Shiv Vilas Resorts (P) Ltd. Vs Commissioner of Central GST and Central Excise (CESTAT Delhi)
Summary: CESTAT Delhi partly allowed the appeal of Shiv Vilas Resorts (P) Ltd. in a Service Tax dispute concerning restaurant service charges and hotel “no show charges”. On restaurant service charges collected over and above the price of food, the Tribunal held that the amount formed part of the consideration for restaurant service under Section 67 of the Finance Act, 1994. The assessee’s contention that the amount was distributed among hotel staff did not alter its character for Service Tax purposes, and liability on such service charges was therefore upheld. However, the Tribunal reached the opposite conclusion for advances forfeited when customers cancelled bookings or failed to appear.
Applying Section 66E(e), Section 65B(44) and the requirement of consideration, CESTAT held that customers paid advances for hotel accommodation and not as consideration for the hotel agreeing to tolerate cancellation or non-appearance. The forfeiture clause merely safeguarded the hotel’s commercial interest and there was neither an express nor implied contract to provide a separate service of tolerating a no-show. Following Lemon Tree Hotel and South Eastern Coalfields Ltd., the Tribunal consequently set aside Service Tax on no-show charges.
On limitation, it found that the transactions were recorded in the assessee’s books and the dispute involved a bona fide interpretational issue. Suppression or mala fide intent to evade tax was therefore absent, making invocation of the extended period impermissible. Penalty was also held unwarranted. Consequently, except for the demand relating to restaurant service charges falling within the normal limitation period from April 2015 to September 2015, the remaining demand was set aside and the appeal was partly allowed.
Cases Discussed
- Lemon Tree Hotel, 2020 (34) GSTL 220 (Tri.-Del.) — Relied upon by the appellant and followed by the Tribunal for holding that an amount retained upon cancellation/no-show of a hotel booking is not consideration for agreeing to tolerate an act and does not attract Service Tax under Section 66E(e).
- South Eastern Coalfields Ltd., 2021 (55) GSTL 549 (Tri.-Delhi) — Relied upon and followed on the principle that compensation, penalty or forfeiture arising from contractual non-compliance does not by itself constitute consideration for tolerating an act under Section 66E(e).
- CCE vs. Chemphar Drugs & Liniments, 1989 (40) ELT 276 (SC) — Relied upon by the appellant and applied by the Tribunal on limitation; absence of suppression or mala fide intent did not justify invocation of the extended period.
- Hotel Mela Plaza vs. Commissioner of Central Excise, Ghaziabad, 2006 (3) STR 563 (Tri.-Del.) — Relied upon by the Department in support of the impugned demand.
- Commissioner of Service Tax vs. M/s. Bhayana Builders, 2018 (2) TMI 1325 — Applied for the proposition that an amount must have nexus with the taxable service and constitute consideration for that service before it can form part of taxable value.
- Commissioner of Central Excise and Service Tax, Mumbai vs. Reliance Industries Ltd., 2016 (45) STR 341 — Relied upon by the Tribunal while holding that penalty was not warranted where the issue was interpretational.
FULL TEXT OF THE CESTAT DELHI ORDER
Present is an appeal to assail the Order-in-Appeal No. 30(RK)ST/JPR/2017-18 dated 06.02.2018. The facts in brief relevant for the purpose are as follows:- That the appellants are engaged in providing various taxable services including short-term accommodations in the hotels, restaurant service etc. During the course of audit of their records, following shortcomings were observed:-
1) That the appellants were collecting service charge from the customers besides the price of the food, however, they were not paying service tax on those service charges.
2) That the appellants were forfeiting the charges in cases where the customers do not turn out or cancelled the reservations already made by them. The said activity of the appellants is alleged to be a declared service as the act amounts to agreeing to tolerate an act or a situation.
Receiving no proper response from the appellants that a Show Cause Notice No.829 dated 18.04.2016 was served upon the appellants proposing the recovery of service tax amounting to Rs.17,103/- on the service charges of Rs.7,18,331/- collected by them i.e. in the former case and a demand of Rs. 1,35,709/- on the amount of Rs.10,97,974/- collected in the name of no show charges by them i.e. in the latter case. The proportionate interest and the appropriate penalties were also proposed vide the said Show Cause Notice. The proposal was initially confirmed vide the Order-in-Original No.87/2017 dated 31.03.2017. The appeal against the said order has been rejected vide the order under challenge. Being aggrieved the appellant is before this Tribunal.
2. We have heard Mr. M. Mahipal, Chartered Accountant and Shri S.K. Meena, Authorised Representative for the Revenue.
3. Ld. Counsel for the appellant has submitted with respect to the alleged demand about service charges collected from the customers, it is mentioned that the amount was not received for providing the restaurant service, but was received to be distributed among the staff who were executing the restaurant service on behalf of the appellant.
3. Question of levying any service tax on such amount does not at all arise.
4. With respect to the charges collected as “no show charges” it is submitted that the appellant was receiving advance at the time of booking for the hotel/restaurant accommodation service. The liability of tax was duly discharged at the time of receipt of advance as per the point of taxation rules. This fact is otherwise nowhere in dispute. It is only when the service recipient did not turn up to avail the service that the said amount used to get forfeited as “no show charges”. However no separate fee or charges used to be recovered from the customers for not being appearing to attend the service, otherwise also there was no express nor implied contract for nonappearance for availment of accommodation services between the parties. Hence the amount is wrongly held to be the consideration against providing declared service.
5. Ld. Counsel has relied upon the decision of this Tribunal in the case of Lemon Tree Hotel case reported as 2020 (34) GSTL 220 (Tri.-Del.). Decision of this Tribunal in the case of South Eastern Coalfields Ltd. reported as 2021 (55) GSTL 549 (Tri.- Delhi) has been relied upon. Ld. Counsel finally has submitted that there is no suppression of facts nor any malafide intent on the part of the appellant to evade the payment. The tax liability stands already discharged. Appellant is not liable for the demand as has been confirmed against him. Otherwise also the allegations are based on the audit conducting by the Department which was based on the examination of books of accounts wherein the concerned transactions were found duly recorded. Hence question of suppression of facts with intent to evade tax does not at all arises. Department therefore has wrongly invoked the extended period of limitation. Ld. Counsel has relied upon the decision of Hon‟ble Supreme Court in the case of CCE vs. Chemphar Drugs & Liniments reported as 1989 (40) ELT 276 (SC). With these submissions the imposition of penalty is also prayed to be set aside. The order as such is prayed to be set aside and appeal is prayed to be allowed.
6. While rebutting these submissions, learned Departmental Representative has mentioned that the appellants were charging the amount from their customers with all intention to not to pay service tax on the impugned restaurant services. It was an intentional act of the appellants to not to pay the service. Hence there is sufficient suppression of facts and malafide intent on part of the appellants. The extended period has rightly been invoked. Appellants were otherwise not including details of impugned services in the returns. Nor they were paying service tax in respect of the declared services vis-à-vis „no show charges‟. Impressing upon the findings in the order under challenge the appeal in hand is prayed to be dismissed.
7. Ld. Departmental Representative has relied upon the decision of this Tribunal in the case of Hotel Mela Plaza vs. Commissioner of Central Excise, Ghaziabad reported as 2006 (3) STR 563 (Tri.- Del.).
8. Having hearing the rival contentions and perusing the record, we are of the opinion that following issues need to be adjudicated:
(1) Whether the service charges collected besides the price of the food while rendering the restaurant service, the appellant was liable to pay tax on the said amount.
(2) Whether the amount of „no show charges‟ i.e. the amount forfeited advance as was received for providing accommodation service, is the consideration for providing the declared service by the appellants.
(3) Whether demand is barred by limitation and the penalty need to be waived in the given facts and circumstances.
9. To adjudicate all these issues foremost we need to know the definition of service Section 65 B (44) of Finance Act, 1994 defines service to means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include – (a) an activity which constitutes merely, –
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in force.” Section 67 of the Finance Act deals with valuation of taxable service for charging service tax. It is reproduced below:- Subject to the provisions of this 67.(1) Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, –
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. xx xx xx Explanation. – For the purposes of this section, –
(a) “consideration” includes –
xx xx xx
(b) xx xx xx
(c) xx” xx xx
Section 68 provides that every person providing taxable service to any person shall pay service tax at the rate specified in Section 66B in such manner and within such period as may be prescribed.
10. The bare perusal of these provisions makes it clear that where service charge is chargeable on any taxable service with reference to its value there has to be a consideration either in the form of money or wholly or partly consisting of money or where it is not ascertainable in money. Term consideration is defined under section 2 (d) of Indian Contract Act, 1872 which reads as follows:-
“2(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”
11. Hon’ble Apex Court in the case of Commissioner of Service Tax vs. M/s. Bhayana Builders reported as 2018 (2) TMI 1325 has held that consideration must flow from the service recipient to the service provider and should accrue to be benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Finance Act. The Hon‟ble Supreme Court clarified that any amount charged which has no nexus with the taxable service and is not a consideration for the service provider it shall not become the part of the value which is taxable. The judgement created a distinction between “conditions to a contract” and “considerations for the contract” clarifying that a service recipient may be required to fulfil certain conditions contained in the contract but that would not necessarily mean that this value would form part of the value of taxable services which are provided.
12. In the light of above discussion, the issue-wise findings on three of the above framed issues are as follows:-
Issue No.1
It is an admitted fact that the amount in question is received by the appellant while providing the restaurant service from their customers/recipients of the said service. In the light of section 67 as recorded above, it shall be the amount as part of consideration received for rendering the taxable service. Though the defence taken by the appellant is that they were not retaining this amount and were distributing the same among the hotel staff, hence, they were not liable to pay service tax of this amount. But we find that the adjudicating authorities below have dealt with the said defence in the light of Rule 2 C of Service Tax (Determination of Value) Rules, 2006. According to which service tax in case of supply of food etc. in restaurant is being charged on abatement basis on the amount collected by the provider of restaurant service from the recipients thereof the TRU Circular No.334/3/2011 dated 28.02.2011 has also been referred, wherein it has been held that separation of certain portion of the bill as service charge will not represent the full value of all services rendered by the restaurants. We do not find any infirmity in those findings in the order under challenge when the demand of Rs.1,73,211/- on service charges has been confirmed by the Commissioner (Appeals). This issue is decided confirming appellant liability to pay service tax on service charges collected besides the price of food. The findings in order under challenge are thus confirmed to this extent.
Issue No.2
13. The amount i.e. „no show charges‟ are alleged as a consideration for rendering declared service. Declared service is defined under Section 66 E (e) as the service which is agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. There has, therefore, to be a flow of consideration from one person to another when one person agrees to the obligation to refrain from an act, or to tolerate an act, or a situation, or to do an act. In other words, the agreement should not only specify the activity to be carried out by a person for another person but should specify the:
(i) consideration for agreeing to the obligation to refrain from an act; or
(ii) consideration for agreeing to tolerate an act or a situation; or
(iii) consideration to do an act.
Thus, a service conceived in an agreement where one person, for a consideration, agrees to an obligation to refrain from an act, would be a „declared service‟ under section 66E(e) read with section 65B(44) and would be taxable under section 68 at the rate specified in section 66B. Likewise, there can be services conceived in agreements in relation to the other two activities referred to in section 66E(e).
14. It is trite that an agreement has to be read as a whole so as to gather the intention of the parties. The intention of the appellant and the parties was for supply of hotel accommodation and for availing various types of associated services. The consideration contemplated was for such supply of said service. The intention of the parties certainly was not for flouting the terms of the agreement. The forfeiture clauses are in the nature of providing a safeguard to the commercial interest of the appellant and it cannot, by any stretch of imagination, be said that recovering any sum by invoking the penalty clauses is the reason behind the execution of the contract for an agreed consideration. It is not the intention of the appellant to impose any penalty upon the other party nor is it the intention of the other party to get penalized.
15. It also needs to be noted that section 65B(44) defines “service” to mean any activity carried out by a person for another for consideration. Explanation (a) to section 67 provides that “consideration” includes any amount that is payable for the taxable services provided or to be provided. The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the defaulting act is not undertaken or repeated and the same cannot be said to be towards toleration of the defaulting party. The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance.
16. In the present case admittedly there is no separate fee or charges recovered by the appellant from the customers/ recipients of hotel accommodation service, for not being appearing to attend the said service. There was no express nor implied contract for non- appearance for availment of accommodation service between the parties. The consideration was paid by the recipient only for accommodation service on which the service tax liability was duly discharged. This issue about forfeiture of the amount received by a hotel from a customer on cancellation of the booking whether to be liable to pay service tax under section 66 E (e) has already been dealt with by this Tribunal in the case of Lemon Tree Hotel (supra), South Eastern Coalfields Ltd. (supra) the Tribunal has held that the retention of amount on cancellation would not attract service tax under 66E (e). The relevant portion of the decision reads as follows:-
“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 retain 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 66E(e).
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.
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 66E(e) of the Finance Act. Accordingly, this ground is allowed in favour of the appellant.”
17. The facts of the present case are squarely covered under said decisions. Hence, we hold that the adjudicating authority below has wrongly held the „no show charges‟ as a consideration for providing declared service. In the light of this discussion the second issue as is framed above stands decided in favour of the appellant.
3rd Issue
18. In the light of the above discussion on both the issues, it becomes clear that there was no liability of the appellant to pay service tax with respect to the amount of Rs.10,97,974/- collected as „no show charges‟. With respect to the service charges of Rs.7,18,331/-, the appellant is held liable to pay service tax of Rs.37,502/-. However it has also been observed that the appellant were under the impression that the amount was collected, over and above, the food price, that too, for the purpose of distributing the entire amount among the staff rendering those services. Hence, it was merely a bonafide belief of the appellants instead of the malafide intent to evade duty. There is no denial that they were discharging their liability with respect to the amount received for rendering the restaurant services. It is also apparent on record that all figures proposing demand have been collected by the Department from the records of appellant themselves. Suppression of facts also cannot be alleged against appellants in the given circumstances.
19. The demand in question pertains to the period from July, 2012 to September, 2015 and the Show Cause Notice is of April 2016. Resultantly the major demand i.e. from July, 2012 to March, 2015 is the demand for the extended period. And that extended period should not have been invoked by the Department in view of the above observations. We draw our support from the decision in the case of Chemphar Drugs Liniments (Supra). Since the issue is observed to be an interpretational, imposition of penalty is also not warranted in the given circumstances. We draw our support from the decision in the case of Commissioner of Central Excise and Service Tax, Mumbai vs. Reliance Industries Ltd. reported as 2016 (45) STR 341. In the light of this discussion this issue also stands decided in favour of the appellant.
20. As a result of findings on three of the issues framed here above, except for the miniscule demand for the period w.e.f. April 2015 to September 2015 i.e. for the normal period, that too, on the amount of service charges collected, the entire demand is hereby set aside. Appeal stands, accordingly, partly allowed.
[Pronounced in the open Court on 21.12.2023]
