Whether renting of rooms by a hotel along with garden/hall for wedding ceremony leviable to service tax under the mandap keeper service?

PJ/Case Study/2012-13/75

Case study

Prepared by: CA Neetu Sukhwani &
Prayushi Jain

Introduction:-
M/s Taj Hari Mahal is one of the leading hotels of Jodhpur. They have been organizing various social, official and business functions. These functions included wedding ceremonies too. Revenue has alleged that the assessee has evaded payment of service tax under “Mandap Keeper Services” by raising different bills for hall where wedding ceremonies were carried out and different bills for the room charges in which the guest attending the wedding ceremonies stayed. According to revenue, these charges should be clubbed and should form part of the “Mandap Keeper Services” as the rooms were being let out to the same party that availed the mandap keeper services for the wedding ceremony. It was alleged that as the said room charges were not included in the taxable value of the services, there was short payment of service tax by them and the assessee was liable to pay Rs 22,55,075/-. Adjudicating authority confirmed the allegations levelled and the short payment of service tax. Aggrieved with the said order, the assessee filed an appeal to Commissioner Appeals, who upheld the order of the adjudicating authority. Thereafter, the appellant filed appeal to the Tribunal along with the stay application. This case study covers the decision of the stay application while the final outcome of the appeal is still pending.

M/ S TAJ HARI MAHAL [OIA 130-131(RDN) ST/JPR-II/2012 Dated 30.10.2012]

Issue Involved:-

The following issue was made before the Tribunal:-
Whether renting of rooms by a hotel along with garden/hall for wedding ceremony leviable to service tax under the mandap keeper service?

Brief facts:-
M/s TAJ HARI MAHAL, is one of the leading hoteliers that is engaged in providing various taxable services including the “Mandap Keeper Services". The Department issued show cause notices no. V(ST)Adj-II/JPR-II/155/10/4305, dated 4.10.2010 wherein it was alleged that the appellants have not paid service tax amounting to Rs. 22, 55, 075/- payable on the Mandap Keeper Services provided by them to the organizers of various wedding functions for the period from 1.4.06 to 31.3.09. It was alleged that the rooms booked on account of wedding ceremony were Mandap and therefore the amount received towards the said booking of rooms was chargeable to service tax under the Mandap Keeper Service. The show cause notices proposed to recover service tax under the category of Mandap Keeper Service alongwith interest under Section 75 of the Finance Act, 1994. It was proposed to impose penalties under Section 76, 77 and 78 of the Finance Act, 1994.

The assessee submitted that as they are ‘Hotel’ providing various other services along with that of the Mandap Keeper Services, and so the activity of letting out of rooms cannot be clubbed under the category of “Mandap Keeper Services” only on the contention that the rooms were let out to the same parties who availed the services of mandap. However, the learned Adjudicating Officer did not accept the submissions made by the appellant and passed the order in original no. 06-07/C.K./J.P.-II/2012 ADDITIONAL COMMISSIONER, dated 12.01.2012 confirming the demand of Service Tax and its recovery under proviso to Section 73 (1) of the Finance Act, 1994 alongwith interest under Section 75 of the Finance Act, 1994 and penalty.

Aggrieved by the impugned Order in Original, the appellant filed the appeal to the Commissioner Appeals but the order passed by the Commissioner Appeals found that adjudicating authority while passing the impugned order observed that if an immovable property is let out for a particular event or function, the whole of the compound is to be treated as a unit for the purpose of taxability under the “mandap keeper services” irrespective of the use of different parts of property. Whereas the appellant stated that the purpose of the services should have been taken into account for charging the service tax, and in case the purpose of garden was to organize the marriage function and the purpose of rooms was to reside and relaxing the guest.
It was observed that while charging the service tax the motive of service is to be taken in account. In this way after examining the whole gamut of issue of bookings of the hotel rooms and marriage gardens attached to its hotel and the marriage gardens and payment thereof by the same service receiver, it is seen that the appellant have claimed to have two marriage gardens attached to its hotel and the marriage garden were used for the purpose of organizing any business, social or religion functions; including marriages etc. Together with the marriage gardens the service receivers also booked rooms for the visitors/guests who attended the marriages.
The assertion of appellant that the purpose of both i.e. of booking of gardens and of rooms was different has no force. If there were no marriage functions then the so called guests would not have resided and rested in the hotel, therefore the appellant’s contention that purpose of renting of rooms cannot be clubbed with the purpose of the renting of marriage garden cannot be accepted. CBEC has vide its circular No. 96/7/2007-ST dated 23.08.2007 clarified that hall rooms, etc let out by hotels/restaurants for a consumption for organizing social, official, business functions are covered within the scope of ‘mandap’ and service tax is payable on them.
Besides, it is not in dispute that those rooms which were booked alongwith the marriage gardens were only taken into account for the purpose of demanding the service tax and not those rooms which occupied exclusively for the residential purposes during the impugned period because in those cases the purpose of the visitor was not the same as was alleged in the notice, and is subject matter of this appeal, therefore to club both types of bookings by the appellant is nothing but to create the camouflage. There was also marriage gardens which do have some residential facilities together with the booking of marriage gardens and provided these facilities together with the booking of marriage gardens and do not bifurcate the value o such services in charging and payment of service tax.
As regards invocation of suppression of facts with the intent to evade payment of duty, it was agreed with the findings of the adjudicating authority who concluded that the assessee had acted deliberately as defiance of law, this was evident from the fact that despite clarification of the board on the issue the assessee deliberately arranged to raise separate invoices for the payment of service tax on the charges collected for the let out of the gardens and the rooms of the hotel with the intent to evade payment of service tax on the charges collected for the period.
Aggrieved by the order of the Commissioner Appeals, the appellant further filed an appeal along with stay application to the Tribunal wherein the outcome of the stay application is being reported in the present case study.

Appellant’s Contention:-The appellant made following submissions before the Tribunal during the course of stay application-

The appellant submit that the Order-In-Original passed by the learned adjudicating authority and confirmed by the Commissioner Appeals is erroneous and is liable to be set aside.

The appellant submitted that in the impugned order the learned Additional Commissioner has held that “Mandap” is defined as any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 and thus, meaning of ‘Mandap’ is very wide in its coverage and includes all immovable properties let out for organizing social, official or business functions. It was further held that the rooms were let out by the appellant for the wedding ceremonies. Thus, it is alleged that appellant had let out garden as well as rooms for wedding ceremonies and arranged to raise separate bills to evade payment of service tax on the charges collected for letting out the rooms.
In this regard, the appellant submitted that the definition of “Mandap” is defined as any immovable property as defined in Section 3 of the Transfer of Property Act, 1882. The definition is produced as follows:-

(66) "Mandap" means any immovable property as defined in section 3 of the Transfer of Property Act, 1882 (4 of 1882) and includes any furniture, fixtures, light fittings and floor coverings therein let out for consideration for organizing any official, social or business function;

[Explanation.—For the purposes of this clause, social function includes marriage;]

The analysis of above definition makes it clear that an immovable property will be termed as “Mandap” if all of the following conditions are satisfied: -

·               The immovable property is of nature as defined in section 3 of Transfer of Property Act, 1882.
·               It will include any furniture, fixtures, light fittings and floor coverings therein.
·               It should be let out for consideration.
·               The purpose for which the property is let out should be organizing of any official, social or business function.

Thus, the definition says that an immovable property will be termed as Mandap if all the above conditions are satisfied. Merely because it is an immovable property and is let out for a consideration would not tantamount to “mandap” unless any Official, Social or Business function is performed. It is submitted that the entire definition is to be read as a whole. And on reading the definition it becomes clear that the not only the area but the functionality also required to be seen for deciding whether a particular premises was let out for marriage ceremony. It is submitted that the marriage ceremony and all the related functions were held in the garden area of the appellant. Therefore, only the garden area can be said to be let out for Mandap Keeper Service. However, in the rooms let out to the party was only for resting or refreshing purpose. It cannot by any stretch of imagination be said that the Marriage ceremony or any related function was held in the rooms let out. It is submitted that the use of the Rooms is also required to be seen as to ascertain whether any function was held there. However, it is clear that no marriage ceremony or any related function was held in the rooms let out. Therefore, the letting out of said rooms cannot be held to fall under the category of ‘Mandap Keeper Service’ and no service tax can be demanded from the appellant on letting out of the said rooms.

However, the learned Additional Commissioner has not taken the fact of usage/functionality aspect into consideration before holding that the rooms let out were for the wedding ceremonies. If the contention of the impugned order that rooms will also fall under the definition of mandap is accepted even for the sake of argument also, then the closing phrase of this definition – “for organizing any official, social or business function” will loose its relevance. If any immovable property let out for consideration is deemed as mandap then what will be use of adding the above phrase. It has been held by hon’ble Supreme Court that legislature never wastes its words and where language of any provision is plain and unambiguous, no other meaning is to be taken. It has been held in the following case –

British Airways PLC vs Union of India [2002 (139) ELT 6 (S.C.)]:-

“8. While interpreting a statute the court should try to sustain its validity and give such meaning to the provisions which advance the object sought to be achieved by the enactment. The court cannot approach the enactment with a view to pick holes or to search for defects of drafting which make its working impossible. It is a cardinal principle of construction of a statute that effort should be made in construing the different provisions so that each provision will have its play and in the event of any conflict a harmonious construction should be given. The well-known principle of harmonious construction is that effect shall be given to all the provisions and for that any provision of the statute should be construed with reference to the other provisions so as to make it workable. A particular provision cannot be picked up and interpreted to defeat another provision made in that behalf under the statute. It is the duty of the court to make such construction of a statute which shall suppress the mischief and advance the remedy. While interpreting a statute the courts are required to keep in mind the consequences which are likely to flow upon the intended interpretation.”

An analysis of this decision makes it clear that the various provisions of an enactment should be so interpreted that every provision is effective and if there is any conflict, the harmonious interpretation should be given effect. Similar decision has been given by larger bench of Mumbai Tribunal in the case of CCE, Mumbai -V Vs M/s GTC Industries Ltd [2008-TIOL-1634-CESTAT-MUM-LB.]. The verdicts of hon’ble Tribunal are produced as follows:-

“It is well settled that every clause of the Statute should be construed with reference to the context in which it is issued. A bare mechanical interpretation of words and application of legislative intent is devoid of concept and purpose will reduce most of the remedial and beneficial legislations to futility. To be literal in meaning is to see the skin and miss the soul.

The legislature never wastes its words or says anything in vain and a construction which attributes redundancy to legislation will not be accepted, as has been observed by the Supreme Court in the case of Union of India vs. Hansoli Devi 2002 7 SCC 273”

Therefore, it is clear that any interpretation which leads to redundancy is to be avoided. In the light of above decisions, the contention of the impugned order that rooms will also be termed as mandap (inspite of the fact that no social, official or business function was organized there) will lead to redundancy of use of phrase “for performing the social, official or business function”. Therefore, such an interpretation is not sustainable and is liable to be set aside.

Appellant further submit that merely because in the bills/invoices issued for letting out the rooms have been in the name of wedding party does not be itself prove that the Mandap Keeper Service was provided by the appellant in the said rooms. Here again it is required to be ascertained the usage of the said rooms. It is submitted that it is clear that no marriage ceremony can be said to be held in a room which has very limited space. Therefore, it cannot be said that any social function related to marriage was held in the small spaced room. It is reiterated that whether an immovable property is mandap or not is required to be ascertained with the help of determinants set out in the definition of the “mandap.

It is submitted that the learned Additional Commissioner has further held in the impugned order that the hall and rooms satisfy the definition of ‘mandap’ defined under Section 65 (66) of the Finance Act, 1994. It was held that the appellant have given the hall and rooms on rent for marriage purposes and both these are part and parcel of the hotel. These are not separate places. Thus, by allowing of these places for marriage purposes on rent the hotel has acted in a manner just like a marriage hall, who allow use of halls, gardens and rooms constructed in the said single premises to the parties celebrating marriage functions. It was held that the rooms and halls cannot be separated so far as these relate to use of marriages.

In this regard, the appellant submitted that hall and rooms were not given together as a whole for marriage purposes. It is submitted that the hall and rooms are separate places and are not used together. It is submitted that only garden has been given for social function of marriage but the rooms were not given for the purpose of holding marriage function but were given for resting or residential purpose. Therefore, the rooms were occupied for different purposes and not for the same purpose of marriage. It is submitted that halls was separate premises and rooms were separate and used for different purposes. Therefore, the rooms cannot be said to be held to be let out for marriage purpose. It is submitted that the appellant are not acting as Marriage hall as the entire hotel is not let out for holding the marriage ceremony. Only the gardens of the appellant hotel are given for marriage purpose. Activities at other areas of the hotel are carried on as usual. In the case of marriage garden, the situation is entirely different as the garden alongwith one or two rooms are given to party. Here the consideration is charged lumpsum and it is mandatory to take those rooms alongwith garden as the marriage gardens are meant for the same purpose. On the other hand, main business of the appellant is providing hotel services where rooms are given on rent for residential occupation to people. They have two gardens which are let out to be used as mandap. However, it is not mandatory to take the rooms alongwith garden. Here the rooms and gardens are entirely different areas and cannot be considered as one since the activities carried out at both the places are clearly distinguishable which is not possible in case of marriage palaces or marriage gardens. Thus, the learned adjudicating authority has wrongly equated the appellant hotel with marriage gardens/halls. Therefore, the interpretation adopted by the learned Additional Commissioner leads to an absurd and unworkable conclusion and therefore, it is not sustainable.

The appellant further submitted that in the impugned order reliance is placed on Circular No. 96/7/2007-ST dated 23.8.2007wherein it was clarified that the rooms, halls, etc. let out FOR ORGANISING THE SOCIAL, OFFICIAL OR BUSINESS FUNCTION will be taxable under mandap keeper services. In this regard, the appellant reiterate that no such function was organized in rooms and they were simply used for resting purpose. Therefore, the said circular is not applicable on them. It is further alleged that there is no evidence that the said rooms were not used for any marriage function. In this regard, it is submitted that the learned Additional Commissioner has not proved his allegation that the rooms were used for marriage purpose. It is simply said that no evidence was given to prove that the said rooms were not used for any marriage function. In this respect, the appellant submit that the assessee cannot be asked to prove the negative. If the department raises any allegation it should be proved by it rather than putting this burden on the assessee. It has been decided in the following case:-

M/s Aviat Health Care Pvt Ltd Vs CC & CE, Belapur [2008-TIOL-1924-CESTAT-MUM.]:-
Allegations are purely conjectural and ipse dixit in nature - It is trite law that it is for the Revenue to substantiate its allegations and not for the assessee to prove the contrary - Revenue loses Rs.5.62 Crores Central Excise undervaluation case at the hands of the Tribunal. : MUMBAI CESTAT;

Thus, the liability rests upon the department to prove its allegation. In the case of appellant, the department has alleged that the rooms were used for marriage function. But it has failed to prove how these were used. The marriage is a life-size function being witnessed by a large no. of people running from few hundred to thousands of people. How this function was organized in these rooms which have capacity to hold only few people at a time. Thus, the allegation of department neither seem logical nor it is otherwise proved anywhere in the entire order.

Apart from the above submissions, the applicant also place reliance on the Stay granted by the Hon’ble Delhi Tribunal in respect of similar issue in the case of M/s Marudhar Hotels Pvt. Ltd vide Stay Order No. ST/SO/58488/2013, ST/MO/58487/2013-CU [DB] dated 25.07.201. The Hon’ble Tribunal has held while allowing the stay application that prima facie the issue is covered in favour of the assessee in view of the decision given in the case of Rambagh Palace Hotels Pvt. Ltd. Vs CCE, Jaipur reported in 2012-TIOL-674-CESTAT-DELHI, which refers another decision in Merwara Estate Vs. CCE, Jaipur reported in 2010 (16) STR 268 (Tri.-Del). In light of the above decisions, it was opined that denial of waiver from the condition of pre-deposit would cause unwarranted hardship and accordingly, the stay application was allowed. It is also worth mentioning here that the decision relied upon by the revenue with respect to Rajmahal Hotel Vs CCE, Jaipur [2006 (4) S.T.R. 370 (Tri.-Del)] was distinguished in the case of Merwara Estate as in the case of Rajmahal Hotel, the assessee rented halls for organising marriages and other social functions which clearly fall under the category of mandap keeper services. The assessee in this case disputed payment of service tax on letting of halls and contended that the halls were supplied along with rooms which is totally contrary to the circumstances of the present stay application. Accordingly, the reliance placed by the applicant on the decision given in the case of Rambagh Palace Hotels Pvt. Ltd. and Merwara Estates strongly supports the case of the appellant. The applicant submits that as the facts and circumstances of the above cited stay order and the cases relied therein are very similar to the present stay application, their benefit should be extended and the stay application should be allowed.

The applicant also submitted that there have been a number of cases in favour of the assessee on the issue under consideration that whether the rooms let out by a hotel along with gardens for marriage ceremony are liable to service tax or not and the applicant wishes to place reliance on all of them. These are once again listed as follows for the sake of ready reference:
·         Rambagh Palace Hotel v/s CCE, Jaipur [2012-TIOL-871-CESTAT-DEL]
·         Merwara Estates v/s CCE, Jaipur [2009-TIOL-871-CESTAT-DEL]
·         Merwara Estates v/s CCE, Jaipur [2007(5) S.T.R. 103 (Tri.-Del.)]
It is worth mentioning that all these decisions have been given by the hon’ble Delhi Tribunal itself and as the facts and circumstances of the present case are exactly the same of the cited cases, their benefit should be extended to the applicant and the stay application should be allowed.

The applicant also highlighted the fact that the issue under consideration in the appeal pertains to the period April, 2006 to March, 2009 and while the same issue for the subsequent period was decided in favour of the applicant vide Order in Original No. 32/2012/S.T./JPR-II/Commissioner dated 17.09.2012 wherein it was held that:-
“…….. an activity which becomes a complementary obligation for discharging/availing the service of Mandap, will be required to be added to the taxable value for the purpose of discharging service tax. It is also confirmed in this judgement that rooms of the hotel are not necessary for the use of the Mandap. As already observed above the department would have had a case if it was established that renting of rooms was essential for holding the social or official functions and that each such function was held by the assessee by compulsorily having a fixed number of rooms on rent alongwith the Mandap where functions were held. Based on the above findings I do not hold that the show cause notice dated 23.08.2011 has any legs to stand on merits. The demand is, therefore, required to be discharged on merits and accordingly no interest under section 75 of the Finance Act, 1994 can also be held as leviable.”
Not only this, another order, on the same issue for the period April, 2010 to April, 2011 has been passed by the learned Additional Commissioner on similar grounds in favour of the applicant vide Order in Original No. 36/ST/JPR-II/2013-Addittional Commissioner dated 27.02.2013 wherein it has been held that:-
“The assessee has argued that the rooms, rented out to the persons organizing the functions, are not used for organising the specified functions. It is not brought out in the show cause notice dated 03.04.2012 that the rooms rented out to the persons are in fact used for organising the specified functions. It is not the case of the department that it is compulsory for the persons organising functions to take the rooms on rent when a function is being organised in the ‘Mandap’ of the assessee and that always a fixed number of rooms were taken by the persons when organising specified functions. Further, in the absence of any documentary evidence to the fact that no official, social, or business functions were held in the rooms were in the rooms rented out by the assessee, CBEC Circular no. 96/7/2007-ST will not be applicable to the assessee’s case. Further, I find force in the averments of the assessee that the service tax on renting of mandap attached to the hotel but not in respect of renting of the hotel rooms as has been maintained by the CESTAT double bench in the case of Merwara Estate vs CCE Jaipur in which the CESTAT has not found taxable and the same view has been taken by the Commissioner of Central Excise, Jaipur-II vide Order in Original No. 32/2012/S.T./JPR-II/Commissioner dated 17.09.2012. Therefore, I am of the confirmed view that the assessee is not required to add room rents to the taxable value when rooms are simultaneously rented out to the persons for holding conference, events & wedding ceremonies under the category of ‘Mandap Keeper Services’.
I observe that the show cause notices issued in the instant case is not sustainable and the same deserves to be dropped……”
In the light of the above cited orders, it is crystal clear that the adjudicating authorities, themselves have accepted that the value of room rent should not form part of the taxable value under ‘mandap keeper services’ for the subsequent periods and so the above cited orders should also be considered for deciding the issue for the earlier periods so that consistency is maintained. Therefore, the stay application of the applicant should be allowed.

Reasoning of the Judgment:-The Tribunal allowed the stay application in favor of the petitioner by placing reliance on the decision given in the case M/s Rambagh Palace Hotels Pvt Ltd. Vs C.C.E Jaipur reported in 2012-TIOL-674-CESTAT-DELHI, which in turn, refers to another decision of this Tribunal in Merwara Estate vs. C.C.E Jaipur reported in 2010 (16) STR 268 (Tri-Del.).
In the light of above mentioned decisions, it was opined by the Tribunal that the assessee has made out a prima facie case in their favour and was entitled to grant of relief. To deny waiver of pre deposit in the circumstances would cause unwarranted hardship. Accordingly, waiver of pre deposit of the adjudicating liability was granted and stay granted with respect to all further recovery proceedings pursuant to the impugned order.

Decision:- Stay application was allowed.

Conclusion:- The gist of this stay application is that letting out of rooms along with halls/garden by a hotel would primarily not be classifiable under the category of “Mandap Keeper Services” as the renting of rooms cannot be said as letting of immovable property for the purpose of organising social/official function as it is practically difficult to organise functions in a room that is primarily used for resting purpose. The mere fact that the rooms were let out to the same parties that availed the mandap keeper services cannot be a ground to levy service tax on the room charges let out by a hotel.

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PJ/Case Study/2013-14/75
02 November 2013

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PJ/Case Study/2013-14/75
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