Lemon Tree Hotel Vs Commissioner, Goods & Service Tax (CESTAT Delhi)
Summary: CESTAT Delhi allowed the appeal of M/s Lemon Tree Hotel on two service-tax issues concerning cancellation charges retained on cancelled hotel bookings and food supplied to guests in hotel rooms. The Tribunal examined whether cancellation charges could be treated as consideration for a declared service under Section 66E(e) of the Finance Act, 1994 and whether separately supplied food delivered to hotel rooms attracted service tax.
On cancellation charges, the Tribunal noted that customers paid advances to obtain hotel accommodation and not as consideration for the hotel agreeing to refrain from an act, tolerate an act or situation, or do an act. Where a customer cancelled the booking or did not turn up, the hotel was contractually entitled to retain the whole or part of the advance because accommodation services had been kept available for the customer.
The Tribunal rejected the Commissioner (Appeals)’ view that retention of cancellation charges represented consideration for tolerating the customer’s non-availment of the booked service. It held that the character of the amount did not undergo a change merely because the booking was subsequently cancelled. Accordingly, no service tax was attracted on the retained cancellation amount under Section 66E(e) of the Finance Act, 1994.
On food delivered to hotel rooms, the Tribunal referred to CBEC Clarificatory Circular No. 139/8/2011-TRU dated 10 May 2011. The Circular clarified that food served in a hotel room could not be charged to service tax under restaurant service where the prescribed restaurant conditions were not satisfied, nor under short-term accommodation where the food bill was raised separately and did not form part of the declared tariff. The Tribunal also referred to the departmental clarification concerning pick-up/home delivery, under which service tax depended upon the presence of a service element such as ambience, entertainment, air-conditioning or personalised hospitality.
Since the Department’s own case was that food was provided in hotel rooms and was not included in the room service, CESTAT held that Lemon Tree Hotel was not liable to service tax on such delivery of food. Both substantive issues having been decided in favour of the appellant, the penalties were also set aside and the appeal was allowed with consequential benefit.
FULL TEXT OF THE CESTAT ORDER
Heard the parties.
2. The issue in this appeal is whether the advance received from a customer for booking of a room in a hotel, whether on the cancellation of the booking, the said amount or a portion forfeited by way of cancellation charges, whether the same amount to taxable receipt under Section 66 E(e) of Finance Act, 1994 and whether any service is involved for delivery of food in the room of the hotel, is taxable
3. So far as the first issue is concerned, the appellant, in the course of their business of running a hotel, offers advance booking to its customers, on payment of rent or deposit. Sometimes in the event of cancellation or of no show i.e. if the guest does not come for stay, the appellants retains the full or part of the amount towards cancellation charges. It is admitted that the appellant have paid service tax under Accommodation Services as and when they receive advance, availing the permissible abated value. It is the case of the Revenue that upon cancellation by the customers, the gross amount received by the appellant qualifies the receipt under Section 66 E (e), which is defined as under:-
“Following shall constitute the declared services viz.:-
“agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and chargeable on full value and not on abated value”.
4. Ld. Commissioner (Appeals) in confirming the demand under this head has observed that retention of such cancellation charges is not against the provisions of intended services but for not availing the said services by the customers, which the appellant has tolerated.
5. Having considered the rival contentions, I find that the aforementioned observation of the Commissioner (Appeals) are erroneous and have no legs to stand. Admittedly, the customers pay an amount to the appellant in order to avail the hotel accommodation services, and not for agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and chargeable on full value and not on abated value. The amount retained by the appellant is for, as they have kept their services available for the accommodation, and if in any case, the customers could not avail the same, thus, under the terms of the contract, they are entitled to retain the whole amount or part of it. Accordingly, I hold that the retention amount (on cancellation made) by the appellant does not undergo a change after receipt. Accordingly, I hold that no service tax is attracted under the provisions of Section 66 E(e) of the Finance Act. Accordingly, this ground is allowed in favour of the appellant.
6. So far as the second issue regarding service tax on food served in the room is concerned, I find that the appellant, prima facie, sold the food, which attracts service tax/VAT. Further, I find that CBEC in its Clarificatory Circular No. 139/8/2011-TRU dated 10.05.2011 exempted the scope of the service tax relating to the services by hotel and restaurant wherein the question was – Is the serving of food and/or beverages by way of room service liable to service tax? It is clarified that when the food is served in the room, the service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurants with a licence to serve liquor, and also the same cannot be charged under the Short Term Accommodation head, if the bill for the food raised separately and it does not form part of the declared tariff. Also the similar clarification was issued by the Dy. Commissioner of Central Excise & Service Tax Division, Chandigarh vide his letter No.ST-20/STD/Misc./Sevottam/62/12 dated 13.08.2015, wherein clarifying the levy of service tax on food sold by way of Pick-up or Home Deliveries, it is clarified that service tax is liable, if there is an element of service involved, which is offered at the restaurants, be it ambience, live entertainment, if any, air conditioning, or personalized hospitability is offered. The service tax can be levied if there is an element of “Service” involved which would typically be the case where the food is served in restaurant. The element of service is not involved and it amounts to sale and does not attract service tax. Admittedly, it is the case of the Department that the appellant has provided food in the rooms, which is not included in the room service.
7. In view of the above matter, I find that the appellant is not liable to service tax on the delivery of the food in their hotel rooms. AS both the grounds have been decided in favour of the appellants, penalties imposed are also set aside. Thus, the appeal is allowed with consequential benefit to the appellant.
(Order dictated & pronounced in open court)
