2023 (12) TMI 1006 - AT - Service Tax

Recovery of Service Tax - collection of service charge from the customers besides the price of the food - no show charges (amount forfeited advance as was received for providing accommodation service) - extended period of limitation. Whether the service charges collected besides the price of the food while rendering the restaurant service, the appellant was liable to pay tax on the said amount? - HELD THAT - It is an admitted fact that the amount in question is received by the appellant while providing the restaurant service from their customers/recipients of the said service. In the light of section 67 as recorded above, it shall be the amount as part of consideration received for rendering the taxable service. Though the defence taken by the appellant is that they were not retaining this amount and were distributing the same among the hotel staff, hence, they were not liable to pay service tax of this amount - service tax in case of supply of food etc. in restaurant is being charged on abatement basis on the amount collected by the provider of restaurant service from the recipients thereof the TRU Circular No.334/3/2011 dated 28.02.2011 has also been referred, wherein it has been held that separation of certain portion of the bill as service charge will not represent the full value of all services rendered by the restaurants - there are no infirmity in those findings in the order under challenge when the demand of Rs.1,73,211/- on service charges has been confirmed by the Commissioner (Appeals). This issue is decided confirming appellant liability to pay service tax on service charges collected besides the price of food. Whether the amount of no show charges‟ i.e. the amount forfeited advance as was received for providing accommodation service, is the consideration for providing the declared service by the appellants? - HELD THAT - In the present case admittedly there is no separate fee or charges recovered by the appellant from the customers/ recipients of hotel accommodation service, for not being appearing to attend the said service. There was no express nor implied contract for non-appearance for availment of accommodation service between the parties. The consideration was paid by the recipient only for accommodation service on which the service tax liability was duly discharged. This issue about forfeiture of the amount received by a hotel from a customer on cancellation of the booking whether to be liable to pay service tax under section 66 E (e) has already been dealt with by this Tribunal in the case of Lemon Tree Hotel 2019 (7) TMI 767 - CESTAT NEW DELHI , South Eastern Coalfields Ltd. 2020 (12) TMI 912 - CESTAT NEW DELHI the Tribunal has held that the retention of amount on cancellation would not attract service tax under 66E (e) - the adjudicating authority below has wrongly held the no show charges‟ as a consideration for providing declared service. Whether demand is barred by limitation and the penalty need to be waived in the given facts and circumstances? - HELD THAT - The demand in question pertains to the period from July, 2012 to September, 2015 and the Show Cause Notice is of April 2016. Resultantly the major demand i.e. from July, 2012 to March, 2015 is the demand for the extended period. And that extended period should not have been invoked by the Department - Since the issue is observed to be an interpretational, imposition of penalty is also not warranted in the given circumstances. As a result of findings on three of the issues, except for the miniscule demand for the period w.e.f. April 2015 to September 2015 i.e. for the normal period, that too, on the amount of service charges collected, the entire demand is hereby set aside - Appeal stands, accordingly, partly allowed.

Summary

Issues Involved:
1. Liability to pay service tax on service charges collected in addition to the price of food.
2. Consideration of "no show charges" as a declared service.
3. Applicability of limitation period and imposition of penalties.

Summary:

Issue 1: Liability to Pay Service Tax on Service Charges
The appellants collected service charges from customers besides the price of food while rendering restaurant services. The Tribunal confirmed that this amount is part of the consideration received for rendering taxable services under Section 67 of the Finance Act. Despite the appellant's argument that the amount was distributed among staff, the adjudicating authorities, referencing Rule 2C of the Service Tax (Determination of Value) Rules, 2006, and TRU Circular No.334/3/2011, found that service tax is chargeable on the entire amount collected. Thus, the demand of Rs. 1,73,211/- on service charges was confirmed.

Issue 2: Consideration of "No Show Charges" as a Declared Service
The "no show charges" were alleged to be a consideration for rendering a declared service under Section 66E(e) of the Finance Act, which includes agreeing to tolerate an act or situation. The Tribunal held that the intention of the appellant and the customers was for the supply of accommodation services, not for tolerating a breach of contract. The forfeiture of the amount for non-appearance was to safeguard the appellant's commercial interest and not for tolerating an act. This issue was decided in favor of the appellant, referencing previous Tribunal decisions in Lemon Tree Hotel and South Eastern Coalfields Ltd., which held that such retention does not attract service tax under Section 66E(e).

Issue 3: Limitation Period and Imposition of Penalties
The demand pertained to the period from July 2012 to September 2015, with the Show Cause Notice issued in April 2016. The Tribunal found that the extended period of limitation should not have been invoked due to the appellant's bona fide belief and lack of malafide intent to evade tax. The figures for the demand were collected from the appellant's own records, indicating no suppression of facts. The Tribunal, citing the Chemphar Drugs Liniments case, decided that imposition of penalties was not warranted due to the interpretational nature of the issue. Thus, the extended period demand and penalties were set aside, except for a minor demand for the normal period from April 2015 to September 2015 on service charges.

Conclusion:
The appeal was partly allowed, setting aside the major demand and penalties, except for a minor demand for the normal period on service charges collected. The Tribunal pronounced the judgment in the open Court on 21.12.2023.