Letting out of halls/ rooms by hotels and restaurants for organizing function is covered under ‘mandap keeper service’

Saubhagya Tilak Hotels Pvt Ltd Vs Commissioner of Central Excise Raipur (C.G.) (CESTAT Delhi)

CESTAT Delhi held that service tax is leviable on services provided by hotels and restaurant in relation to letting out of halls or rooms for organizing any official, social or business function under ‘mandap keeper’ service.

Facts- The appellant claims that it is engaged in the business of running restaurants and supply of bakery and confectionery items. The Department, however received information that the appellant was providing services falling under “mandap keeper”. The officers visited the premises of the appellant and a panchnama dated December 24, 2011 was drawn in the presence of Satish Kumar Pachori, Manager and two independent witnesses. The statement of Satish Kumar Pachori was also recorded on December 22, 2011. He stated that appellant provides services in relation to birthday parties, kitty parties and marriage parties and has the ability to arrange parties for a group comprising between 700 to 800 people and for this purpose an advance of Rs.10000/- to Rs.25000/- is taken. He also stated that the frequency of such bookings is 8 to 10 per month.

A show cause notice was, thereafter, issued calling upon the appellant to show cause as to why service tax on “mandap keeper” service provided by the appellant during 2008-2009 to 2011­-2012 should not be recovered with interest and penalty.

Commissioner confirmed the demand with interest and penalty.

Conclusion- A Circular dated 23.08.2007 issued by the Central Board of Excise and Customs clarifies that halls or rooms let out by hotels/restaurant for a consideration for organizing any official, social or business function would be covered under the definition of ‘mandap‟ and such hotels and restaurant would be covered within the scope of ‘mandap keeper’. Accordingly, service tax would be leviable on services provided by hotels and restaurant in relation to letting out of halls or rooms for organizing any official, social or business function.

FULL TEXT OF THE CESTAT DELHI ORDER

The order dated January 20, 2015 passed by the Commissioner confirming the demand of service tax under “mandap keeper” service, as defined under section 65(67) of the Finance Act, 1944¹ and made taxable under section 65(105) (m) of the Finance Act, with penalty and interest has been assailed in this appeal.

2. The appellant claims that it is engaged in the business of running restaurants and supply of bakery and confectionery items. The Department, however received information that the appellant was providing services falling under “mandap keeper” and therefore, required the appellant to furnish details of the services rendered and the amount received during the period from 2006-2007 to 2007­-2011. The appellant did not respond to the letter and therefore, the officers visited the premises of the appellant and a panchnama dated December 24, 2011 was drawn in the presence of Satish Kumar Pachori, Manager and two independent witnesses. The statement of Satish Kumar Pachori was also recorded on December 22, 2011. He stated that appellant provides services in relation to birthday parties, kitty parties and marriage parties and has the ability to arrange parties for a group comprising between 700 to 800 people and for this purpose an advance of Rs.10000/- to Rs.25000/- is taken. He also stated that the frequency of such bookings is 8 to 10 per month.

3. A show cause notice dated April 16, 2013 was, thereafter, issued to the appellant and the relevant portions of the show cause notice are reproduced below:

“3. Upon scrutiny of the records viz. daily receipt and expenditure sheet, payment vouchers, etc., it is observed that the Noticee have commenced their business operation during the financial year 2008-2009 onward and they have received huge amount from various clients in ^„Cash‟ as well as by ^„Cheque‟. The details of the amount realised by them from their clients during the period from 2008-2009 to 2010-2011 (Annexure-J1 to J4) are as under:-

xxx              xxx              xxx

4.3 From the above Statements of Shri. Satish Kumar Pachouri, Manager(Operation) and Shri. Ashwin Sethi, Director of the Noticee, it is clear that the Noticee is engaged in restaurant business and bakery business and is offering packages for organising birthday party, kitty party and marriage functions. In addition to that, they are letting out their halls, rooms, etc., of their restaurants for social, official or business functions and are charging huge amount from their clients for allowing temporary occupation of halls, rooms, gardens, etc., for organising official, social or business functions. The nature of the activities carried out by the Noticee are covered within the scope of “mandap” as defined under Section 65(66) of the Finance Act, 1994 and therefore, these activities are covered within the scope of “mandap keeper’s services” as defined under Section 65(105)(m) of the said, Act.

xxx               xxx               xxx

7.1 On comparison of the data provided by the Commercial Tax Department, Raipur with that of the data entered by the Noticee in their Daily Receipt and Expenditure Sheets, it is observed that, the Notice has declared the gross sale value at Rs.9,60,633/- and Rs.18,85,907/- in their Commercial Tax Return for the year 2008-2009 and 2010-11 respectively, whereas, the corresponding gross amount received from various clients as reflected in their Sales details during those years were Rs.23,54,361/- and Rs.3,64,00,007/-respectively. From above, it is clear that the value of cash sales amounting to Rs.2,35,17,952/-mentioned by the Notice in their Daily Receipt and Expenditure Sheets pertains to their income received from their Restaurant business and Bakery business. Apart from the above income, the Noticee has shown “Other Income” amounting to Rs.8,32,03,871/- in their Daily Receipt and Expenditure Sheets. Shri. Ashwin Sethi, Director or Shri. Satish Kumar Pachaori, Manager, did not furnish any details or documents as to on what account, such “other income” was received by them.

Their activity was limited to Restaurant business and Bakery business and letting out of halls, rooms, etc., of the Restaurants as stated by Shri Satish Kumar Pachaori, Manager and Shri. Ashwin Sethi, Director in their Statement dated: 24-12-2011 and 03-04-2012 respectively. Since, they have already recorded their income from the Restaurant business and Bakery business and have declared the same to the Commercial Tax Department, the remaining income amounting to Rs.8,32,03,871/- was on account of letting out of halls, rooms, etc., for consideration for organising social, official or business functions. Thus, it is evident that such income pertains to the amount collected/received from their clients on account of letting out the halls, rooms, etc., for a consideration for organising social, official or business functions during the years 2008-2009, 2009-2010, 2010-2011 and 2011-2012 in relation to “Mandap keepers Services” rendered by them.

7.3 Scrutiny of all the documents revealed that the Noticee has received Rs.8,32,03,871/- from their clients, for the taxable services viz. “Mandap Keeper’s Service” provided by them during the year 2008-2009 to 2011-2012 which escaped from assessment of Service Tax and the amount of service tax payable by the Noticee on such taxable service is Rs. 91,04,431/-as worked out below-

(emphasis supplied)

4. The show cause notice, therefore, called upon the appellant to show cause as to why service tax of Rs.91,04,431/- on “mandap keeper” service provided by the appellant during 2008-2009 to 2011­2012 should not be recovered with interest and penalty.

5. The following documents were relied upon in the show cause notice:

(i) Letter dated 09.09.2011 of the Superintendent, Range-Service Tax, Civil Lines, Raipur (Annexure-A);

(ii) Letter dated 01.11.2011 of the Assistant Commissioner, Division-Service Tax, Civil Lines, Raipur (Annexure-B);

(iii) Summon dated: 07.12.2011 issued by the Superintendent, Range-Service Tax, Civil Lines, Raipur (Annexure-C);

(iv) Panchnama dated 24.12.2011 (Annexure-D);

(v) Statement dated 24.12.2011 of Shri Satish Kumar Pachouri, Manager Operation under Section 14 of the Central Excise Act, 1944 (Annexure-E);

(vi) Statement dated 03.04.2012 of Shri Ashwin Sethi, Director under Section 14 of the Central Excise Act, 1944 (Annexure-F);

(vii) Letter dated 29.03.2012 of the Superintendent, Range-Service Tax, Civil Lines, Raipur (Annexure-G);

(viii) Letter dated 18.04.2012 of the Commercial Tax Officer, Circle-7, Raipur (Annexure-H);

(ix) Daily receipt and expenditure sheet for the year 2008-­09 to 2011-12 (Annexure-J1 to J4);

(All the above mentioned documents available with the Noticee)

6. The appellant filed a reply to the show cause notice and stated that it did not book any space for organizing parties. In fact, the appellant only booked tables for the clients/customers for providing restaurant service, irrespective of whether the clients/customers booked the tables for birthday or kitty party. The appellant also stated that it had not let out any room to guests. There were only two to three rooms inside the premises which were used by the staff and these rooms may have been given to some guests for the purpose of keeping specific foodstuff which the customers may be bringing with them to serve at the time of dinner.

7. The Commissioner, by order dated January 20, 2015, confirmed the demand with interest and penalty. The relevant portion of the order passed by the Commissioner is reproduced below:

“39.2 xxxxx The Noticee’s defence is mainly based upon the plank that they are operating a Hotel/Restaurant and serving food charged on plate basis and this the service defined as mandap keeper under the Finance Act’1994 not being involved, they are not liable to service tax under the category of mandap keeper’, Therefore, recourse to the statutory provisions as also the facts emerging from investigations undertaken against the Noticee by the Departmental Officers is called for.

xxx              xxx              xxx

39.4 Thus, in terms of the statutory definitions, the term mandap is not qualified by any specification as regards its premises and applies to any immovable property when allowed on temporary occupation for consideration for organising any official, social or business function.

Therefore, Notice’s defence plea that no marriage hall, mandap, banquet hall/conference hall is made in their premises is not relevant.

xxx              xxx              xxx

40. Evidence collected:

(a) Statement of Shri Satish Kumar Pachouri, Manager(Operations) of the Noticee recorded under Section 14 of the Central Excise Act’1944 (made applicable to Service Tax matters) on 24-12-2011 inter-alia, in answer to a specific question as to from when mandap keeper service was being provided replied that “since his employment since the past 3 years the mandap keeper service was being rendered.” He also on interrogation stated that loose papers resumed under panchnama by the officers during visit to the Noticee’s premises and shown to him were” receipts towards booking of Mandap.” On interrogation he also stated that party for” 700 to 800 persons could be arranged in the precincts.

(b) Statement of Shri Ashwin Sethi, Director of the Notice recorded under Section 14 of the Central Excise’ Act 1944(made applicable to Service Tax matters) on 03-4-2012, inter-alia in answer to question No.8 about receipt of payment of Rs:20,000/-recorded in their records resumed by the Departmental Officers on 24-12-2011 under panchnama as for ‘letting out 10 rooms per day expressed inability to explain the same. Similarly in answer to question No.9 asking him to explain payments recorded as received towards ‘Barat Welcome’, Reception”, CSEB temporary connection’ etc. stated that these were arranged by him by engaging outside agencies. Again in answer to question No.10 asking him to explain recorded payments totaling to Rs.4,77,500/-towards B.K.B. Tent, Generator Light Decoration, Flower etc., he stated that these were collected by him from parties and paid to outside agencies.

(c) Records resumed from the Notice by the investigating officers under panchnama dated 24-12­2011 and shown in Annexure A contains the following description;

(i) Bills relating to mandap keeper service pages 1-439

(ii) Bills relating to mandap keeper service pages 1-157

(iii) Bills relating to mandap keeper service pages 1-245

Thus the aforesaid evidence clearly point to the fact that the Notice had been engaged in rendering service under the category of mandap keeper.

40.1 Therefore, in the backdrop of the aforesaid facts and recorded statements, Notice’s records resumed under panchnama, now while replying to the Show Cause Notice, the Notice’s negation regarding rendition of mandap keeper service is not tenable and legally also not acceptable.

xxx              xxx              xxx

40.2.3 xxxxxxxx The plea of the Notice in their defence that whatever documents are made basis for allegation by the Deptt. is actually not relied upon by the Deptt., and record No.01 to 03 and 08 to 12 alleged to be related to mandap keeping services have been returned to the Notice is unfounded in as much as Annexure A to the panchnama dated 24-12-2011 drawn in the proceedings containing description of documents seized/resumed by the Dept., and relied upon in the Show Cause Notice at SI. No. iv of list of documents relied upon) describes the documents at SI. No.01 to 03 as Bill relating to mandap keeper services and documents at SI. No.08 to 12 as Bank statements and payment vouchers. Therefore all these documents having duly been relied upon in the Show Cause Notice, the Notice’s plea is baseless.”

(emphasis supplied)

8. Shri Bipin Garg, learned counsel for the appellant assisted by Ms. J. Kainaat, made the following submissions:

(i) The Commissioner relied upon bills relating to “mandap keeper” service contained in Annexure-A to the Panchnama dated December 24, 2011, but these bills were not relied upon document in the show cause notice and, therefore, could not have been considered;

(ii) The demand has been calculated on the basis of daily receipt and expenditure sheet for the disputed period even though the appellant had explained that all the entries did not relate to appellant company as some of the entry related to family members;

(iii) The statement of Satish Kumar Pachori and Ashwini Seth have been misread; and

(iv) The extended period of limitation could not have been invoked in the facts and circumstances of the case nor penalty could have been invoked.

9. Shri Prashant Kumar Sinha, learned authorized representative appearing for the Department, however, supported the impugned order and submitted that the demand has correctly been confirmed under “mandap keeper” service.

10. The submissions advanced by learned counsel for the appellant and the learned authorized representative appearing for the Department have been considered.

11. In order to appreciate the contention, it would be appropriate to first refer to the definition of “mandap” and “mandap keeper” service.

12. Section 65 (66) of the Finance Act defines ‘mandap‟ as follows:

“Section 65 (66): “mandap” means any immovable property as defined in section 3 of the Transfer of Property Act, 1882 (4 of 1882) and includes any furniture, fixtures, light fittings and floor covering therein let out for a consideration for organising any official, social or business function:

Explanation.- For the purposes of this clause, “social function” includes marriage;”

13. Section 65 (67) of the Finance Act defines the ‘mandap keeper‟ as follows:

“Section 65 (67): “mandap keeper” means a person who allows temporary occupation of a mandap for a consideration for organising any official, social or business function;

Explanation.- For the purposes of this clause, “social function” includes marriage;”

14. Section 65 (105) (m) of the Finance Act makes “mandap keeper” service taxable and it is as follows:

“Section 65 (105) (m): “taxable service” means any service provided or to be provided –

(m): to any person, by a mandap keeper in relation to the use of mandap in any manner including the facilities provided or to be provided to such person in relation to such use and also the services, if any, provided or to be provided as a caterer.”

15. A ‘mandap keeper’ is, therefore, a person who allows temporary occupation of a mandap for a consideration for organizing any official, social or business function. ‘Mandap‟ means any immovable property and includes any furniture, fixtures, light fittings and floor covering let out for a consideration for organizing any official, social or business function. Any service is provided or to be provided to any person by a mandap keeper in relation to the use of mandap in any manner would be taxable under section 65(105)(m) of the Finance Act.

16. A Circular dated 23.08.2007 issued by the Central Board of Excise and Customs clarifies that halls or rooms let out by hotels/restaurant for a consideration for organizing any official, social or business function would be covered under the definition of ‘mandap‟ and such hotels and restaurant would be covered within the scope of ‘mandap keeper‟. Accordingly, service tax would be leviable on services provided by hotels and restaurant in relation to letting out of halls or rooms for organizing any official, social or business function.

17. The details of the amount realised by the appellant during the period from 2008 to 2011-12 have been indicated in the chart contained in paragraph 3 of this order. The manager (operation) in the statement recorded on 24.12.2011 stated that the appellant provides services in relation to birthday party, kitty party and marriage party and that the appellant can arrange parties for a group comprising of 700 to 800 people and advance of Rs.10000/- to Rs.25000/- is taken.

18. The commercial tax officer, in his letter dated 18.04.2012, provided details of the commercial tax paid by the appellant during 2008-09 to 2010-11 and it is as follows:

19. It would be clear from the data entered by the appellant in the daily receipt and expenditure sheets for the years 2008-09 to 2010­11 and the corresponding gross amount received as reflected in the sales details that the value of cash sales amounting to Rs. 2,35,17,952/- pertains to income received from restaurant business and bakery business. The appellant has also shown ^„other income‟ amounting to Rs. 8,32,03,871/- in the daily receipt and expenditure sheets.

20. The defence taken by the appellant that it was operating hotels/ restaurant and serving food on per plate basis was not accepted by the Commissioner in view of the categorical statement of the manager (operations) and the director of the appellant, as also the records resumed by the investigating officers under the panchnama dated 24.12.2011 containing bills relating to mandap keeper service. The contention of the appellant that the documents which formed the basis of the order passed by the Commissioner were not relied upon by the department cannot also be accepted for the reason that Annexure A to the panchnama clearly contains the description of the said documents. The finding recorded by the Commissioner in this regard, therefore, does not suffer for any infirmity. It was for the appellant to explain the details of the entries made in the daily receipt and expenditure sheet and a general and casual statement made by the appellant that some of the entries relating to family members were also included without providing specific details could not have come to the aid of the appellant.

21. It is clearly a case where the appellant had suppressed material facts on the department in order to evade payment of service tax and, therefore, the extended period of limitation was correctly invoked under the proviso to section 73(1) of the Finance Act. The imposition of the penalty and interest by the Commissioner in the impugned order also does not suffer from any illegality.

22. The appeal, for all the reasons stated above, therefore, deserves to be dismissed and is, accordingly, dismissed.

(Order pronounced on 26.04.2023)

Notes:-

1. the Finance Act