2019 (7) TMI 767 - AT - Service Tax

Taxability - activity of agreeing to the obligation to refrain from an act, or to tolerate an act - forfeiture of advance received from a customer for booking of a room in a hotel, on the cancellation of the booking, by way of cancellation charges - Section 66 E(e) of Finance Act, 1994 - HELD THAT - 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 - the retention amount (on cancellation made) by the appellant does not undergo a change after receipt - no service tax is attracted under the provisions of Section 66 E(e) of the Finance Act. Taxability - service tax on food served in the room - HELD THAT - The service tax can be levied if there is an element of Service involved which would typically be the case where the food is served in restaurant. The element of service is not involved and it amounts to sale and does not attract service tax - Admittedly, it is the case of the Department that the appellant has provided food in the rooms, which is not included in the room service - amount not taxable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Taxability of advance received for booking of hotel rooms and cancellation charges under Section 66 E(e) of Finance Act, 1994.
2. Taxability of service for delivery of food in hotel rooms.

Analysis:

Issue 1: Taxability of advance received and cancellation charges:
The appellant, a hotel operator, received advances for booking rooms and retained amounts as cancellation charges. The Revenue argued that cancellation charges qualified as taxable receipts under Section 66 E(e) of the Finance Act, contending that the appellant agreed to refrain from an act or tolerated a situation. However, the Tribunal disagreed, stating that customers paid for accommodation services, not for refraining from an act. The amount retained was for keeping services available, not for tolerating an act. Therefore, the Tribunal held that no service tax was attracted under Section 66 E(e), ruling in favor of the appellant.

Issue 2: Taxability of service for food delivery in hotel rooms:
Regarding the service tax on food served in hotel rooms, the Tribunal noted that the CBEC Circular exempted service tax on food served in rooms if billed separately and not part of the declared tariff. The Circular clarified that service tax could be levied if there was an element of service involved, typical in restaurant settings. However, since the food was served in rooms without the typical restaurant service elements, it constituted a sale and did not attract service tax. As the appellant provided food in rooms, not as part of room service, the Tribunal held that the appellant was not liable for service tax on food delivery in hotel rooms. Consequently, the appeal was allowed, and penalties imposed were set aside, granting consequential benefits to the appellant.