False Claim of Lack of Air Conditioning Facility: CESTAT Upholds Rs. 4.96 Lakh Service Tax and Penalty on Restaurant [Read Order]

The Principal bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) dismissed the appeal of M/s Gurukripa Shahenshah Veg & Non-Veg Restaurant, upholding the service tax demand and penalties after concluding that the appellant’s claim of absence of air-conditioning (AC) facility was unsubstantiated and intended to evade tax liability.

M/s Gurukripa Shahenshah Veg & Non-Veg Restaurant, a sole proprietorship operated by Sh. Charan Pal Singh provides Restaurant-cum-Bar services and was registered with the Commercial Taxes Department. The appellant challenged the Order-in-Appeal, wherein the Commissioner (Appeals) upheld a service tax demand of Rs. 4,96,013 along with equal penalties and additional penalties of Rs. 5,000 each under Sections 77(1) and 77(2) of the Finance Act, 1944.

The appellant contended that the demand was not justified because the restaurant had ceased to provide air-conditioning facilities after 2010, and thus the services were not liable to service tax under the category of Restaurant-cum-Bar services.

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The appellant submitted that air-conditioning was installed only briefly in 2010 and was removed later in the same year, replaced by air coolers. Electricity bills and a statement were produced to support the claim that the power connection of 0.22 KW was insufficient to operate an AC, thus confirming its absence.

The appellant argued that there was no suppression of facts, and hence, the extended period of limitation under Section 73(1) of the Finance Act, 1994, was not applicable. Reliance was placed on several judicial precedents to support the contention that genuine interpretational issues cannot invoke extended limitation.

The Department, represented, submitted that the presence of AC was a mandatory condition for both grant and renewal of the Restaurant-cum-Bar license issued by the State Excise Department. The appellant’s license, initially granted on 14.07.2010, was renewed regularly for the years 2011-12, 2012-13, and 2013-14, following verification by the Excise authorities.

The Department highlighted that the appellant had not obtained Service Tax Registration from May 2011 to March 2015, despite being liable, and had declared the presence of AC in the original application for the liquor license dated 23.06.2010. Therefore, penalties under Sections 77(1), 77(2), and 78 were justified.

The Tribunal noted the definition of “taxable service” under Section 65(105)(zzzzv) of the Finance Act, 1994, which includes restaurant services having air-conditioning in any part of the establishment and licensed to serve alcoholic beverages. The Tribunal observed that the appellant had consistently declared the presence of AC in official records and license applications and had failed to provide any substantive proof to demonstrate its removal or that the authorities were informed of the change.

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Verification by the State Excise Department confirmed that AC facilities were in place at the time of license renewals. The Tribunal emphasised that the statement of 28.12.2012 was merely an attempt to avoid service tax liability without supporting evidence.

Additionally, the Tribunal referred to previous cases involving the same proprietor, where similar claims of absence of AC were rejected due to documentary evidence and routine verification by excise authorities.

The Tribunal concluded that the appellant’s conduct demonstrated an intention to mislead two departments: the State Excise Department, by not informing them about the removal of AC, and the Central Excise/Service Tax Department, by claiming exemption to evade payment. Consequently, the extended period of limitation was applicable, and the penalties under Sections 77(1)(a), 77(2), and 78 were warranted.

The Tribunal also noted that unless the appellant could provide cogent evidence proving the non-availability of AC during the disputed period, exemption under the relevant notification could not be granted.

The two-member bench comprising Dilip Gupta (President) and Hemambika R. Priya (Technical Member) affirmed the Order-in-Appeal, dismissing the appeal. The service tax demand of Rs. 4,96,013, along with equal penalties and additional penalties, was upheld.

The Tribunal concluded that the appellant’s claim of no AC facility was unsubstantiated, and the extended period of limitation was correctly invoked due to suppression and misrepresentation with the intent to evade service tax.

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