Service Tax Demand cannot be clubbed with the value of food items sold during Mandap Keeper Service when both are shown separately: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that service tax demand cannot be clubbed with the value of food items sold during mandap keeper service when both are shown separately.

Jindal Hotels Ltd, the assessee is engaged in the business of running a hotel under the name & style of “Surya Palace Hotels”. They were engaged in providing various Services viz. Accommodation to their guests, Room Services, Mandap keeper Services, outdoor catering services, Restaurant Services, Pandal and Shamiana Services, Management or business consultant services Renting of immovable property services, etc. The hotel had rooms for guest accommodation, restaurants, a health & fitness centre, banquet halls ( Mandap ), Ballrooms, Conference Room etc.

During the Audit, it was observed that during the period 2010-2011 to 2013-14 (Up to 11.04.2013), the assessee had provided the services to use of Mandap to their customers, which is taxable Prev) under Section 65(105) (m) read with Section 65(66) and 65 (67) of the Finance Act, 1994 (i.e., “the Act”). During providing such services of Mandap Keeper” against consideration received for organizing any official, social or business function, they also provided service of flower decoration, hiring of music instruments, electronic IT product etc., and the services as a caterer as defined in Section 65(24) ibid, [i.e. they prepared and served food and beverages to the customers including their guests].

It was also observed by the department that the assessee was splitting the gross amount charged about the services of Mandap Keeper into two parts and collected the said amount from their customers by issuing two separate invoices viz. (i) charges for Mandap and other services if any, and (ii) charges for food and beverages. The assessee did not pay any service tax on the amount charged and collected towards food and beverages ie., catering services or ‘Banquet Taxable Sale, in terms of notification no. 1/2006 – ST dated 01.03.2006 (or the period 2010-11 to 2012-13 (up to 30.06.2012) and in terms of notification no. 26/2012-ST dated 20.06. 2012 (from 01.07.2012 to 11.04.2013). 

The department stated that the supply of food & beverages by the Assessee during Mandap keeper Service was neither “sale” nor “deemed sale to claim an exemption under Notification No. 12/2003 – ST dated 20.06.2003, which referred to “sold” but not “supply”. Hence, it appeared that the benefit of Notification No. 12/2003 -S.T was not available to the Assessee in the present case and that they were liable to pay Service Tax only in terms of Notification no. 1/2006 ST and 26/2012 – ST.

The two-member bench comprising of Mr Somesh Arora, Member ( Judicial ) and Mr C L Mahar, Member ( Technical ) observed that not only the supply of food has been segregated but also appellants have discharged VAT tax on such food components and have also paid Service Tax on Mandap keeper charges extracted from the parties and paid service tax on it. The constraint of a separate contract emphasized in the impugned order remains of no legal consequence when the supplier of service and service receiver indicate through invoice by implication that the separation of both elements was agreed upon and accepted by both parties to the contract.

The CESTAT held that an extended period cannot be invoked against the appellant, even if some contrary decisions existed too, as the matter involves the interpretation of the law.  While allowing the appeal, the appellant set aside the Impugned order.

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