2018 (10) TMI 35 - AT - Service Tax

Classification of services - Club/Association Service or not - holiday resorts - case of the appellant is that there will be an agreement with its members who would be availing time share facilities at the appellant s resorts at various places and it is, according to the appellant, essentially in the nature of providing short term residential accommodation within the meaning of Section 65(105)(zzzzw) w.e.f. 01.05.2011. Applicability of Notification No. 04/2006-ST - Held that - There is no difference between a member being upfront and a member availing instalment facility and there is no finding from the lower authority that the benefits of membership accruing to either of the aforesaid members vary. We thus find that the interest on instalments is only a financial arrangement for the deferred payment which is only to set-off any financial loss on account of deferred payment and that this kind of interest is not a taxable entity under the tax net - the denial and the reason attributed for denying applicability of Notification No. 04/2006-ST is not sound and proper - The exclusion as provided under the said Notification is applicable irrespective of the category. This very Bench has considered a similar situation in the case of Karur Vysya Bank Ltd. Vs. Commissioner of Central Excise, Trichy 2015 (2) TMI 525 - CESTAT CHENNAI held that interest on instalment is not includible as it cannot partake the character of consideration for the services provided - demand withheld. Securitization income - Held that - An amount showed in the balance sheet could neither be an income nor a consideration nor a payment or the gross amount charged in terms of Section 67(a) and (c) and hence, it is nothing but a financial adjustment in the nature of book entry - Further, when a member cancels membership, there is nothing for the appellant to claim as receivable and hence, the same gets adjusted by this notional amount since there is nothing on record to suggest that the appellant received any amount towards cancellation fees. Hence, the securitization income is not liable under service tax. Rental Income - Held that - The adjudicating authority/Commissioner (Appeals) records that the assessee-appellant has not submitted any document with regard to its claim that the rentals were collected only from non-members - appellant directed to furnish all such details that are relevant before the lower authority for the lower authority to arrive at a proper finding after appreciating such documents furnished by the appellant - appeal allowed by way of remand. Exchange Services - Held that - The service of facilitation could be availed only by virtue of being a member and not if such person is an outsider. Hence, this activity tantamounts to an activity of service provided to a member under mutuality concept and hence, not taxable. Provision of service of telephone and fax - Held that - Though we hold that the revenue from telephone and fax could not be equated to any other amount , we are of the considered view that the appellant should prove with supporting documents to establish that it has not collected anything over and above the actuals charged by the operator for facilitating such telephone and fax services, before the lower authority - matter on remand. Penalties - Held that - The benefit of Section 80 of the Act could be extended for the reason that the appellant acted in a bona fide manner and there was reasonable cause for their failure to discharge service tax liability in the situations where it was otherwise required to - penalty set aside. Appeal allowed in part - part matter on remand.

Summary

Issues Involved:
1. Classification under Club/Association
2. Interest on instalments
3. Securitization income
4. Rental income
5. Exchange fees
6. Revenue from telephone and fax
7. Penalties under Section 76 and 78

Detailed Analysis:

Classification under Club/Association:
The appellant contested its classification under Club/Association as per Section 65(105)(zzze) read with Section 65(25)(aa) of the Finance Act, 1994, arguing that their services are in the nature of providing short-term residential accommodation, which should be classified under Section 65(105)(zzzzw) effective from 01.05.2011. They claimed that being a hotel excludes them from the definition of renting of immovable property, referencing a decision by the Hon'ble High Court of Kerala.

Interest on Instalments:
The appellant argued that interest charged on instalments should not be taxable as it is a financial arrangement for deferred payment, not a service. They cited multiple judgments, including Commissioner of Service Tax, Chennai Vs. M/s. Amalgamations Pvt. Ltd. and Karur Vysya Bank, to support their claim that interest is not a taxable entity under the Finance Act, 1994. The tribunal agreed, stating that interest on instalments does not partake the character of consideration for services provided and thus is not taxable.

Securitization Income:
The appellant contended that securitization income is a notional income recorded as per Accounting Standard-9 and does not arise from any independent transaction between the appellant and its bankers. The tribunal found that securitization income is merely a financial adjustment and not liable for service tax, as it is not an actual income or consideration received. The tribunal supported its decision with judgments from Reliance Infratel Ltd. and others.

Rental Income:
The appellant claimed that rental income is collected only from non-members, not from members. The tribunal noted that the lower authority did not have complete details and directed the appellant to furnish relevant documents to substantiate their claim. The issue was remanded to the adjudicating authority for further examination.

Exchange Fees:
The appellant argued that exchange fees are collected for facilitating members to avail services from RCI, which should not be taxable. The tribunal agreed, stating that this activity is under the mutuality concept and not taxable, referencing judgments from Ranchi Club Ltd. and Sports Club of Gujarat Ltd.

Revenue from Telephone and Fax:
The appellant asserted that charges for telephone and fax services are collected separately based on actual usage and should be classified under Telecommunication Services. The tribunal held that the appellant should prove with supporting documents that no mark-up was collected over the actual charges and remanded the issue to the lower authority for verification.

Penalties under Section 76 and 78:
The tribunal extended the benefit of Section 80, finding that the appellant acted in a bona fide manner with no intention to evade tax. The reliance on the balance sheet by Revenue indicated no suppression or intention to evade tax. Thus, the penalties were set aside.

Conclusion:
The appeals were partly allowed, with specific issues remanded to the lower authority for further examination. The tribunal found merit in the appellant's arguments on interest on instalments, securitization income, and exchange fees, setting aside the demands and penalties related to these issues.