  and  supervision of persons operating payment systems  

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involved  in  the  issuance  of  Pre-paid  Payment  Instruments  (PPIs)  in  the  country  and  to  ensure  development of this segment of the payment and  settlement  systems  in  a  prudent  and  customer  friendly  manner.   For  the  purpose  of  these  guidelines,  the  term  'persons'  refers  to  'entities'  authorized  to  issue  prepaid  payment  instruments  and 'entities' proposing to issue pre-paid payment  instruments.”

19) Introduction  to  these  Guidelines  mentions  that  the  same  are  

passed after  a  comprehensive  review of  the extant  Guidelines  

and Instructions for the purpose of laying down the basic eligibility  

criteria  and  the  conditions  for  operations  of  such  payment  

systems in the country.  Some of the definitions given in para 2  

are reproduced below for better understanding of the system:

“2.  Definitions

2.1   Issuer:  Persons  operating  the  payment  systems issuing pre-paid  payment  instruments  to  individuals/organizations.  The money so collected  is used by these persons to make payment to the  merchants  who  are  part  of  the  acceptance  arrangement  directly,  or  through  a  settlement  arrangement.

2.2   Holder:  Individuals/Organizations  who  acquire pre-paid payment instruments for purchase  of goods and services, including financial services.

2.3   Pre-paid  Payment  Instruments:  Pre-paid  payment instruments are payment instruments that  facilitate purchase of goods and services, including  funds  transfer,  against  the  value  stored  on  such  instruments.  The value stored on such instruments  represents  the  value  paid  for  by  the  holders  by  cash, by debit to a bank account, or by credit card.  The pre-paid instruments can be issued as smart  

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cards,  magnetic  stripe  cards,  internet  accounts,  internet  wallets,  mobile  accounts,  mobile  wallets,  paper vouchers and any such instrument which can  be used to access the pre-paid amount (collectively  called  Prepaid  Payment  Instruments  hereafter).  The  pre-paid  payment  instruments  that  can  be  issued  in  the  country  are  classified  under  three  categories  viz.  (i)  Closed  system  payment  instruments  (ii)  Semi-closed  system  payment  instruments  and  (iii)  Open  system  payment  instruments.

2.4   Closed  System  Payment  Instruments:  These are payment instruments issued by a person  for facilitating the purchase of goods and services  from him/it.  These instruments do not permit cash  withdrawal or redemption.  As these instruments do  not  facilitate  payments  and  settlement  for  third  party  services,  issue  and  operation  of  such  instruments are not classified as payment systems.

2.5  Semi-Closed System Payment Instruments:  These are payment instruments which can be used  for  purchase  of  goods  and  services,  including  financial  services  at  a  group  of  clearly  identified  merchant  locations/establishments  which  have  a  specific  contract  with  the  issuer  to  accept  the  payment  instruments.   These instruments  do  not  permit  cash  withdrawal  or  redemption  by  the  holder.

2.6  Open System Payment Instruments:  These  are  payment  instruments  which  can  be  used  for  purchase of goods and services, including financial  services like funds transfer at any card accepting  merchant  locations  (point  of  sale  terminals)  and  also permit cash withdrawal at ATMs/Bcs.

xx xx xx

2.8  Merchants:   The establishments who accept  the PPIs issued by PPI issuer against the sale of  goods and services.”

20) In order to ensure that payment received from the customer is  

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paid to the affiliates against those vouchers, Para 8 provides for  

the deployment of money collected.  As per this, the amount thus  

collected has to be kept in the escrow account and the persons,  

like the appellant herein, are under obligation to use this amount  

only  for  making  payments  to  the  participating  merchant  

establishments and other permitted payments.

21) Read  in  the  aforesaid  context,  insofar  as  the  appellant  is  

concerned, it is only a service provider on the touchstone of the  

test laid down in Bharat Sanchar Nigam Ltd. & Anr. v. Union of  

India & Ors.2  Paragrah 87 of  this judgment,  enumerating this  

test, is reproduced below:

“87.  It is not possible for this Court to opine finally  on  the  issue.   What  a  SIM  card  represents  is  ultimately a question of fact, as has been correctly  submitted by the States.  In determining the issue,  however the assessing authorities will have to keep  in mind the following principles: if the SIM card is  not sold by the assessee to the subscribers but is  merely part of the services rendered by the service  providers,  then  a  SIM  card  cannot  be  charged  separately to sales tax.  It would depend ultimately  upon  the  intention  of  the  parties.   If  the  parties  intended that  the SIM card would be a separate  object of sale, it  would be open to the Sales Tax  Authorities  to  levy  sales  tax  thereon.   There  is  insufficient material on the basis of which we can  reach a decision.  However we emphasise that if  the sale of a SIM card is merely incidental to the  service  being  provided  and  only  facilitates  the  identification  of  the  subscribers,  their  credit  and  other details, it  would not be assessable to sales  tax.   In  our  opinion  the High  Court  ought  not  to  

2 (2006) 3 SCC 1

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have finally determined the issue.  In any event, the  High Court erred in including the cost of the service  in  the  value  of  the  SIM  card  by  relying  on  the  “aspects” doctrine.  That doctrine merely deals with  legislative  competence.   As  has  been  succinctly  stated in  Federation of Hotel & Restaurant Assn.   Of India v. Union of India, (2005) 4 SCC 214: (SCC  pp.652-53, paras 30-31)

“  '...subjects which in one aspect and for one  purpose fall  within  the  power  of  a  particular  legislature  may  in  another  aspect  and  for  another purpose fall within another legislative  power'.

xx xx xx

There  might  be  overlapping;  but  the  overlapping  must  be  in  law.   The  same  transaction may involve two or  more taxable  events in its different aspects.  But the fact that  there is overlapping does not detract from the  distinctiveness of the aspects.”

22) Further,  para 20 of  the judgment  of  this  Court  in  Idea Mobile  

Communication Limited.  v.  Commissioner of Central Excise   

and Customs, Cochin3, shall be applicable here as well making  

it a case of service and not sale of goods.  This para is as under:

“20.   The  charges  paid  by  the  subscribers  for  procuring  a  SIM  card  are  generally  processing  charges  for  activating  the  cellular  phone  and  consequently  the  same  would  necessarily  be  included  in  the  value  of  the  SIM  card.   There  cannot be any dispute to the aforesaid position as  the appellant itself subsequently has been paying  service tax for the entire collection as processing  charges for activating cellular phones and paying  the  service  tax  on  the  activation.   The appellant  also accepts the position that activation is a taxable  service.  The position in law is therefore clear that  

3 (2011) 12 SCC 608

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the  amount  received  by  the  cellular  telephone  company  from  its  subscribers  towards  the  SIM  cards will form part of the taxable value for levy of  service tax,  for  the SIM cards are never  sold as  goods independent from services provided.  They  are  considered  part  and  parcel  of  the  services  provided  and  the  dominant  position  of  the  transaction is to provide services and not to sell the  material i.e. SIM card which on its own but without  the service would hardly have any value at all.”

23) We may also take note of the judgment of this Court in Sunrise  

Associates v.  Govt. of NCT of Delhi & Ors.4, where this Court  

considered as to whether lottery tickets can be treated as goods  

and  after  discussing  the  earlier  judgment  in  H.  Anraj  v.  

Government of Tamil Nadu5,  pointed out that the primary test  

would be as to whether  such lottery tickets would constitute a  

stock in trade of every dealer and, therefore, is a merchandise  

which can be bought and sold in the market.  This was followed in  

another judgment in Yasha Overseas v. Commissioner of Sales  

Tax & Ors.6, wherein again the test of  'flexibility in its utilisation  

and its transferability were discussed and applied in the context of   

REP licences' to determine whether such licences were goods or  

not.

24) We may mention here that the appropriate test would be as to  

whether such vouchers can be traded and sold separately.  The  4 (2006) 5 SCC 603 5 (1986) 1 SCC 414 6 (2008) 8 SCC 681

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answer is in the negative.  Therefore, this test of ascertaining the  

same to be 'goods' is not satisfied.

(III) Real  Character  Of  The  Transaction  Is  The Facility  By  The  Customers As Employers To Their Employees:

25) Section 17 of the Income Tax Act,  1961, defines  'salary'  in the  

hands  of  the  employees  which  becomes  taxable  under  the  

Income Tax Act.  Various components of salary are enumerated  

therein.  Clause (viii) of sub-section (1) of Section 17 includes 'the  

value of any other fringe benefit or amenity as may be prescribed'  

as part of salary.  Rule 3 of the Income Tax Rules prescribes the  

method of 'valuation of perquisites'.  We are concerned with Rule  

3(7)(iii), which deals with the value of free food, etc. and reads as  

under:

“(iii)   The  value  of  free  food  and  non-alcoholic  beverages  provided  by  the  employer  to  an  employee  shall  be  the  amount  of  expenditure  incurred  by  such  employer.   The  amount  so  determined shall be reduced by the amount, if any,  paid  or  recovered  from  the  employee  for  such  benefit or amenity:

Provided that nothing contained in this clause shall  apply  to  free  food  and  non-alcoholic  beverages  provided by such employer during working hours at  office  or  business  premises  or  through  paid  vouchers  which  are  not  transferable  and  usable  only at eating joints, to the extent the value thereof  in  either  case  does  not  exceed  fifty  rupees  per  meal or to tea or snacks provided during working  hours or to free food and non-alcoholic beverages  during working hours provided in a remote area or  an off-shore installation.”

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26) Thus,  the value  of  such free food  and non-alcoholic  beverage  

provided  by  an  employer  to  an  employee  is  treated  as  

expenditure incurred by the employer and amenity in the hands of  

the employee.  It is this perquisite given by the customer to its  

employees by adopting the methodology of vouchers and for its  

proper implementation, services of the appellant are utilised.

27) For  all  the  aforesaid  reasons,  we  are  of  the  opinion  that  the  

judgment of the High Court has not discussed and decided the  

issue correctly and warrants interference.  We, thus, allow these  

appeals and set aside the judgment of the High Court by holding  

that Sodexo Meal Vouchers are not 'goods' within the meaning of  

Section 2(25) of the Act and, therefore, not liable for either Octroi  

or LBT.   

There shall, however, be no order as to costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; DECEMBER 09, 2015.

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