The issue involved in this case is that whether the appellant is liable to pay service tax on following disputed points:- • Short payment of service tax on in room dining service by way of claiming wrong abatement (i.e. 60% instead of 40%).........

CASE STUDY
M/s GATEWAY HOTEL RAWALKOT-TAJ
ORDER –IN – APPEAL No. 42 (CRM)/ST/JDR/2019

Prepared By:-RISHABH BHANSALI

Introduction:- This issue in this case study are related to short payment of service tax on in-room dining service by way of claiming wrong abatement. The second allegation was in regard to demand of service tax on complementary/free services provided to employees. The third issue in show cause notice was of short payment on room cancellation charges. The fourth issue was of short payment of service tax on restaurant service found in reconciliation of ST-3 return with books of accounts.

Relevant Legal Provisions:

Section 68 of the Finance Act, 1994
Rule 6 of Service tax Rules,1994
Rule 2(1) of the CENVAT Credit Rules,2004
Section 78 of the Finance Act, 1994
Section 73(4A) of the Finance Act, 1994

Issue Involved: The issue involved in this case is that whether the appellant is liable to pay service tax on following disputed points:-

Short payment of service tax on in room dining service by way of claiming wrong abatement (i.e. 60% instead of 40%).
Non – payment of service tax on Complimentary / Free Service.
Short payment of service tax on retention amount of Room cancellation charges.
Short payment of service tax on Restaurant service found in reconciliation of ST-3 with books of account.

Brief Facts:The compendious of the case is that , M/s GATEWAY HOTEL RAWALKOT-TAJ, (hereinafter referred to as the appellant) is engaged in providing various taxable services namely, ‘Mandap Keeper Service’, ‘Internet Cafe Service’, ‘Renting of Immovable Property Service’, ‘Restaurant Service’, ‘Accommodation Services’ etc. A show Cause Notice Number IAR/2240/Gr-L2/JDR/2015-16/2028 DATED 10.10.2016was issued to the appellant wherein it was alleged that they have short paid service tax on in-room dining service by way of claiming wrong abatement during the period from May, 2011 to March, 2015.

It was also alleged that the appellant have not paid service tax on complimentary free service provided by them and have short paid service tax on the retention charges on account of cancellation of room booking on the ground that service tax at full rate was required to be paid whereas the appellant have paid service tax as applicable in case of accommodation services. It is also alleged that they are liable to pay service tax on account of difference in the value of services as reflected in ST-3 returns during the year 2011-12 to 2013-14 and that reflected in the financial statements.
The order-in original was passed and demand on first allegation of short payment of in-room dinning was dropped. The demand on second allegation of in-room dinning was also dropped. But the demand of short payment on room cancellation charges was confirmed. The demand on fourth allegation was also confirmed. The order-in-original number 04/2017-ST dated 17.11.2017 was issued in this regard.

Aggrieved by the impugned order in appeal (hereinafter referred as impugned order) confirming part demand along with interest under section 75 with equal penalty under section 78 of the Finance Act, 1994, the appellant preferred the appeal before Commissioner (Appeal).

Assessee’s Contention:

The appellant submit that the impugned Order-in-Original passed by the learned Assistant Commissioner is wholly and totally erroneous in confirming the demand of service tax along with interest and penalty and the same is liable to be quashed.

The impugned order has held that the appellant have not paid the service tax at full rate on the amount retained on account of cancellation charges of booking of rooms. In this respect, it is submitted that it is a common practice in the hotels to retain a certain amount when a booking is cancelled. They are also following the said practice. However, it is alleged that the appellant was required to pay service tax at full rate under the category of ‘Tolerate an act or situation’ rather than under ‘short term accommodation services. It is worthwhile to mention here that as per the statutory provisions, service tax is payable on the advance amount received against a particular services at the time of its receipt itself. It should be noted that as per Rule 3 of Point of Taxation Rules, 2011; the service tax on advance becomes due as and when the advance is received. Consequently, when the amount of advance pertained to provision of short term accommodation services at a future date, the service tax as applicable on short term accommodation services was paid by them. The appellant has been duly complying with the provisions contained in Point of Taxation Rules, 2011 and have been correctly paying the service tax on advance against provision of accommodation service at the abated rate. It is also worth mentioning that they have reflected payment of advance in the ST-3 returns filed by them and this fact is not disputed by the revenue authorities. The appellant is regularly filing service tax returns and no such allegation has been raised that the service tax has been paid incorrectly. Therefore, the confirmation of the service tax demand by invoking extended period of limitation is not at all tenable and deserves to be quashed.

It is further submitted that the appellant had received the advance on booking of accommodation and they had duly calculated and paid the service tax on the same at the time of receipt of advance under the category of short term accommodation service. Since the advance was received on account of accommodation services, they had calculated and paid the service tax under the head of accommodation services. This was correct treatment and was never disputed by the department. The ST-3 returns filed by them reflecting the service tax so paid on advances under the head of accommodation services was also accepted. Since no objection has ever been raised on the returns filed by them, it will be assumed that the assessment so made has become concrete and final. However, at the time of audit it was being disputed that they have paid the service tax by applying the incorrect rate and under wrong head, resulting into the impugned show cause notice. It is submitted that the show cause notice has tried to make an attempt to re-assess the liability which was never objected at the time of filing the returns. Such a notice is wholly and totally erroneous as it has been issued without challenging the assessment made in the ST-3 returns filed by the appellant. In this respect, reliance is placed on the Supreme Court decision in the case of COLLECTOR OF CENTRAL EXCISE, KANPUR VERSUS FLOCK (INDIA) PVT. LTD. [2000 (120) E.L.T. 285 (S.C.)]. In this case it was held that where any assessment is finalized by any Central Excise officer and that assessment is not challenged by the Revenue, later on the refund/rebate cannot be challenged on the grounds that the assessment is not proper. Though this decision pertains to Central Excise, yet its ratio is equally applicable in the present case. In the instant case also, the service tax paid, the category of making payment of service tax and assessment done in ST-3 return has not been challenged at any stage. It was only at the time of audit when it was alleged that the service tax payment made by the appellant and classification done in ST-3 return was not proper. This allegation has been made without challenging the ST-3 returns filed by them during the impugned period in issue. Thus, applying the ratio of Flock (India) Pvt. Ltd. cited supra, the impugned show cause notice is not tenable at the outset and consequently, the impugned order is liable to be quashed.
In continuation to above, it is submitted that though the above stated decision has been rendered in context of finalization of assessment procedure, still its ratio is applicable in the instant case because while interpreting any decision, ratio laid down by it has to be seen rather than going rigidly by the facts and circumstances. This is known as principle of ratio decidendi. The ratio decidendi is "the point in a case that determines the judgment" or "the principle that the case establishes". In other words, ratio decidendi is a legal rule derived from, and consistent with, those parts of legal reasoning within a judgment on which the outcome of the case depends. It has been held by the Gujarat High Court that it is the ratio decidendi that forms a binding precedent, not the entire facts and circumstances of the case. This decision has been given in the following case:-

DHRANGADHRA MUNICIPALITY, DHRANGADHRA AND OTHERS VERSUS DHRANGADHRA CHEMICAL WORKS LTD. AND OTHERS [1988 (35) E.L.T. 88 (GUJARAT)]

Short payment of service tax of Rs. 12,740/- on retention charges by availing 60% abatement on it by treating it as accommodation service:-We submit that the impugned show cause notice is alleging that we have not paid the service tax at full rate on the amount retained on account of cancellation charges of booking of rooms. In this respect, it is submitted that it is a common practice in the hotels to retain a certain amount when a booking is cancelled. We are also following this practice. However, it is worthwhile to mention here that we have duly paid the service tax due on the advance at the time of its receipt. It should be noted that as per rule 3 of Point of Taxation Rules, 2011; the service tax on advance becomes due as and when the advance is received. We have been duly complying with this rule and have been paying the service tax on advance at the time of its receipt. We have also shown the same in the ST-3 returns filed by us. THIS FACT IS NOT DISPUTED BY THE IMPUGNED SHOW CAUSE NOTICE. Also, no allegation has been raised neither at the time of making payment of service tax nor at the time of filing the return that the service tax has been paid incorrectly. However, now at the time of audit it was contended that the service tax has been paid by us under wrong head and was also calculated by applying incorrect rate. Such an allegation and impugned show cause notice issued on the basis of same is not sustainable and is liable to be quashed.

Nonpayment of service tax of Rs. 1,18,506/- on account of difference in value shown in ST-3 and balance sheet:-It is alleged that we have short paid service tax under the category of restaurant services because there is difference in the value of taxable services reflected under ST-3 returns and that reflected in the Balance Sheet. In this regard, we submit that we have correctly discharged our service tax liability and there is no short payment on our part. We hereby submit explanations for the differences as follows:-

FINANCIAL YEAR	GROSS AMOUNT AS PER ST-3	GROSS AMOUNT AS PER BALANCE SHEET	DIFFERENCE	REASON FOR DIFFERENCE
2011-12	78,57,348	1,06,63,081	28,05,733	The difference is due to accounting of ‘Accommodation with Meal Plans’ and different treatment under Service Tax Laws and in financial statements.
2012-13	1,12,22,871	1,12,66,532	43,661	The difference pertains to Minibar Services for which service tax has been paid along with interest.
2013-14	1,10,99,508	1,11,14,710	15202	The difference pertains to Minibar Services for which service tax has been paid along with interest.

We submit that for the financial year 2011-12, the difference in the value of restaurant receipts as shown in ST-3 returns and that shown in Balance Sheet is due to different presentation and accounting done as prescribed. We submit that we also offer ‘Accommodation with meal packages’ wherein breakfast is included in the stay in the hotel. Consequently, since the breakfast is part of the declared room tariff, the service tax is paid on the entire receipts including the meal value according to the rate of service tax applicable for accommodation services. Therefore, the value of meals is also being reflected under the category of accommodation services in ST-3 returns filed by us. However, for the purpose of financial statements, the meal value even in case of accommodation with meal packages is being shown under restaurant receipts. Hence, the difference is only due to accounting of transaction as per the statutory laws. We submit that similarly, in case of accommodation services, the balance sheet value will reflect lower value as compared to the value shown in the ST-3 returns because the value in ST-3 returns is inclusive of meals value. Therefore, there is no short payment of service tax and the allegation of the impugned show cause notice is not at all tenable. In this regard, the reconciliation of the values as reflected by us in our Trial Balance with the Service Tax Returns filed by us is presented as follows:-

RECONCILIATION OF ACCOMMODATION SERVICE:-

MONTH	AMOUNT IN TRIAL BALANCE	MEAL PLAN OF ACCOMMODATION	ADVANCE ADJUSTMENT	VALUE IN ST-3
APRIL	597791	0	0	NOT TAXABLE
MAY	303055	119570	0	422625
JUNE	192460	35914	0	228374
JULY	341307	107939	0	449246
AUG	1066730	496131	0	1562861
SEP	814353	427072	0	1241425
OCT	2456401	878654	233534	3568589
NOV	2479686	631861	-99068	3012479
DEC	3523260	0	626000	4149260
JAN	2732521	0	-2800	2729721
FEB	2053347	0	-823840	1229507
MARCH	1793542	0	-756414	1037128
TOTAL	18354453	2697141		19631215

RECONCILIATION OF RESTAURANT SERVICES:-

MONTH	RESTAURANT SERVICES IN ST-3	MEAL PLAN SHOWN IN ACCOMMODATION	IRD	MINIBAR	SALE OF FOOD TALLYING WITH TRIAL BALANCE
APRIL	NOT TAXABLE	NOT TAXABLE	NOT TAXABLE	NOT TAXABLE	5,66,623
MAY	166015	119570	6405	1604	293594
JUNE	100643	35914	1970	1155	139682
JULY	121964	107939	3	2050	231956
AUG	303660	496131	1898	1907.5	803596.5
SEP	333363	427072	9262	309.25	770006.25
OCT	617155	878654	11877	2281.74	1509967.74
NOV	1111289	631861	2246	1205.5	1746601.5
DEC	1587694	0	31423	2104	1621221
JAN	1259531	0	6704	3555	1269790
FEB	1218905	0	3625	5082	1227612
MARCH	1037128	0	906	5659	1043693
TOTAL	7857347	2697141	76319	26912.99	1,12,24,343

DETAILS OF FOOD SALES IN TRIAL BALANCE:-

PARTICULARS	AMOUNT
361051 Food Sales	96,08,631.76
361101 Soft Drinks Sales	4,38,641.94
361103 Smokes Sales	7,350.00
361151 Beer Sales Indian/Local	5,60,021.00
361153 Spirits Sales - Indian/Local	1,69,367.50
361154 Spirits Sales - Imported	80,950.50
361155 Wine Sales - Indian/Local	3,24,100.00
361156 Wine Sales - Imported	35,280.00
TOTAL	1,12,24,342.70

From the above reconciliation statements, it is clear that the difference is nothing but due to accounting of transactions differently in Service Tax Laws and in the financial statements. Therefore, the allegation is not at all tenable and the same is liable to be set aside.

We further submit that the difference in the taxable value of restaurant services as reported in the financial year 2012-13 and 2013-14 is nothing but the receipts from Minibar Services for which we have already paid service tax along with interest. We submit that for the period from July, 2012 to December, 2012, we have discharged the service tax liability on Minibar Services under VCES, 2013. However, for the period starting from January, 2013, we have paid service tax along with interest. We submit that the service tax was paid by way of utilisation of cenvat credit and so the same can be verified from the ST-3 returns filed by us. We submit that as the service tax along with interest has already been discharged by us, the proceedings initiated vide the impugned show cause notice are non-est and deserves to be quashed.

Short payment of Rs. 4,748/- on in-room dining services:- We submit that it is alleged that we have availed excess abatement for ‘in-room dining’ services provided by us. It is contended that we were required to pay service tax under the category of ‘short term accommodation’ wherein service tax was payable on 60% of value of services whereas we have paid service tax by classifying it under the category of ‘restaurant services’ wherein service tax was paid on 40% of the value of services thereby resulting into short payment to the extent of 20%. The allegation that we have made short payment of Rs. 4,748/- due to availment of 20% higher abatement by the revenue is not justified and is completely wrong. In this regard, we submit that the allegation is totally baseless because the services of ‘minibar’ and ‘in-room dining’ are nothing but extension of the services of ‘Supply of food or any other article or drinks for the human consumption’ provided by us. We submit that the concept of bundled services will come into picture only if the said services are compulsorily supplied by us during the course of providing short term accommodation services say for example in case of accommodation packages wherein breakfast is included in the entire service provided by us. However, merely because the service is consumed in the rooms would not make it bundled with the short term accommodation as the place of consuming the service is not relevant and what is important is the nature of service. Therefore, the impugned show cause notice has been issued on irrational grounds and is not legally tenable and deserves to be set aside.
It is alleged that as per Rule 3 of the Place of Provision of Service Rules (POPS), the place of provision of service shall be the location of service recipient, except where the place of provision of service is specified in Rule 4 to 12 of POPS Rules for any service. The services provided by hotel except services by restaurant or short term accommodation are not specified in any Rules 4 to 12 of POPS Rules. Hence, the place of provision of service will be the location of the service recipient. In this respect, we submit that the impugned show cause notice has invoked wrong provisions to justify its claim that we are liable to pay service tax at 60% of the value of services as in case of accommodation services with respect to minibar/in-room dining services provided by us. We submit that the Place of Provision of Service Rules, 2012 have been framed to replace the ‘Export of Service Rules, 2005’ and ‘Taxation of Services (Provided from outside India and received in India) Rules, 2006 thereby indicating that the POPS Rules, 2012 are primarily applicable for determining the place of provision of services in case of cross border transactions. The provisions of POPS Rules, 2012 are applicable only if the transaction is also taking place outside taxable territory but in the present case, the transaction is taking place wholly within India. We submit that in the present case, both service provider and service receiver are located in India, and so the POPS Rules, 2012 will not come into picture at all. This contention is supported by the Service Tax Education Guide released by CBEC wherein para 5.1.2 states that POPS Rules are primarily meant for persons who deal in cross-border services. Furthermore, even if it is accepted for the sake of argument that the provisions of POPS Rules, 2012 are applicable, then too, these Rules will only determine the place of provision of service and not the rate at which service tax is payable. We submit that the rate at which service tax is payable will be determined only by the nature of the service. The POPS Rules, 2012 cannot decide classification of any service. Moreover, it is not our case that we have provided service outside taxable territory and on the contrary, we have paid service tax by classifying the services of minibar/in-room dining under the category of ‘Restaurant Services’. The impugned show cause notice has failed to distinguish the issue of dispute and has invoked wrong provisions to justify that we are liable to pay service tax at 60% of the value of minibar/in-room dining services and not at 40% of the value of such services. We submit that the abatement rate applicable to a service depends on the nature of service and not on the fact that where the service is being provided. Accordingly, the impugned show cause notice which is issued on totally absurd grounds deserves to be quashed.
Non-payment of Service Tax of Rs. 39,932/- on complementary service provided to the customer/staff:- We submit that the impugned show cause notice has been issued on the grounds that we have provided the service of complementary food and beverages in our restaurant and have not paid the service tax on the same. In other words it has been alleged that the complementary food is liable to service tax even if no amount is recovered from the guest or employee. In this regard, it is submitted that the service tax is leviable on any activity if the same falls in the definition of service. The word ‘service’ has been defined in section 65A (44) as follows:-

“(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—…..”
Thus, in simple terms, the word “service” means –

any activity
for consideration
carried out by a person for another

If ALL of the criteria specified at serial no. (i) to (iii) above are satisfy, the activity will fall under the definition of service and service tax would be levied unless otherwise exempted. The first component is “activity” which is wide enough to cover all types of work or operation. The third essential element is that it should be carried out by one person to another, i.e. there should be two persons involved in that activity. The second component, i.e. “consideration” is the most crucial one. If there is an activity carried out by one person to another but the “consideration” is not there, it cannot fall in purview of term “service”.

The impugned order has justified invocation of extended period of limitation on the allegation that the appellant have failed to disclose this vital fact to department and have willfully suppressed these facts with an intention to evade payment of service tax. In this respect, it is submitted that there is no provision in the service tax law which states that the assessee is required to submit each and every act or policy adopted by him to the department. This is neither envisaged; in any provision nor in rule or in any return filed to the department. Further, there is no provision in the service tax law which states that each and every act and procedure followed by the assessee should be intimated to department and that too suo motu as alleged. It has been held by hon’ble Gujarat High Court in the case of APEX ELECTRICALS PVT. LTD. VERSUS UNION OF INDIA [1992 (61) E.L.T. 413 (GUJ.)] that non-furnishing of the information not required under law does not amount to suppression. The verdicts of hon’ble High Court are given as follows:-

“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”
Similar decision was given in the following cases:-

GUFIC PHARMA VS. CCE - 1996 (85) ELT 67 (T) [AFFIRMED BY SUPREME COURT AT 1997 (93) ELT A186]
PROLITE ENGINEERING CO. VS UNION OF INDIA [1995 (75) ELT 257 (GUJ.)]
UNIQUE RESIN INDUSTRIES VS. CCE - 1995 (75) ELT 861 (T)

In all the above cases, it was held that the information not required to be submitted under law, if not submitted, will not amount to suppression of facts. Thus the impugned order in original invoking the extended period of limitation on the grounds of non-furnishing of information (that was not required to be submitted under law), is not sustainable and is liable to be set aside. It is pertinent to note that the above decisions were relied upon in the reply to the show cause notice but these decisions have not been discussed and distinguished which leads to passing of non-speaking order which is not tenable in light of the decision given in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)].

It is pertinent to note that the above submissions were made in the reply to the show cause notice but these have not been discussed which leads to passing of non-speaking order which is not tenable in light of the decision given in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)]. Hence, the impugned order in original is not tenable and deserves to be set aside.

We further submit that the practice of discharging service tax on the in-room dining/minibar services by classifying the same under ‘Restaurant Services’ is being followed by all hotels operating in India. Furthermore, the practice of paying service tax on 40% of the value of services in case of minibar/in-room dining is being followed by all other hotels operating in the Jodhpur Commissionerate. However, no action is being proposed against them for recovery of differential service tax of 20% on the value of such services and proceedings have been initiated against us only. We submit that raising service tax demand only on us without raising such service tax demands on other hotels operating in the same Commissionerate tantamount to discrimination among similarly placed assessees and is violative of the Article 14 of the Constitution of India. This is discrimination and gross violation of principle of natural justice which is not sustainable. Such a discriminatory approach is not justified in the light of decision of hon’ble Calcutta High Court in the case of FITWELL FASTNER (INDIA) PVT. LTD. VERSUS COLLECTOR OF CUSTOMS [1993 (68) E.L.T. 50 (CAL.)]. In this case it is held that the discrimination as between two assessees located in two different cities is unfair and improper and violative of Article 14 of Constitution of India. There cannot be discrimination between the assessee who are similarly placed and Department cannot take a different stand for different assessee. Reliance is placed on the following case laws:-

DAMODAR J. MALPANI V. CCE [2002 (146) ELT 483 (SC)]
MALLUR SIDDESWARE SPINNING MILLS (P) LTD. VS. CCE [2004 (166) ELT 154 (SC)]
QUINN INDIA LTD. VS. CCE [2006 (198) ELT 326 (SC)]
SPL SIDDHARTHA LTD. VS CCE [2006 (204) ELT 135 (TRI.-DEL.)]
JAYASWALS NECO LTD. VS. CCE [2006 (195) ELT 142 (SC)]
FITWELL FASTNER (INDIA) PVT. LTD. VS CC [1993 (68) ELT 50 (CAL.)]
CCE VS. AMAR BITUMEN & ALLIED PRODUCTS PVT. LTD. [2006 (202)ELT 213(SC)]
INDIAN OIL CORPORATION LTD. VS CCE [2006 (202) ELT 37 (SC)]
U.O.I. & OTHERS VS. KAUMUDINI NARAYAN DALAL & ANOTHER [2001 (10) SCC 231]

CCE VS. TATA ENGINEERING & LOCOMOTIVES CO. LTD. [2003(158)

Judgment: -The authority had carefully gone through the case records, submissions made by the appellant in their appeal memo and also at the time of personal hearing. It was held that classification of service is to be done at the time when service tax become due. Thus the appellant was supposed to classify the service at the time of payment of service tax i.e. on receipt of advance. Since the advance was received against accommodation service, the service tax was rightly paid under this service. Hence the appellant is not liable to pay the differential amount on cancellation of rooms.

Regarding service tax demand of discrepancies of value in respect of Restaurant service found in ST-3 return and book of accounts, it is seen that appellant has given the reconciliation statements. It is clear that the difference is nothing but due to accounting of transactions differently in service tax laws and in the financial statements. It was further held that the difference in the taxable value of restaurant service is nothing but receipts from mini-bar services on which they have already paid the service tax. It was paid by utilization of credit which can be seen from ST-3 returns. However, the documentary evidence for period from 2012-13 and 2013-14, it needs to be verified by adjudicating officer. Hence, the demand is not sustainable along with interest and penalty subject to verification.

Conclusion: -Appeal disposed off in above terms.
Comment: - The demand of service tax on in-room dining at the rate of room accommodation is not sustainable. Service tax is payable on in-room dinning at the rate of restaurant services. Service tax is payable in accommodation service on receipt of advance. The service tax is not payable at full rate on cancellation of rooms. There is also no service tax on complimentary/free services given to employees. These are main gist of this case study. These points have been raised in almost all the hotels and dropping of these demands is favourable news for them.
The difference between ST-3 return and books of accounts is factual position and it has to be explained with documentary evidence.

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PJ/Case Study/2018-19/147
16 February 2019

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PJ/Case Study/2018-19/147 16 February 2019

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PJ/Case Study/2018-19/147
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