LEVY OF SERVICE TAX AT EXECUTIVE LOUNGES AT RAILWAY STATIONS

[Dr. Sanjiv Agarwal]

When you travel next by train, you will be pleased to see as a surprise, 'Executive Lounges' at railway stations, just like the ones at the airports which tempt you walk in and experience the whole new world of railway hospitality. But of course, at a price. We don't have free lunches. Such Executive Lounges are being put up at various railway stations across the country, to start with, from bigger ones. These are being managed and / or operated by Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) or licensed by it.

Such lounge shall have facilities such as comfortable seating, meeting room, phones, wi-fi, F&B outlet, books, magazines, toilets with wash and change facility etc. There is an entry fee to the Executive Lounge which is Rs. 300 per person for a three hour usage and Rs. 125 per hour thereafter. Where such 'Lounges' are given on licence basis, IRCTC retains a fixed percentage towards licence fee form the gross billing, besides an annual concession fee, security deposit etc.

The entry fee inclusive of all taxes for three hour usage of lounge will entitle the passengers for the following facilities :

• Unlimited buffet and hot & cold beverages (on self service basis)
• Wi-fi facility on the users’ laptop etc.
• Reading facility for displayed newspapers & magazines
• Shoe shiner
• TV viewing
• Luggage rack & locker
• Public conveniences such as toilets & urinals

Besides the above, wash and change facility will be a paid service @ Rs 175 per person which will include the cleaning material, toiletries, laundered bath / hand towels, tissue paper, liquid soap with dispensers etc provided by the Lounge.

Going by the scope of 'service', the activities of providing facilities to users of Executive Lounge at railway station is certainly a 'service' in terms of section 65B(44) as it satisfies the following tests –

• It is an activity
• such an activity is for a consideration
• activity is provided by one person to another person(s).

Such activities are carried out for a consideration and appear to be satisfying the scope of definition of 'service' as per section 65B (44) of the Finance Act, 1994.

Section 66B states that service tax shall be charged at the rate of 12 % on value of all taxable services i.e., other than those specified in the negative list or exempted services, which are provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. The services of providing facilities to passengers via Executive Lounge at Railway Station shall be subject to charge of service tax as the following conditions are satisfied–

• services are provided in taxable territory
• services are provided by one person to another person
• services are not in the negative list

However, the taxability would depend upon the criteria specified in exemption Notification No. 25/2012-ST dated 20.06.2012.

In order to arrive at correct and appropriate reference to a service, Finance Act, 2012 has inserted a new provision in section 66F w.e.f. 1-7-2012 to provide for principles of interpretation of specified descriptions of services or bundled services.

Explanation to section 66F defines ‘bundled service’ to mean a bundle of provision of various services where is an element of provision of one service is combined with an element or elements of provision of any other service or services. Accordingly, in case of bundled services, ‘if various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’.

Illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are –

-       There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.

-       The elements are normally advertised as a package.

-       The different elements are not available separately.

-       The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected.

Lounge facility, thus, satisfies all the above indicators. Since a host of services viz, unlimited buffet comprising of food and beverages, wi-fi facility, reading facilities, viewing of television, lockers, toilets etc are provided for a composite consideration and any of such services are not available on stand-alone basis nor any rate concession is offered if some user uses / consumes only part of the services, As such, it appears to be a case falling under rule 3, i.e., naturally bundled services in ordinary course of the business and have to be treated accordingly.

According to Entry No. 38 of the mega exemption Notification No, 25/2012-ST, services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets are exempt from Service Tax.

The Lounge charges Rs. 300 for three hours which, inter alia,  includes services for supply of food and beverages, use of toilets, urinals etc. along with various other services. Though it appears to be a case of bundled services in terms of Section 66F of the Finance Act, 1994, even if we consider these facilities as paid and apportion some value to these specified services, it shall be covered under the exemption since it is provided with the objective of providing convenience to general public and hence exempt under Entry No. 38 of mega exemption notification.

Wash and change facilities are also provided by the Lounge which is a paid service @ 175 per person which includes provision of cleaning material, toiletries including laundered bath/hand towels(white color only), tissue paper, liquid soap with dispensers etc. According to the above discussion and as per the Entry No. 38 of Notification No. 25 / 2012-ST, the facility of bathroom / washroom whether paid or not, shall also be exempt from levy of Service Tax.

However, since it is a bundled service, the taxability will have to be decided for the 'bundle of services' as a whole and not as split services because services it is a case of a natural bundle.