TAXABILITY OF HOTEL ROOMS UNDER MANDAP SERVICES

[Dr. Sanjiv Agarwal]

Many hotels have banquet and garden facilities which are used for various social and other functions including marriages. The gardens are situated within the hotel premises. These hotels lets out the rooms in their hotel for the purpose of boarding/temporary residence of hotel guests. The gardens of the hotel are used for organizing official / business / social functions like marriages, parties, meetings etc. Sometimes a few rooms are also booked by the customers organising official / business / social functions along with the gardens. The Price Quotations for organizing such functions are sent to the customers in a composite manner clearly specifying the charges for the gardens and the rooms separately. However, the booking of the gardens and the rooms is done separately and separate bills, cash memos etc are raised for such bookings. 

Departmental Clarification

The Central Board of Excise & Customs (CBEC) vide Circular No. 96/7/2007 dated 23.08.2007 has clarified that halls, rooms etc. let out by hotels / restaurants for a consideration FOR ORGANISING SOCIAL, OFFICIAL OR BUSINESS FUNCTIONS are covered within the scope of "mandap" [section 65(66)], and such hotels and restaurants are covered within the scope of "mandap keeper" [section 65(67)]. The relevant extract of above circular is mentioned below:-

012.01 / 23.08.07

"Mandap" is defined as any immovable property as defined in section 3 of the Transfer of Property Act, 1882 and includes any furniture, fixtures, light fittings and floor coverings therein let out for a consideration for organizing any official, social or business function. [section 65(66)]  "Mandap keeper" is defined as a person who allows temporary occupation of a mandap for a consideration for organising any official, social or business function [section 65(67)].  Whether hotels / restaurants letting out their halls, rooms etc. for social, official or business functions fall within the definition of "mandap" and allowing temporary occupation of halls, rooms etc by such hotels / restaurants for organizing any official, social or business function is liable to service tax under "mandap keeper service" [section 65(105)(m)]?

Halls, rooms etc. let out by hotels / restaurants for a consideration FOR organising social, official or business functions are covered within the scope of "mandap" [section 65(66)], and such hotels and restaurants are covered within the scope of "mandap keeper" [section 65(67)].  Accordingly, service tax is leviable on services provided by hotels and restaurants in relation to letting out of halls, rooms, etc. FOR organizing any official, social or business function under mandap keeper service [section 65(105)]

It is important to mention here that only banquet hall / gardens are given for holding /organizing marriage, conference & meetings. Parties never book rooms for holding /organizing marriage, conference or meeting and  hotels charge service tax on the amount received against bookings made in respect of gardens / banquet hall as 'mandap keeper services'.

It is understood that the department is demanding the service tax from various hotels on the rooms on the basis of wrong interpretation of CBEC's Circular No. 96/7/2007 dated 23.08.2007 which is also against the intention of law and view expressed in the departmental circulars. Room rent collected for room sale used for the purpose of accommodation of guests cannot strictly fall within the four walls of the definition of 'mandap keeper' as hotel has an identity, 'personality' and function quite distinguishable from that of a 'mandap'. While a 'mandap' is not a residential property, hotel is used for residence, though temporarily. Unlike in a 'mandap' no public activity can be said take place in the privacy of a hotel room.

This view  also gains support from the CESTAT's decision in the case of Mewara Estate v. Commissioner of Central Excise, Jaipur - Final Order No. ST/162/2009(PB), dated 29.04.2009 in Appeal No. ST/347/2006-Cus. (BR) [2009 -TMI - 34571 - CESTAT, NEW DELHI] While deciding this case, Hon'ble Delhi Tribunal has held that "Hotel has an identity, 'personality' and function quite distinguishable from that of a 'mandap' - There is no reason in bringing out the tentacles of tax from a 'mandap' to a 'hotel room', when the definition is clear and concise.