whether the appellant is liable to pay service tax on food and beverages supplied to their customers in room under Short terms accommodation service or restaurant service

Prepared By: Adit Gupta

Introduction: :- The compendious of the case is that , M/s THE INDIAN HOTEL COMPANY LIMITED-VIVANTA BY TAJ HARI MAHAL, (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 No. IAR/2286/GR. L-1/JDR/15-16/1361 dated 17.06.2016 was issued to the appellant wherein it was alleged that the appellant have short paid service tax amounting to Rs. 4,85,753/- during the period from July, 2012 to September, 2015 on in-room dining and Minibar services provided by them on the grounds that the appellant were required to pay service tax by claiming abatement admissible for short term accommodation services whereas they have wrongly claimed the abatement under the category of restaurant services. The demand of service tax along with interest and penalty under section 78 of the Finance Act, 1994 was proposed against them. The appellant filed the reply to impugned show cause notice vide their letter having reference as PJ/SCN/T-83/16-17/2278 dated 01.09.2016. The appellant filed the reply to impugned show cause notice vide their letter having reference as PJ/SCN/T-83/16-17/2278 dated 01.09.2016.
Aggrieved by the impugned order in original (hereinafter referred as impugned order) confirming the demand of service tax along with interest and penalty, the appellant preferred to file this appeal. However it was finally concluded that the abatement claimed by the appellant with respect to Minibar/in-room dining services provided by them under restaurant service is correct.

Relevant Legal Provisions:

Section 66D of the finance Act,1944.
Notification No.26/2012-ST dated 20-06-2012
Rule 2C of the Service Tax Rules,2006
Section 73(1) and Section 75 of the Finance Act ,1994.
Section 78 of the Finance Act ,1994.
Place of Provision of Rules,2012.

Issue Involved: The issue involved in this case is that whether the appellant is liable to pay service tax on food and beverages supplied to their customers in room under Short terms accommodation service or restaurant service.

Brief Facts:The compendious of the case is that , M/s THE INDIAN HOTEL COMPANY LIMITED-VIVANTA BY TAJ HARI MAHAL, (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 No. IAR/2286/GR. L-1/JDR/15-16/1361 dated 17.06.2016 was issued to the appellant wherein it was alleged that the appellant have short paid service tax amounting to Rs. 4,85,753/- during the period from July, 2012 to September, 2015 on in-room dining and Minibar services provided by them on the grounds that the appellant were required to pay service tax by claiming abatement admissible for short term accommodation services whereas they have wrongly claimed the abatement under the category of restaurant services. The demand of service tax along with interest and penalty under section 78 of the Finance Act, 1994 was proposed against them. The appellant filed the reply to impugned show cause notice vide their letter having reference as PJ/SCN/T-83/16-17/2278 dated 01.09.2016. The appellant filed the reply to impugned show cause notice vide their letter having reference as PJ/SCN/T-83/16-17/2278 dated 01.09.2016.Aggrieved by the impugned order in original (hereinafter referred as impugned order) confirming the demand of service tax along with interest and penalty, the appellant preferred to file this 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 simply ignored the submissions made by the appellant and has confirmed the differential service tax demand by reiterating the allegations of the impugned show cause notice. The learned adjudicating authority has not even given counter reply to the submissions made by the appellant and has mechanically confirmed the differential service tax. The appellant submits that such an order is not legally viable as it turns to be a non-reasoned and non-speaking order which has no relevance in the eyes of law. This view is supported by the decision given by the Hon’ble Apex Court in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)]. The appellant reiterates that the impugned show cause notice has invoked wrong provisions to justify its claim that they 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 them. They 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 taking place outside taxable territory but in the present case, the transaction is taking place wholly within India. The appellant 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. The appellant 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 their case that the appellant have provided service outside taxable territory and on the contrary, they have paid service tax by classifying the services of minibar/in-room dining under the category of ‘Restaurant Services’. The impugned show cause notice followed by the impugned order in original has failed to distinguish the issue of dispute and has invoked wrong provisions to justify that the appellant is 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. The appellant 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 order in original which is issued on totally absurd grounds deserves to be quashed.

The impugned order has further placed reliance on the provisions of Rule 4(b) of the POPS Rules, 2012 which pertains to performance based services. It is pertinent to mention that the said Rule mandates physical presence of person availing the service thereby meaning that the impugned order has interpreted that the service by restaurant can be provided only when the person is physically present at the restaurant which is absurd. In this regard, the appellant submit that the impugned show cause notice is not sure of the Rule to be invoked as it has placed reliance on Rule 3, Rule 4(b) and Rule 5 of the POPS Rules, 2012. It has been alleged that the service by restaurant can be provided only when the person is physically present at the restaurant and so the provisions contained in Rule 4(b) of POPS Rules, 2012 will apply which states that place of provision will be the place where the services are actually performed. However, the impugned show cause notice and the order has failed to substantiate the fact that physical presence of person is necessary for rendering restaurant services. The appellant submit that the show cause notice has mis-interpreted Rule 4(b) of the POPS Rules, 2012 which is for performance based services. The appellant submits that the provision of Rule 4 applies only if the services are of such a nature that physical presence of goods/service recipient is necessary. However, in case of restaurant services, it is not necessary that the person is physically present. The appellant submits that the restaurant provides services of supply of food/beverages and it is not necessary that the service receiver is physically present in restaurant services for availing the said service. The appellant submit that ‘home delivery’ by restaurants is also extension of their service of supply of food/beverages but in that case, the service receiver is not physically present in the restaurant. As such, the provisions of Rule 4(b) of POPS Rules, 2012 have no relevance in the present case. The appellant submit that the provisions of Rule 4(b) of POPS Rules, 2012 will apply in situations like services of beautician, doctors etc. where physical presence of service receiver is mandatory. Therefore, the impugned order that has placed wrong reliance on the provisions of Rule 4(b) is wholly and totally erroneous and deserves to be set aside.

The impugned order has further relied upon the provisions of Rule 5 of the Place of Provision of Service Rules, 2012 which prescribe that the place of provision of service in case of services provided by hotel for short term accommodation shall be the place where the immovable property, i.e., hotel room is located. Thus, in terms of Rule 3, 4(b) and 5 of Place of Provision of Service Rules, 2012, the place of provision of service provided for short term accommodation will be the room of hotel and recipient of service will be the guest staying in that room. In this regard, the appellant reiterates that the impugned order has invoked wrong provisions pertaining to Place of Provision of Service Rules, 2012. The appellant submits that the Place of Provision of Service Rules, 2012 have been framed for determining the place of provision of service, i.e., whether it is in taxable territory being India or in non-taxable territory being outside India. The purpose of determining the place of provision of service is to ascertain whether service tax is leviable on the transaction or not because only the services provided in taxable territory are leviable to service tax. However, this cannot mean that the Place of Provision of Service Rules, 2012 can be applied for ascertaining place of provision of service within India. Moreover, there is no reason for determining the place of provision of service within India as service tax is not leviable on the basis of location where the service is being provided. The appellant submit that neither classification of service nor the rate of service tax is dependent on the place of provision of service within India. As such, the contention of the impugned order that since the place of provision of service is the room of hotel so service tax on in-room dining and mini-bar services is to be paid under short term accommodation service is totally absurd and erroneous. The appellant submits that even otherwise, they cannot apply three different Rules of Place of Provision of Service Rules, 2012 to justify that in-room dining and mini-bar services are leviable to service tax under the category of short term accommodation services because only one Rule can be applied for a particular transaction. Hence, the impugned order which is based on application of wrong provisions is void-ab-initio and is liable to be quashed.

The impugned order has also placed reliance on the provisions relating to bundled services contained in section 66F which provides that if various elements of such service are naturally bundled in ordinary course of business which gives essential character to the bundle. Further, sub-clause (b) provides that if the service is not naturally bundled in ordinary course of business, it shall be treated as provision of single service which results in highest liability of service tax. Accordingly, it is concluded that since the service rendered by the appellant is not naturally bundled in the ordinary course of business, hence it resulted in highest liability of service tax, i.e., short term accommodation services. In this respect, the appellant submit that the impugned order has wrongly invoked the provisions of bundled services because the minibar/in-room dining services are not bundled with the short term accommodation services. The appellant submit that the concept of bundled services would apply only if there was package offered to the customers wherein the charges of breakfast/lunch/dinner were included in the entire consideration charged from them. However, in the present case, this is not so. The appellant submit that the in-room dining/minibar services are to be bundled only if they are provided in package to the customers but if these services are optional and are availed only by few customers with separate bills raised for the same, they would not be classified with the accommodation services provided. In this regard, reliance may be placed on the clarification issued by the Board vide Circular no. 139/8/2011-TRU dated 10.05.2011 wherein with respect to Short Term Accommodation, it is clarified at serial no. 3 as follows:-

*S.No.*	*Queries*	*Clarification*
3.	Is the declared tariff supposed to include cost of meals or beverages?	When the declared tariff includes the cost of food or beverages, Service Tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff.

The appellant submits that the food/drinks consumed in room by the customers are not part of the declared tariff of the room and on the contrary, separate bill is being raised for food or beverages. Consequently, the appellant have correctly paid service tax by classifying the same under restaurant services.
Furthermore, even para 9.2.1 of the Service Tax Education Guide illustrates that the concept of bundled services will come into picture if a hotel provides a 4-D/3-N package with the facility of breakfast. This will amount to natural bundling of services in the ordinary course of business and as the service of hotel accommodation gives the bundle the essential character, the service would be treated as service of providing hotel accommodation. However, if the food is being ordered by the customer at his own will in the room booked by him, then the same cannot be considered to be naturally bundled and classifiable under the category of ‘accommodation services’. Hence, the abatement claimed by us with respect to minibar/in-room dining services provided by the appellant is correct and the impugned order is not tenable.

In continuation to the above, the appellant submit that the circulars issued by the Board are binding on the departmental authorities and they are bound to follow the same. It has been held in the case of COLLECTOR OF CENTRAL EXCISE, BOMBAY V/S KORES (INDIA) LIMITED [2002-TIOL-414-SC-CX] =[1997 (89) E.L.T. 441 (S.C.)] that the board circulars are binding on the department and the department cannot take a stand contrary to the same. Since the board circulars/instructions are binding on the department, the benefit of above clarification should have been extended to the appellant but this has not been done. However, on the contrary the reliance placed on the clarification has been simply ignored without even giving legal justifications for the same. Such an act leads to passing of a non-speaking and non-reasoned order which is not tenable in light of the decision given in the case of CC VS ESSAR OIL LIMITED [2010-TIOL-560-HC-AHM-CUS]. Hence, the impugned order should be set aside.

The appellant 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 the appellant only. They submit that raising service tax demand only on the appellant without raising such service tax demands on other hotels operating in the same Commissionerate tantamounts 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) ELT 130 (SC)]
- BIRLA CORPORATION LTD. VS. CCE [2005 (186) ELT 266 (SC)]

Similar views has been held by the Hon’ble CESTAT in the case of COLLECTOR OF CENTRAL EXCISE, BANGLORE AND OTHERS VERSUS UNITED GLASS AND OTHERS [1987 (31) ELT 786 (Tribunal)] as follows:-
“Excise is an indirect tax, uniformity in valuation and assessment of the goods ought to be ensured so that different manufacturers producing similar goods in the country are not discriminated. With this object in view, it has been the practice of the Tribunal to respectfully follow the Judgment delivered by a High Court on particular issue so long as there is no contrary Judgment by another High court on the same issue. [para 10]”
In the light of above decisions, no discrimination is required to be made between the assessees placed under similar circumstances. As such, when no action is being initiated against other hotels for paying service tax on in-room dining/minibar services under the category of ‘Restaurant Services’, the proceedings initiated against the appellant on discriminatory basis are also liable to be set aside in the light of above decisions.

The appellant further submit that when the differential demand of service tax itself is not sustainable, the question of paying interest does not arise. Hence, the impugned order demanding interest under section 75 is liable to be dropped.

The appellant also submit that the service tax demand has been wrongly raised by invoking extended period of limitation as there was no suppression or misstatement of facts on their part. The appellant submit that since separate bills have been raised by them for the minibar/in-room dining services provided by them and as there was no mandatory requirement to provide such services on their part along with accommodation services, they have correctly paid service tax on the said services by classifying them under ‘Restaurant Services’. In this regard, they submit that this practice of classifying minibar/in-room dining services under the category of ‘Restaurant Services’ is being followed by almost all the hotels and no objection of this kind has been ever raised for any hotel assessee. They further submit that invocation of extended period of limitation is not justified in the present case in the light of decision of hon’ble Supreme Court in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] wherein it has been held that for invoking the extended period, two ingredients are essential – (i) Wilful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This is also held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC- CX) - [1989 (40) E.L.T. 276 (S.C.)] that extended period of limitation can only be invoked in case of fraud, collusion, suppression or willful misstatement. In absence of these essential ingredients, extended period cannot be invoked. Verdicts of hon’ble Supreme Court held as under:-

“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”
Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-

PUSHPAM PHARMACEUTICALS COMPANY VS. CCE, MUMBAI ( 2002-TIOL-235-SC- CX )
LARSEN & TOUBRO LTD. Versus COMMISSIONER OF C. EX., PUNE-II [2007 (211) ELT 513(S.C.)]
PADMINI PRODUCTS vs. CCE[1989 (43) ELT 195 (Supreme Court)]

In the above cases, it was held that mere negligence or failure to pay duty on part of assessee is not sufficient to invoke the extended period of limitation. It should be proved that there was suppression of facts with intent to evade payment of service tax. This is not the case here. The appellant have correctly paid service tax on the minibar/in-room dining services provided by them under the category of ‘Restaurant Services’. Thus, the extended period is wrongly invoked in the instant case and the demand is barred by the clause of limitation. It is pertinent to note that the reliance was placed on the above mentioned decisions in the reply to the show cause notice filed by them but the impugned order has not even distinguished the ratio of the above decisions in the present case. As such, the impugned turns out to be a non-speaking order in light of decision given by the Hon’ble Apex Court in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)]. Therefore, the impugned order is liable to be set aside.

It is further submitted that the impugned order has also confirmed imposition of penalty under section 78 of the Finance Act, 1994 without even proving that the essential ingredients for levying penalty under this section were present. They submit that penalty under section 78 can only be imposed when there is fraud, collusion or willful misstatement of facts with intention to evade payment of duty. However, in the present case, they have bonafidely paid service tax on minibar/in-room dining services by classifying them under the category of ‘Restaurant Services’. As such, there is no malafide intention on their part and no penalty under section 78 can be imposed on them. It is also submitted that when there is no malafide intention to evade duty or to suppress facts from the department, penalty is not imposable in view of Supreme Court judgment given in the case of HINDUSTAN STEEL VS. STATE OF ORISSA [1978 2 ELT J 159 (SUPREME COURT)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. It is further held in the case of ORIENT CERAMICS AND INDUSTRIES [1987 (32) ELT 218 (I)] that words ‘with intent to evade payment of duty’ are very significant and unless and until the intention to evade payment of tax is proved on part of assessee, no penalty can be imposed. Similar view has been taken by hon’ble High Court in the following case:-

COMMISSIONER OF CENTRAL EXCISE V/S ESS ESS ENGINEERS [2011 (23) S.T.R. 3 (P & H)]:-

“The High Court observed that the Tribunal had held that short payment was mainly due to the appellant’s understanding that they were not liable to pay service tax on fabrication and dismantling charges. As regards penalty under Section 78 is concerned, the same is imposable in a case where service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, by reason of fraud; or collusion; or willful misstatement; or suppression of facts; or contravention of any of the provisions of this Chapter or of the rule made thereunder with intent to evade payment of service tax. It was noted that the fact of non-payment of service tax was discovered during the course of audit.

The High Court held that the submission of Revenue that appellant was guilty of mis-declaration was not acceptable as the Tribunal had given a finding of fact that assessee did no have requisite mens rea to evade payment of service tax. The assessee had duly paid the service tax with interest and also made full and true disclosure in the return. The finding of fact of Tribunal was not shown to be perverse in any manner. Hence no question of law arises.”
Thus, mens rea is an essence of invoking the penal provisions. Reliance is also placed on the following judgments:-

2010 (258) ELT 465 (SC) – Sanjiv Fabrics
2007 (207) ELT 27 (P &H) – UT Ltd
2007 (5) STR 251 (P & H) – Kamal Kapoor
2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
2009 (238) ELT 209 (P&H) – J. R. Fabrics
2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
2008 (228) ELT 31 (Del) – K. P. Pouches

In view of these judgments, no penalty can be imposed unless mens rea or intention to evade payment of duty/service tax is proved. Since the impugned order has not otherwise proved the malafide intention; therefore, in view of these judgments the impugned order is liable to be quashed.

It is also submitted that the impugned order has also placed reliance on the decision given by the Hon’ble Supreme Court in the case of Union of India v/s Dharmendra Textile Processors [2008 (231) E.L.T. 3 (S.C.)] wherein it has been held that equal penalty is imposable and language employed in statue is determinative factor of the legislative intent. In this regard, the appellant submit that as per language of the section, penalty can be imposed only if the short-payment is due to any of the ingredients referred in the section like fraud, collusion, willful misstatement or suppression of facts. However, in the instant case, none of these ingredients are present. As such, the judgment of the hon’ble Supreme Court has been delivered by ignoring the provisions of the section mentioned in the law. It has been held in the case of A-One Granites v State of U.P. (2001)3SCC537; AIR2001 SC 1203; Salmond on Jurisprudence, 12th Edn. Pg 167 that the decision given by the hon’ble Apex Court which has been rendered per incuriam, i.e. by ignoring the provisions of the Act, is not binding under article 141 of the Constitution. The doctrine of per incuriam is an exception of the rule of precedents and it says that any expression resulting from ignorance is not a binding authority and it may be ignored. In the instant case, the mens rea/willful suppression has been mentioned as essential ingredients for the purpose of imposing the penalty as contemplated by the provisions of the Central Excise Act, 1944. But the hon’ble Supreme Court has rendered decision of Dharmendra Textiles by ignoring this vital fact. As such, it is not binding precedent as per doctrine of per incuriam. In the instant case, there was no willful suppression by the appellant and rather the appellant has bonafidely discharged its service tax liability on in-room dining and minibar services under the category of restaurant services. Further all the facts of the case were well within the knowledge of the department as every hotel follows such practise of paying service tax on in-room dining and minibar services under the category of restaurant services. Further, returns have also been filed by the appellant. When everything was known to department, there cannot be any suppression of facts. Thus, allegation of suppression is not levelled. As such, the penalty under section 78 of the Finance Act that is leviable for the charge of suppression cannot be imposed upon them by relying on the case of Dharmendra Textiles. As such, the impugned order is not tenable and it should be set aside.
1. In continuation to above, it is submitted that the decision of hon’ble Supreme Court in the case of M/s Dharmendra Textiles has been referred by hon’ble Punjab and Haryana High Court in the following case:-

CCE, CHANDIGARH-II VS M/S SARVPRIYA INDUSTRIES LTD [2010-TIOL-523-HC-P&H-CX.]-

Central Excise - Supreme Court decisions in Dharmendra Textile as well as in RajasthanSpinning& Weaving Mills do not lay down that for every short payment of duty, penalty is automatic: Dharmendra Textile as well as in RajasthanSpinning& Weaving Mills is that mandatory penalty under Section 11AC of the Act was not applicable to every case of non-payment or short-payment of duty. Thus, even though the authorities may have no discretion once conditions stipulated under Section 11AC of the Act exist, in absence of fulfilment of such conditions, penalty could not be levied. In this view of the matter and the finding of the Tribunal that there was no allegation of suppression of facts with intent to evade the payment of duty, the penalty under Section 11AC of the Act was not warranted. No substantial question of law arises: PUNJAB AND HARYANA HIGH COURT.

Reasoning adopted by the adjudicating authority: -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 firstly found that the short term accommodation along with restaurant service is bundled service and hence the higher rate of short term accommodation service must be applicable when foods and beverage are supplied in room. The concept of bundled services would apply only if there was package offered to the customers wherein the charges of breakfast/lunch/dinner were included in the entire consideration charged from customers. The in room dinning/ minibar services are to bundled only if they are provided in package to the customers but if these services are optional and are availed only by few customers with separate bills raised for the same, they would not be classified with the accommodation services provided. It has been clarified that when the declared tariff includes the cost of food or beverages, Service tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff-This was clarified by the board via Circular no. 139/8/2011-TRU dated 10.05.2011.

Conclusion:- On the basis of above discussions it is now clear that the food/drinks consumed in room by the customers are not part of the declared tariff of the room and on the contrary, separate bill is being raised for food or beverages. The concept of bundled services would come into picture if a hotel provides a 4-D/3-N package with the facility of breakfast. This would amount to natural bundling of services in the ordinary course of business and as the service of hotel accommodation gives the bundle the essential character, the service would be treated as service of providing hotel accommodation. However, if the food is being ordered by the customer at his own will in the room booked by him, and then the same cannot be considered to be naturally bundled and classifiable under the category of ‘accommodation services’. Thus it has been concluded that the abatement claimed by the appellant with respect to mini bar/ in-room dining services under restaurant service is correct.

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PJ/Case Study/2018-19/135
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