Hotel Room Food and Electricity Reimbursements Not Taxable: CESTAT Delhi

Sayaji Hotels Ltd. Vs Commissioner of Central Goods And Service Tax (CESTAT Delhi)

Hotel Room Food and Actual Electricity Recoveries Escape Service Tax; Brand Promotion Remains Taxable Only Within Normal Limitation
Background: Three Revenue Streams Under Scrutiny

Sayaji Hotels Ltd. was registered with the Service Tax Department for mandap keeper and other services. During reconciliation of its service tax returns with its profit and loss account, the Department identified receipts on which, according to it, service tax had not been paid.

The disputed activities comprised food and beverages supplied in hotel rooms and grand rooms, arrangements with liquor companies for sponsorship or promotion, and electricity charges recovered from tenants.

A show-cause notice dated 31 August 2015 proposed a demand of ₹24,99,110 for the period 2010–11 to 2014–15, together with interest and penalties. The adjudicating authority confirmed the demand after extending cum-tax benefit, and the Commissioner (Appeals) upheld the order.

The hotel challenged both taxability and invocation of the extended limitation period.

Separately Billed Food in Hotel Rooms Was Not Restaurant Service

The appellant argued that hotel rooms could not be equated with restaurant premises. It also explained that the food was supplied through a separate service area and billed independently.

CESTAT noted that the Department had produced no evidence contradicting this explanation. The invoices relied upon by the appellant showed separate charges for food, and there was no evidence that these amounts formed part of the room tariff.

The Tribunal examined the Board’s clarification concerning room service. It explained that food served in a room could not be taxed under restaurant service merely because the establishment was a hotel. The clarification also excluded such separately billed food from the short-term accommodation head where it did not form part of the declared tariff.

Relying additionally on Hotel Atithi v. Commissioner of CGST and Central Excise, Agra, 2022 (56) GSTL 301, CESTAT distinguished food served in a restaurant from food supplied in a hotel room. On the facts, it treated the disputed activity as sale of food excluded from the definition of service under section 65B(44).

The demand on room and grand-room food supplies was therefore set aside.

Liquor-Company Payments Were for Branding, Not Merely Trade Discounts

The appellant characterised payments received from liquor companies as cash incentives connected with its purchase and sale of liquor. It explained that State excise restrictions required purchases through authorised retailers rather than directly from manufacturers.

The Tribunal, however, examined the contractual obligations instead of accepting that description.

The arrangement with Pernod Ricard expressly concerned branding, promotion and exclusive listing of its brands. It restricted competing branding arrangements and gave the company preferential rights concerning additional product categories.

The agreement with United Breweries required the hotel to display branded accessories, including ashtrays, napkin holders, coasters and serving trays.

CESTAT held that these obligations demonstrated a promotional or branding activity. The receipts could not be treated as arising exclusively from principal-to-principal trading merely because the hotel also purchased and sold liquor.

The demand concerning these arrangements was upheld on merits for both the pre-negative-list and post-negative-list periods, subject to the limitation finding.

Actual Electricity Reimbursements Were Not Service Consideration

The hotel had leased office spaces and shops to tenants and installed separate sub-meters. Electricity charges were recovered according to actual consumption recorded by those meters and paid to the electricity supply agencies.

The Tribunal found that the hotel was collecting actual electricity expenditure as landlord, rather than receiving consideration for an independent taxable service.

It referred to Intercontinental Consultants and Technocrats Pvt. Ltd., 2018 (10) GSTL 401 (SC), concerning the invalidity of Rule 5(1) of the Service Tax (Determination of Value) Rules.

On the facts, the electricity recoveries could not be included in taxable value through that provision. The corresponding demand was deleted.

Extended Limitation Failed for Want of Deliberate Suppression

The Tribunal noted that much of the demand fell beyond the normal eighteen-month limitation period.

There was no evidence establishing an intentional act of suppression. It further recorded that the show-cause notice had not invoked the proviso to section 73(1).

Relying on Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, 2005 (188) ELT 149 (SC), CESTAT reiterated that suppression requires deliberate withholding of correct information to evade duty. Mere failure to declare does not automatically constitute wilful suppression; a positive act must be established.

Consequently, the extended-period demand was set aside.

Decision of the Tribunal

The appeal was partly allowed. The impugned order survived only for the demand relating to sponsorship or brand-promotion services within the normal limitation period. The room-food and electricity demands were deleted, while the promotional-service demand beyond normal limitation also failed.

Author’s Comments

The decision demonstrates the importance of examining each receipt by its underlying transaction. Separate billing and the factual nature of room-food supplies supported relief; contractual branding obligations supported taxability of liquor-company payments.

For electricity, the finding rests on actual consumption, sub-meter records and reimbursement without a separate service consideration. It should not automatically extend to recoveries containing a markup or other charges.

The limitation ruling is equally significant: establishing taxability does not itself establish deliberate suppression. A demand may succeed on merits yet fail for the extended period.

Finally, these findings concern the relevant service-tax provisions and periods. Their application to GST requires a separate examination of the governing statutory framework.

Cases Discussed

• Hotel Atithi v. Commissioner of CGST and Central Excise, Agra, 2022 (56) GSTL 301 — Relied upon to distinguish sale of food supplied in hotel rooms from taxable restaurant service.
• Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India, 2018 (10) GSTL 401 (SC) — Relied upon regarding the invalidity of Rule 5(1) and the treatment of reimbursements in service-tax valuation.
• Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, 2005 (188) ELT 149 (SC) — Relied upon for the requirement of deliberate suppression to invoke extended limitation.

FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT, NEW DELHI

The present appeal is filed to assail the Order-in-Appeal’ bearing number 398-17-18 dated 12.12.2017.

2. The facts which culminated into the said order, in brief, are as follows:

M/s Sayaji Hotels Limited² are registered with the Service Tax Department, Indore for providing services of mandap keepers and other services. During the scrutiny reconciliation of service tax return with the profit and loss account submitted by the appellant, the audit team observed that the appellant has not paid service tax on income from room services, grand room services, sponsorship services and recovery of electricity charges. All the said services were observed to fall under the definition of “service” given in section 65B(44) of the Finance Act, 1994³. These services, otherwise, do not figure in the negative list of section 66D of the Act nor were found exempted except that serving of food nd beverages under restaurant services is exempted as per Board’s Circular No. 139/8/2011-TRU dated 01.05.2011. The department, therefore, alleged that serving food and beverages in hotel room and grand room is taxable, the appellant should have paid service tax. The service tax liability on this issue and two other issues calculated as follows:

2.1 Based on these observations that a show cause notice bearing no. 01/44/201/5495 dated 31.08.2015 was served upon the appellant proposing the demand of service tax amounting to Rs. 24,99,110/- for the period from 2010-11 to 2014-15. Amount of Rs. 61,800/-, as was already paid, was proposed to be appropriated against the said demand. The interest was proposed to be recovered under the provision of section 75 of the Act, penalties under sections 76 and 78 of the Act were also proposed to be imposed on the appellant. The proposal has been accepted by the original adjudicating authority vide Order-in-Original⁴ bearing number 08/2016-17 dated 31.10.2016 except that the cum tax benefit has been extended in favour of the appellant. In an appeal against the said order, Commissioner (Appeals) has upheld the said OM vide order under challenge/OIA dated 12.12.2017. Being aggrieved, the appellant is before this Tribunal.

3. We have heard Mr. Rahul Kumar, learned counsel for the appellant and Ms. Jaya Kumar, authorised representative for the department.

4. Learned counsel for the appellant has submitted that the demand of service tax on various activities of the appellant has wrongly been confirmed by adjudicating authorities below. It is submitted that service tax has wrongly been demanded towards the food and beverages being supplied in hotel room or grand room as the hotel rooms cnnot be equated with restaurants as mentioned in section 65(105)(zzzzv) of the Act nor the food was supplied from the restaurant, rather was provided through a separate service area. The said clarification is given in Circular No. 139/8/2011 dated 10.05.2011 but has wrongly been dealt with by the adjudicating authorities below. Learned counsel has also mentioned that the food and beverage as provided in the rooms were separately charged, hence the said act was that of sale of food instead of serving of food. The demand on this account is liable to be set aside.

4.1 While submitting about the service tax liability against sponsorship services, it is mentioned that the appellant had entered into contracts with different business entities like United Breweries Limited and Pernard Richard India Private Limited for purchase/sale of their product. It has wrongly been alleged that vide those contracts appellants had undertaken branding and promotion of the accessories of the said companies and the amount collected is wrongly alleged to be an amount against said sponsorship services. It is further submitted that as per provisions of state excise law, the appellant could not purchase liquor directly from the manufacturing companies and were compelled to purchase the same from the authorised retailers having permit to sell the same in that particular area on payment basis. Though the liquor manufacturing companies reimbursed these amounts to them in cash. Had this not been the situation, the liquor manufacturing companies would have sold their product directly to the appellant by offering purchase/trade discounts. The activity of appellant, otherwise, is primarily of sale of liquor and the use of branded accessories like ash tray, napkin holder, coasters etc. all are part of business activity and not amounts to rendering any service. The demand of service tax on this ground is also liable to be set aside.

4.2 While submitting about the service tax demand confirmed on the electricity charges it is mentioned that the appellant had entered into agreement with various entities for leasing out offices space/shops on their property. The appellant had provided electricity to such office spaces/shops and a sub-meter got installed in each premises. The electricity charges were collected by the appellant as per actual units consumed/as per reading from respective sub-meter. Thus electricity charges are nothing but a reimbursement of the actual expenses incurred on electricity on which the service tax is not at all payable. Demand on this ground is also prayed to be set aside. 4.3 Finally, it is submitted that the show cause notice is barred by limitation, as there is no evidence of positive failure/suppression on part of the appellant, neither of any fraud, collusion, willful misstatement, suppression of fact or contravention of any provision with intent to evade tax is alleged against the appellant. Otherwise also all the facts were in knowledge of the department as the first internal audit dated 16.04.2014 was already conducted by the department for the year 2010-11 and 2011-12 without raising any objection. The extended period has wrongly been invoked. The demand is, therefore, barred by limitation. With these submissions the order under challenge is prayed to be set aside and the appeal is prayed to be allowed.

4.4 The appellant has relied upon the following case laws:

i. Vita Pvt Ltd v Commissioner of Central Tax, Hyderabad-Be

ii. Nai Dunia Media Pvt. Ltd v. Commissioner of CGST and Central Excise, Indore⁶

iii. ICC Reality (India) Pvt. Ltd v. Commissioner of C. Ex, Pune-III⁷

iv. Kiran Gems Pvt. Ltd. v. Commissioner of Central Excise & T., Surat-I⁸

v. Anandram Developers Pvt Ltd v. Commissioner of S.T., Chennai⁹

vi. Federation of Hotels & Restaurants Association of India v. Union of India 10

5. While rebutting these submissions, learned authorised representative for the department with respect to each category of demand has submitted that supply of foods and beverages in the rooms of the hotel essentially a service. It is rather an indivisible service involving transfer of property in goods being served in the air-conditioned rooms. The activity has rightly been denied to be sale of goods and service tax demand has rightly been confirmed.

5.1 With respect to demand on sponsorship services, learned DR mentioned that the agreement with the other parties was not only for committing the minimum lifting of liquors of the company’s brands, but was also for providing exclusivity to sell their brands in appellant’s hotel premises. The branded table accessories of these liquor companies were assured by the appellant to be displayed at requisite places, in return of getting a fixed amount on quarterly basis. The said amount was definitely in exchange of providing the sponsorship service. The appellant’s contention that the amount so received by them was cash incentive was incorrect and has rightly been set aside. A fixed sum for amount at a regular interval of each quarter cannot be called as profit/trade margin. The demand has rightly been confirmed.

5.2 With respect to electricity charges from the appellant’s tenants, is alleged to be the supply of electricity from the appellant to its tenants while in course of provision of service of renting of immovable property, it is submitted that the activity is not merely sale of electricity but the service of supply thereof to which there is no exemption post negative list regime. The demand has rightly been confirmed.

5.3 Finally it is submitted that the possible outcome of non-payment/short payment by the appellant despite rendering taxable service has resulted into evasion of tax. The same is rightly held to be an intentional act of the appellant. The extended period of limitation has rightly been invoked. The order is, accordingly, prayed to be uheld and the appeal is prayed to be dismissed.

5.4 The department has relied upon the following cases:

i. Union of India and Others v. Kerala Bar Hotels Asociation and Others”

ii. M/s Ballal Auto Agency, Bruhath Bengaluru Hotels Associations (R) v. Union of India, The Assistant Commissioner (Audit) Central Excise, Mangalore”

iii) Gurukripa Yuvraj Veg & Non-veg. Restaurant v. Commissioner and Additional Director General, Jaipur¹³

6. Having heard both the parties and perusing the entire record, we observe that the impugned order/OIA dated 12.12.2017 has confirmed the service tax demand on various activities of the appellant rendered during the period 2010-11 to 2014-15 except room service and grand room service (01.07.2012 to 31.03.2013). Thus the period in dispute is pre as well as post negative list. Service tax was to be charged on the taxable services in accordance of section 66B of the Finance Act, 1994 till 30.06.2012. With effect from 01.07.2012 when the negative list regime got introduced the service tax is charged in accordance of section 66B of the Act. The classification of services as in section 65(105) and the sub-clauses thereof was relevant prior 01.07.2012 and the definition of service in section 65B(44) read with section 66D (negative list) of the Act was relevant for the period post 01.07.2012.

7. Service wise findings (01.07.2012 to 31.03.2013) are as follows:

i) Room services/grand room services: “Service” as per section 65B(44) of the Finance Act means:

“Sec. 65B(44) “service” 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. 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 65(105)(zzzzv) of the Act defines restaurant service as taxable. It reads as follows:

“Sec. 65(105)(zzzzv): “Taxable service” means any service provided or to be provided to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises.”

The bare perusal reveals that the act of serving food and beverages is taxable when its provided in a restaurant premises having facility of air-conditioning. Admittedly the service tax has been demanded for serving food in hotel rooms. Foremost the hotel room cannot be called as the restaurant. In addition it is appellant’s submission that even the foods which was served in the room was not from the restaurant but from the separate service premises of the hotel. The department has not provided any evidence to the contrary thereto. Except that Circular No. 139/8/2012-TRU dated 10.05.2011, s.no. 3 is relied upon which reads as follows:

The said clarification is silent about serving food in hotel rooms.

The bare perusal of this entry reveals that it is rather a clarification to the effect that when food is served in the room service tax cannot be charged, not even in case of short term accommodation in case the biil for food is raised separately. In the present case there is no evidence produced by the department to show that the value of food was included in the value of room service. The appellant on the other hand has placed reliance on the invoices where the food have been charged separately. We hold that the activity of the appellant is wrongly held to be the taxable service. We also draw support from the decision in the case of Hotel Atithi vs. Commissioner of CGST and Central Excise, Agra” wherein it was held that sale of goods/food in the present case has been excluded from the definition of ‘service’ under section 6513(44) of the Act even under post negative regime and also that the food served in the restaurant even by the hotel is different from food served in the hotel room. We hold that the service tax demand has been wrongly confirmed on this activity.

ii) Demand of service tax against sponsorship services: the demand has been confirmed holding that the activity of the appellant is appropriately classifiable as business auxiliary service which includes any service in relation to promotion or marketing or sale of goods produced or marketed by the client by giving exclusivity to the products of their clients, displaying logo or trade name, the appellants have promoted the sale of their clients, the remuneration received from the client is, therefore, held to be taxable activity. On the contrary, learned counsel for the appellant has submitted that the appellant was lifting a particular quantity of liquor of their brands as they could not lift it directly from the manufacturer, however subject to certain conditions. The appellant is otherwise engaged in selling of liquor. The use of branded accessories of the client was part of business activity and not kind of service rendered by the appellant. we have perused the said agreement. The very first clause of such agreement with Pernard Richard reads as follows:

“The contract will be for branding, promotion and listing exclusively of all our BII and BIO Brands. The Sayajl Hotels Ltd. will not have any kind of tie-up for branding with any other Liquor or Wine Company during this tenure for Quorum. As an exception it can continue with its existing tie ups with Beer and White Rum Companies as PRIPL does not operate in these categories. But if PRIPL decides to introduce its products in any category in which it is not currently operational, then it will have the first right to get the same Included in the tie-up on mutually decided terms.”

The bare perusal is sufficient to clarify that the agreement is not actually for purchase of liquor from the said company but for the promotion and branding of their products. Similarly in the annual contract with United Breweries clause 5 reads as follows:

“Sayaji Hotel Indore shall put branded table accessories namely Ashtrays, Napkin Holders, Coasters & Serving Trays in all their venues with mutual understanding as permitted by the Hotel policy and the venues ambience. All such material will be provided by UBL at their cost and Hotel Sayaji will ensure that they are properly displayed.”

This clause also clarified that the basic object of the contract was to display the brand of the United Breweries. For pre negative period as per section 65(104)99a sponsorship included naming an event after the sponsorship, displaying the sponsor’s company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for competition; but does not include any financial or other support in the form of donations or gifts given by the donors subject to the condition that the service provider is not under no obligation to provide anything in return to such donors. The aforesaid clause of both the contracts of the appellant with both of its clients are covered under the meaning.

For post negative list regime the activity amounts to be called as service under section 65B(44) of the Act and the same is nowhere mentioned in the list of section 66D of the Act. Though the appellant has acknowledged the same, however has mentioned that the main activity of the appellant is of sale and purchase of liquor on principle to principle basis but the clause as above falsifues the transactions to purely be a trading activity. The compulsion with the appellant to first promote and display the products as a condition of that only brand which is to be sold, is nothing but a promotional or branding activity. These observations are sufficient for us to hold that the service tax demanded has rightly been confirmed against the appellant.

iii. Service tax on the amount for electricity charges: it is an undisputed fact that the appellant has rented several office space/ shops to various other people after installing a sub-meter in each of the said premises. According to the reading in the sub-meters the appellant is collecting the electricity consumption charges from the said tenants for being deposited with the electricity department. It is clear that the appellant has merely collected these charges on actual as landlord from the tenants and was making payment thereof to the electricity supply agencies. The amount cannot be called as consideration for the taxable service, such amounts could be the part of taxable value only in terms of rule 5(1) of the Service Tax (Determination of Value) Rules. However the said provision was hled ultra vires by the Hon’ble Supreme Court in the case of Intercontinental Consultants and Technocrats Pvt Ltd vs. Union of India¹⁵. We hold that the service tax liability has wrongly been fastened with respect to the amount of electricity charges.

iv. Finally we observe that the show cause notice dated 31.08.2015 has proposed the demand for the period from 2010-11 to 2014-15. Most of the period is beyond the normal period of 18 months. There is nothing on record to prove any intentional act of suppression of relevant facts on part of the appellant. The show cause notice has in fact not invoked proviso to section 73(1) of the Act. Accordingly, the demand for the extended period is also liable to be set aside. We draw our support from the decision of Hon’ble Supreme Court in the case of Anand Nishikawas Co. Ltd. vs. CCE Meerut¹⁶ wherein it was held that suppression of facts can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty when facts were knoen to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled that mere failure to declare does not amount willful suppression. There must be some positive act from the side of the aseessee to find willful suppression.

8. In totality of the above discussion, the order under challenge is hereby set aside except to the extent for confirming demand against rendering sponsorship services but only for the normal period. Appeal, accordingly, stands allowed partly.

(Order pronounced in court on 06.10.2026)
Notes:

1. OIA

2. the appellant

3. the Act

4. OIO

5. 2025 29 Centax 195 (Tri. Hyd.)

6. 2023 2 Centax 329 (Tri. Delh.)

7. 2013 32 STR 427 (Tri. Mumbai)

8. 2019 25 GSTL 62 (Tri. Ahmd.)

9. 2017 (6) GSTL 75 (Tri. Chennai)

10. 2016 (44) S.T.R. 3 (Del.)

11. 20144 (11) TMI 393 Kerala High Court

12. 2025 (2) TMI 850 Karnataka High Court

13. Final Order No. 51093/2023 in Service Tax Appeal No. 51002 of 2018 dated 23.08.2023

14. 2022 (56) GSTL 301

15. 2018 (10) GSTL 401 Supreme Court