Introduction: – The Mandap Keeper Service was brought into the service tax scope from 1-7-1997.The service of Mandap keeper has also raised many issues. The main issue arises when the food is also provided along with the services of Mandap Keeper. One of the options is to take abatement and pay the service tax. But this leads to forgoing of Cenvat credit available to the assessee. The other option is to pay the service tax and VAT on whole amount and take the credit on input services. But it increases the cost of the service provider. Our client who is running a Hotel and providing Mandap keeper facility has approached us to give an opinion so that the credit is also not lost as well as the service tax liability also does not increases. We are seeing this whole issue from this angle via this article:-
Definition of Mandap Keeper:-
Section 65 (105) (m) of Finance Act, 1994 provides that “taxable service means any service provided or to be provided 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.”
Further, Section 65(67) of the Finance Act, 1994 provides for the definition of “Mandap keeper”. It provides as follows: –
“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;”
This makes it ample clear that mandap keeper services are those services which are provided by a mandap keeper in relation to the use of mandap in any manner. This construes that such service will include any facilities provided to the service receiver, provided such facilities have relation to the use of the mandap by such person. For example where a person hires a mandap for performing a marriage, and mandap keeper not only allows temporary occupation of the mandap, but also undertakes to provide services connected with decorations, additional lighting, catering services etc.
If the catering services are also provided by the mandap keeper and composite bill is raised then the abatement is allowed @ 40% by virtue of exemption Notification no. 1/2006-ST dated 01.03.2006. The relevant part of notification is reproduced below:-
EXEMPTIONS TO MANDAP KEEPERS
NOTIFICATION NO. 1/2006- SERVICE TAX, DATED 1.03.2006
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of the description specified in column (3) of the Table below and specified in the relevant sub-clauses of clause (105) of section 65 of the Finance Act, specified in the corresponding entry in column (2) of the said Table, from so much of the service tax leviable thereon under section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of the Table aforesaid:
|S. No.||Sub-Clause of clause (105) of section 65||Description of taxable service||Conditions||Percentage|
|1.||(m)||(1) The use of mandap, including the facilities provided to the client in relation to such use and also for the catering charges(2) **||This exemption shall apply only in such cases where the mandap keeper also provides catering services, that is supply of food and the invoice, bill or challan issued indicates that it is inclusive of the charges for catering services.**||60**|
|(2) to (10)||**||**||**|
Provided that this notification shall not apply in cases where,-
the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004: or
the service provider has availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated the 20th June, 2003 [ G.S.R. 503 (E), dated the 20th June, 2003].
Explanation- For the purposes of this notification, the expression “food” means a substantial and satisfying meal and the expression “catering service” shall be construed accordingly.
Thus, it is clear that when the benefit of abatement is taken only when the charges for food are included in the bill and service tax is paid on complete amount. However, the cenvat credit on input, input services and capital goods is not available when the abatement is availed.
As we have read about the definition of Mandap keeper and abatement, we should move towards the options available to the Mandap keeper.
In this regard where the use of mandap, includes the facilities provided to any person in relation to such use including the catering charges then, the service provider can validly avail the abatement facility under Exemption Notification no. 1/2006-ST, dated 01-03-2006. Under this notification the assessee can avail abatement @ 40% and pay service tax on balance 60% amount. But he will not be allowed to avail the CENVAT facility. Under this situation he will loose the CENVAT benefit and he will have to pay Service tax on the abated amount. This will lead to an indirect cost burden to the service provider. The lesser tax charged will benefit the client but the service provider will loose the benefit of credit on input services.
However, if the service provider wants to avoid the said indirect cost burden of not availing CENVAT then he can go for the option of not availing abatement. He can pay the tax on complete amount and avail the Cenvat facility. In this option, the higher tax will be paid by the client and the credit will be available to the service provider. As such, it is most beneficial to service provider. In this case, the service tax and VAT is payable on complete amount which is not acceptable to the client. Moreover, we have come across one situation wherein after payment of service tax and VAT on complete amount the VAT authorities has asked for the payment of additional tax on service tax.
The third alternative available is to bifurcate the amount of services provided and sale of food. Then the service provider will pay the service tax on the amount of services provided and VAT on the material sold amount. This is permissible as per Notification no. 12/2003- ST dated June 20, 2003. The relevant notification is produced as under:-
Notification No. 12/2003-Service Tax
In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.
2. This notification shall come into force on the 1st day of July, 2003.
Thus, the service provider of Mandap keeper can separate the amount of materials sold and service provided. But it is again not very easy option. When you give Mandap along with catering then the charges are per person eg. Say Rs. 350 per person. But our client has told us that if you separate both of them then it is not acceptable to both VAT and Service Tax departments. For example, if we say that the charges for food are Rs. 100 per person and Mandap is Rs. 250 per person. But the VAT department will say that main thing is food and charges are so less. If the things are in opposite direction then the Service Tax department has objection saying that food is available on road side shop also, the person takes your Hotel for mandap due to star category enjoyed by the Hotel. We have told him that if you billed separately for VAT and service tax then the Service tax department has to accept it as you are paying VAT on the same. There are number of case laws available on this issue. Some of them are enumerated below:-
Ø Sayaji Hotels Ltd v/s Commissioner of Central Excise, Indore [2009 (14) STR 390 (Tri-Del)]. In this case it was held as under:
Stay/Dispensation of pre-deposit – Mandap Keeper service – Exemption under Notification Nos. 12/2003-S.T. and 21/1997-S.T., option of – Demand raised denying exemption under Notification No. 12/2003-S.T. for food and drinks supplied as Notification No. 21/1997-S.T. specifically for Mandap Keepers available – Latter notification issued when services of Mandap Keepers taxable and outdoor catering was not in tax net – Assessee billing separately for food and drink, hence prima facie may not satisfy condition of Notification No. 21/1997-S.T. – Conditions for availing Notification No. 12/2003-S.T. satisfied – Prima facie case for waiver of dues – Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [para 5]
Ø LSG Sky Chefs (India) Pvt Ltd v/s Commissioner of S. T., Bangalore [2009 (15) STR 545 (Tri-Bang.)]. In this case it was held that: –
Valuation – Abatement – Outdoor Catering service – Sales tax paid on food items supplied to airlines – Service tax paid on charges for handling, loading and transportation – Cost of food excluded from taxable value – Sales tax leviable on supply of food in catering contracts as per Constitution – Service tax not leviable once sales tax leviable on supply of food – Applicability of Notification No. 12/2003-S.T. not examined correctly in impugned order – Cost of food items available on records and finding on not being entitled to exemption, not in order – Impugned order set aside – Article 366 (29A) of Constitution of India – Section 67 of Finance Act, 1994. [paras 3, 6]
Sales tax – Payment of – Effect on Service tax – Contract for service containing supply of goods also and sales tax paid on goods – Service tax not leviable on such amount – Sales tax and Service tax mutually exclusive – Article 366 (29A) of Constitution of India – Section 66 of Finance Act, 1994. [para 6]
Ø In the case of Grand Ashok v/s Commr. of Service Tax, Bangalore [2009 (15) STR 344 (Tri-Bang)], it was held as under: –
Valuation (Service tax) – Sale of goods – Outdoor Caterer service – In-flight catering – Service tax paid in handling and transportation charges alone and not on gross amount – VAT paid on charges collected for food and beverages – Service tax leviable only on service component if contract contains components of service and supply of goods – Service tax not demandable simultaneously where goods involved and sales tax paid – Cost of food separately identifiable and exemption under Notification No. 12/2003-S.T. admissible – Bona fide belief on non-liability and extended period not invocable and penalties not imposable – Sections 67, 73 and 76 of Finance Act, 1994. [paras 6, 6.1, 6.2]
Ø In Sky Gourmet Pvt Ltd v/s Commr. of Service Tax, Bangalore [2009 (14) STR 777 (Tri-Bang)] it was held that: –
Valuation – Abatements – Includibility of goods sold in taxable value – In-flight catering under Outdoor Caterer service provided – Supply of goods being food or any article for human consumption deemed as sale as per Constitution – Article 366(29A) of Constitution of India providing legal fiction for catering contracts where contracts can be divisible into service and sale of goods portions – VAT or sales tax already discharged by appellants on sale of food and beverages – Service tax not payable on such goods sold – Documentary evidence in the form of invoice for sale of goods available – Exemption under Notification No. 12/2003-S.T. admissible – Section 67 of Finance Act, 1994. [paras 4, 5]
Valuation – Outdoor Caterer service – Deemed sale – Supply of goods deemed as sale of goods under Article 366(29A) of Constitution of India – Food supplied under Outdoor Caterer service to be treated as sale of goods – Service tax not payable on such value of such goods once sales tax or VAT paid – Section 67 of Finance Act, 1994. [para 4]
Outdoor Caterer service – Exemption – Abatement to cost of food and beverages supplied for in-flight catering – Revenue contending that abatement under Notification Nos. 20/2004-S.T. and 1/2006-S.T. admissible – Assessee claiming exemption under Notification No. 12/2003-S.T. as invoices evidencing sale of goods available – Appellant having option to choose more beneficial notification when two options available – Benefit of Notification No. 12/2003-S.T. admissible – Sections 67 and 93 of Finance Act, 1994. [para 5]
But the same is not acceptable as it leads to litigation and no litigation was required.
This has directed to think more and the conclusion was that the person who does not provide the catering along with the Hall, charge normally lump sum amount on daily basis say Rs. 10,000 per day. Whereas catering charges are always per person. If one fix up certain lump sum amount for the Hall charges and catering charges per plate then it will be acceptable to the department. Rates should be fixed on pure commercial consideration. Service tax should be paid on such lump sum charges and VAT on such catering charges. Then there will not be any dispute. Moreover, the service provider will be able to get the Cenvat credit. The Vat and service tax will be charged from the service provider and he will not have any problem in paying the same as these are charged separately on both the amounts.
Comparison of options:-
We can compare the four options. But option 3 and option 4 are alike and only thing is that the style of billing has been changed. Thus, option 3 and option 4 are identical. Conclusively, we can compare these options in tabular form as under: –
|Particulars||Option 1||Option 2||Option 3 & 4|
|CENVAT benefit||Not allowed||Allowed||Allowed|
|Service Tax Charge||On abated amount||On Total amount||On Service Charges only.|
|VAT Charge||On Total amount||On Total amount including Service Tax thereon.||On sale of Food Only.|
Thus from above, it can be seen that the option 3 & 4 are most beneficial. The service provider is happy as he is getting the Cenvat credit on the same. The service provider is happy as he has to pay the service tax and VAT on separate amounts and overall cost is low. From foregoing, it is clear that the option 3 or 4 is most beneficial.
This is our viewpoint. There are other scholars who also want to comment on the same. We are waiting for the same……………..
Above Article is written by: CA Pradeep Jain and Siddharth Rutiya