CESTAT Quashes Service Tax Demand on Rent-Free Banquet Hall [Read Order]

In a recent ruling, the Customs, Excises and Service Tax Appellate Tribunal (CESTAT) held that the appellant, Hotel Moti Mahal is not liable to pay service tax on the renting out of banquet hall without consideration since they have duly discharged Value Added Tax (VAT) on the food supplied by them and have also discharged service tax on the items like LCD projector, etc.

The Appellant, Hotel Moti Mahal is a restaurant having banquet halls. Appellants sometimes charge only for the food served and do not charge any rentals for the banquet halls. Departmental audit disputed this and have advised the appellants to pay applicable service tax on such food bills where food was served in the banquet halls, the appellants have paid the amount of INR 6,11,514/-.

Based on the clarification, the appellants have preferred a refund claim stating that the same was in respect of food served on which VAT was paid. A show-cause notice was issued and Order-in-Original by Asst. Commissioner of Central Excise, Mangalore rejected the refund claim. An appeal filed by the appellant was also rejected by Commissioner(A).

The department contended that any prudent man can understand that without any function no person can stay in the hotel for the entire day and have mid-morning tea with biscuit, buffet lunch, evening tea with biscuit and dinner; though no separate rent was collected for the function hall, charges were recovered for use of LCD projector, laptop, whiteboard, mike system, podium, etc., and service charge on the same was paid; organization of function is evident by the usage of LCD projector, etc., and the rent for the function hall is inbuilt in the value of the food served in the function, which the appellate authority has upheld the reasoning given by the lower authority.

The tribunal consisting of a Judicial Member S.S. Garg and a technical member P. Anjani Kumar held that the appellant, Hotel Moti Mahal has duly discharged Value Added Tax (VAT) on the food supplied by them and have also discharged service tax on the items like LCD projector, etc.

“The two major surmises were that with the usage of LCD display, etc., it is evident that the banquet halls were let out temporarily for a day and that the charges for the same are inbuilt into the bill raised by the appellant towards the food charges and this inbuilt value needs to be treated as consideration towards the ‘Mandap Keeper’ services provided by the appellant,” the tribunal said.

“For any service to be held to be taxable, there should be a service provider, service recipient, and consideration for the service. It cannot be imagined that such consideration was inbuilt,” the bench further said.