Custom, Excise & Service Tax Tribunal
Eih Limited vs Commissioner Central Goods And Service ... on 20 January, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Single Member Bench
Service Tax Appeal No. 87687 of 2019
(Arising out of Order-in-Appeal No. PVNS/146/Appeals-II/ME/2019 dated
07.06.2019 passed by the Commissioner of CGST & Central Excise (Appeals-
II), Mumbai)
M/s. EIH Ltd. Appellant
Unit - Trident Bandra-Kurla,
C-56, G Block, BKC, Bandra (E),
Mumbai 400 051.
Vs.
Commissioner of CGST, Mumbai East Respondent
9th Floor, Lotus, Parel (E), Mumbai 400 012.
Appearance:
Shri Jay Chheda, Advocate, for the Appellant
Shri Prabhakar Sharma, Superintendent, Authorised Representative for
the Respondent
CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
Date of Hearing: 20.01.2023
Date of Decision: 20.01.2023
FINAL ORDER NO. A/85340/2023
This appeal is directed against the order in appeal No
PVNS/146/APPEAL-II/ME/2019 dated 07.06.2019 of the
Commissioner of GST and Central Excise (Appeals -II), Mumbai.
By the impugned order, Commissioner (Appeals) has upheld the
order in original No ST4/DN3/EB/AC/04/2016-17 dated
29.05.2017 of the Assistant Commissioner, Division-III,
Erstwhile Service Tax-IV, Mumbai, holding as follows:
ORDER
(i) I confirm the demand of Service Tax amounting to Rs.
13,48,706/- (Rupees Thirteen Lakhs Forty-eight Thousand Seven Hundred and Six only) and order recovery of the same from the assessee under the proviso to Section 73(1) of the Finance Act, 1994.;
2 ST/87687/2019
(ii) I order recovery of interest as applicable under Section 75 of the Finance Act, 1994 on the amount confirmed at (i) above;
(iii) I do not impose any penalty under Section 77 of Finance Act, 1994;
(iv) I impose penalty of Rs. 13,48,706/- (Rupees Thirteen Lakhs Forty-eight Thousand Seven Hundred and Six only) on the assessee, i.e. EIH Ltd. Unit Trident BKC, under the provisions of Section 78(1) of Finance Act, 1994;
(v) In terms of Clause (ii) of the Second proviso to Section 78(1) of the Finance Act, 1994, the assessee will have the benefit of reduced Penalty of 25% as imposed at (iv) above, if the entire Service Tax and interest as confirmed above as well as such reduced penalty is also paid within 30 days of the receipt of this order.
2.1 Appellant holding Registration No.AABCB0266D001, is engaged in the business of providing Accommodation and Restaurant Service.
2.2 During the course of audit of the records of the appellant for the period April 2011 to March 2015, it was observed that the appellant had recorded income under the Head 'Room Charge Retention' on cancellation of accommodation by their customers during the years 2012-13 to 2015-16. As per the appellant, this income is generated on account of non-occupation of the room by the customers on the booked days or exit before the completion of the days booked. As per the terms and conditions of the Hotel, the customers have to give prior intimation for cancellation of the bookings to get refund of the advance given or else the amount is adjusted against the room which is kept ready for them to occupy. In such cases, the service tax is paid on such charges by availing abatement of 40% as provided under Notification No.26/2012-ST. dated 20.6.2012. Revenue contended that the amount retained was not for provision of 'Short-term Accommodation Service', as no service whatsoever has been provided by the appellant to the customers for the income so earned. The amount so retained was towards the Declared Service as per clause (e) of Section 66E of the Finance Act, 1994 thus liable for payment of Service Tax on the value of the amount retained. The liability of the 3 ST/87687/2019 service tax on the amount so retained as per the revenue is as detailed below:
F. Year Retention ST paid on ST payable on Difference Charges 60% of the 100% Value value 2012-13 51,52,371 3,82,100 6,36,833 2,54,733 2013-14 33,74,891 2,50,282 4,17,137 1,66,855 2014-15 81,89,267 6,07,316 10,12,193 4,04,877 2015-16 90,04,157 7,83,362 13,05,603 5,22,241 Total 257,20,686 20,23,059 33,71,766 13,48,706 2.3 A show cause notice dated 12.1.2017, was issued to the Appellant Show Cause as to why:
(i) Service Tax totally amounting to Rs. 13,48,706/- ( Rupees Thirteen Lakh Forty Eight Thousand Seven Hundred Six only) as detailed in Paragraph 5 above should not be demanded and recovered from them under proviso to Section 73(1) of the Finance Act, 1994;
(ii) Interest at appropriate rate under the provisions of Section 75 of the Finance Act, 1994 should not be demanded on the amount so demanded;
(iii) Penalty under Section 77 of the Finance Act, 1994 should not be imposed on them for non-disclosure of the correct facts in the ST-3 Returns filed with the department;
(iv) Penalty should not be imposed upon them under the provisions of Section 78 of the Finance Act, 1994 for suppressing the fact of receipt of taxable income demanded under (i) above.
2.4 The show cause notice was adjudicated as per the order in original referred in para 1 above. The appeal filed by the appellant against the order in original has been dismissed as per the impugned order.
2.5 Aggrieved appellant have filed this appeal.
3.1 I have heard Shri Jay Chheda, Advocate for the Appellant and Shri Prabhakar Sharma, Superintendent, Authorized Representative for the revenue.
3.2 Arguing for the appellant learned counsel submits that the issue 4 ST/87687/2019 Issue involved in the present case is with regards to denial of the benefit of exemption claimed by them as per notification No 26/2012-ST. dated 20.6.2012. As per the impugned order the cancellation charges retained by the appellant cannot be granted exemption under the said notification, because these charges are not towards provisions of any services as per the notification, but are in respect of services which have been defined as declared service as per Section 66 E (e).
The issue involved in the matter is no longer res-integra and is covered by the following decisions:
o Lemon Tree Hotel [2020-TIOL-1114-CESTAT-Del] o M P Poorva Kshetra Vidyut Ltd [2021 (2) TMI 821 CESTAT New Delhi) o M P Audyogik Kendra Vikas Nigam Indore Ltd. [2022 TIOL 510 CESTAT DEL) o South Eastern Coalfields Ltd. [2021 (55) GSTL 549 (T-
Del) o Kingfisher Airlines Ltd. [2015 (40) STR 1159 (T-Mum)] 3.3 Arguing for the revenue learned authorized representative while reiterating the findings recorded in the impugned order submits:
The present matter involves declared service mentioned under Clause (e) which can be divided into three part:-
o agreeing to the obligation to refrain from an act, or o to tolerate an act or a situation, o or to do an act;
The liability of service tax in the above stated circumstances have been fixed by the statutory provision. Therefore, In case of any such circumstances appearing in any transactions between two or more person for consideration, it would be taxable event and would attract service tax at the specified rate.
Section 65B (44) defines Service as "Service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include......
5 ST/87687/2019 No exemption or abatement in value is available for the declared service classified under Clause (e) of Section 66E of the Finance Act, 1994.
Hon'ble Supreme Court has held in number of judgment that (where there is no ambiguity) taxing statute should be interpreted strictly.
o Ind-Swift Laboratories Limited [(2011) 4 SSC 635] o Ajmera Housing Corpn. [(2010) 8 SCC 739] o Cape Brandy Syndicate v. IRC [(1921) 1 KB 64] The appellant are entering into an agreement with their customers which mainly has two separate components. o One that is related to provision of service under Classification "Accommodation & Restaurant Services"; and o other service is related to a situation or for tolerating an act for cancellation of booking made by any customer.
Thus when the customer cancels his booking which is made for "Accommodation & Restaurant Services" and which was to be provided by the appellant ceases to exist and considering the service under the same head is incorrect if there is specific and unambiguous provision mentioned under the finance Act dealing with such situation.
In present regime of GST, the same kind of service is kept taxable and is widely published in Newspapers and electronic media (Ex-1).
The lower authorities have rightly held that the impugned transaction is in relation to the agreement for tolerating an act or a situation and is classifiable as declared service under Section 66E(e) of the Finance Act, 1994 and attracts Service Tax with full rate.
The appeal be dismissed.
4.1 I have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 Impugned order records following findings:
"7. I find from the records that the appellant in normal cases received consideration from their customers/ clients for booking rooms/ accommodation in their hotel and on occupation of the 6 ST/87687/2019 said room/ accommodation by the customers/ clients, the appellant discharges service tax on the said room charges so received under 'short-term accommodation service', after availing the abatement in terms of Notification No.26/2012-ST dated 20.6.2012. However, in cases of no show i.e. when the customers/clients do not turn up after making reservation of a room or exit early before the completion of the number of days booked, the appellant charges cancellation fees/room retention charges from the said customers/clients. The appellant discharges service tax on the said cancellation fess/retention charges under 'short term accommodation service' after availing the abatement in terms of Notification No.26/2012-ST dated 20.6.2012. It is the department's contention that the said cancellation fees/room retention charges received by the appellant are not towards the provision of 'short term accommodation service' as no such service is provided when the customer fails to occupy the room reserved by them and as such the appellant are not liable to discharge service tax under 'short- term accommodation service'. It has been further contended by the department that the amount so retained was towards the Declared Service as per clause(e) of Section 66E of the Finance Act, 1994- "agreeing to the obligation to refrain from an act, or tolerate an act or a situation or to an act" and thus liable for payment of Service Tax on the gross value of the amount retained without any abatement.
7.1 I find that the appellant charged cancellation fees/retention charges from the no show customers as per the cancellation policy and agreed to tolerate an act or situation i.e. the act of non-occupation of the room by the customer, despite having booked the same. Further, the appellant also agreed to refrain from an act ie. refraining from an act of allotting the room so booked in favour of another customer, till the time such cancellation request is received from the customer, and as a consideration to refrain from the act of allotting the room so booked to other customers, the appellant charged cancellation fees/retention charges from the no-show customers. In order to bring more clarity, I reproduce the said Section as under;
66E. Declared Services:-
7 ST/87687/2019
e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
The said activity falls within the purview of Section 66E(e) of the Finance Act, 1994. I find that the appellant have contended that the amount recovered by them is not in lieu or in return of performance of any activity and therefore no service tax is leviable. I find that in terms of the common understanding the word 'activity' includes an act done, a work done, a deed done, an operation carried out, execution of an act, provision of a facility etc. It is a term with very wide connotation. Activity could be active or passive and would also include forbearance to act. Agreeing to an obligation to refrain from an act or to tolerate an act or a situation has been specifically listed as a declared service under Section 66E(e) of the Act. The appellant have relied upon the decision of Commissioner(Appeals) dated 30.11.2017, in the case of M/s. Apeejay Surendra Park Hotels Ltd, Hyderabad, wherein it was held that the decision of the original authority to treat cancellation charges as 'declared services" under Section 66E(e) of the Act and to charge tax on such value without abatement available on short-term accommodation service, to be legally unsustainable. I find that the said decision of Commissioner (Appeals) is based on Guidance Note paragraph.2.3.2 of the CBEC Education Guide 2012. It has been clarified in paragraph.1.2 of the said Education Guide that the said Guidance Note does not command the required legal backing to be binding on either side in any manner. As such, reliance placed on the said decision, does not serve the cause of the appellant. I therefore find that the service provided by the appellant rightly fails under the 'Declared Service' and the *room retention charges/cancellation fees' received/charged is liable to service tax on the gross amount received/charged without abatement. The findings of the adjudicating authority to that extent need no interference. Since the demand of Service tax is sustained, the same is recoverable alongwith interest and the findings of the adjudicating authority to that extent also needs no interference. Held Accordingly.
8. As regards invocation of extended period of limitation, imposition of penalty under Section 78 of the Finance Act, 1994, and extending of benefit of cum-tax value, I find that the 8 ST/87687/2019 submissions made in this regard in the appeal memo are similar to what has been stated before the adjudicating authority. I find that the adjudicating authority in paragraph:120, 121 and 122 of his impugned order has given detailed findings on each of the above and arrived at the conclusion that extended period of limitation is invokable in the instant case and consequently, penalty under Section 78 is also imposable and also that the appellant is not entitled to cum-duty benefit. I agree with the findings of the adjudicating authority and to that extent the impugned order needs no interference. Held Accordingly.
4.3 As per the Education Guide issued by the revenue, explaining the provisions of the regime of taxation under negative list of services following has been stated:
"2.3.2 Would the payments in the nature as explained in column A of the table below constitute a consideration for provision of service?
S A B No
Nature of Payment Whether Consideration for Service?
4 Advances forfeited Since service becomes taxable on an for cancellation of agreement to provide a service such agreement to forfeited deposits would represent provide a service consideration for the agreement that was entered for provision of service 3.1 Provided or agreed to be provided 3.1.1 What is the significance of the phrase 'agreed to be provided'?
The phrase "agreed to be provided" has been retained from the definition of taxable service as contained in the erstwhile clause (105) of section 65 of the Act. The implications of this phrase are
-
• Services which have only been agreed to be provided but are yet to be provided are taxable • Receipt of advances for services agreed to be provided become taxable before the actual provision of service • Advances that are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided.
9 ST/87687/2019 3.4.3 How do I know that the service provided by me is an exempt service?
There are certain exemption notifications that have been issued under section 93 of the Act of which the main exemption no 25/2012-ST dated 20/6/12 has 39 heads (mega notification).
If the service provided by you fits into the nature and description of services specified in these notifications then the service being provided by you is an exempted service. For the sake of convenience the proposed mega exemption has been reproduced at Exhibits A3 of this Guide.
3.4.4 Are declared services also covered by exemptions?
Yes."
From the above it is evident that the amounts retained by the appellant from the advances received for the provision of the taxable service on cancelation of the agreement to provide the service, are to be taxed under the same category of the taxable service which was agreed to be provided, the consideration for the same would be the amount retained and the service tax shall be payable on the value determined taking the said amount as the value of the service to be provided.
4.4 I agree with the submissions made by the appellant that the issue involved in the present case is no longer res-integra. The issue is squarely covered by the decision of this Delhi Bench in the case of Lemon Tree Hotel [2020 (34) GSTL 220 (T-Del)]. In the said case following was observed:
3. So far as the first issue is concerned, the appellant, in the course of their business of running a hotel, offers advance booking to its customers, on payment of rent or deposit.
Sometimes in the event of cancellation or of no show i.e. if the guest does not come for stay, the appellants retains the full or part of the amount towards cancellation charges. It is admitted that the appellant have paid service tax under Accommodation Services as and when they receive advance, availing the permissible abated value. It is the case of the Revenue that upon cancellation by the customers, the gross amount received by the appellant qualifies the receipt under Section 66E(e), which is defined as under :-
10 ST/87687/2019 "Following shall constitute the declared services viz. :-
"agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and chargeable on full value and not on abated value".
4. Ld. Commissioner (Appeals) in confirming the demand under this head has observed that retention of such cancellation charges is not against the provisions of intended services but for not availing the said services by the customers, which the appellant has tolerated.
5. Having considered the rival contentions, I find that the aforementioned observation of the Commissioner (Appeals) are erroneous and have no legs to stand. Admittedly, the customers pay an amount to the appellant in order to avail the hotel accommodation services, and not for agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and chargeable on full value and not on abated value. The amount retained by the appellant is for, as they have kept their services available for the accommodation, and if in any case, the customers could not avail the same, thus, under the terms of the contract, they are entitled to retain the whole amount or part of it. Accordingly, I hold that the retention amount (on cancellation made) by the appellant does not undergo a change after receipt. Accordingly, I hold that no service tax is attracted under the provisions of Section 66E(e) of the Finance Act. Accordingly, this ground is allowed in favour of the appellant.
4.5 In case of M P Poorva Kshetra Vidyut Ltd. [2021 (46) G.S.T.L. 409 (Tri. - Del.)] tribunal observed as follows:
26. The Tribunal, thereafter referred to a judgment of the European Court of Justice (First Chamber) in Case C-277/2005, in Societe Thermale d'Eugenic-les-Bains v. Ministere de I'Economie, des Finances et de I'Industrie as it dealt with the issue whether an obligation to refrain from an act or to tolerate an act or situation would result in supply of services when a sum paid as a deposit by a client to a hotelier, where the client exercises the cancellation option available to him and that sum is retained by the hotelier, can be regarded as consideration for the supply of a reservation service. The Tribunal also referred to its 11 ST/87687/2019 earlier decisions in M/s. K.N. Food Industries Pvt. Ltd. v.
Commissioner of CGST and Central Excise Kanpur [2019-TIOL- 3651-CESTAT-ALL = 2020 (38) G.S.T.L. 60 (Tri. - All.)] and M/s. Lemon Tree Hotel v. Commissioner, Goods and Service Tax [2020-TIOL-1114-CESTAT-DEL = 2020 (34) G.S.T.L. 220 (Tri. - Del.)].
27. Ultimately, the Tribunal has held as follows :
"43. It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of earnest money deposit and liquidated damages have been received by the appellant towards "consideration" for "tolerating an act" leviable to service tax under section 66E(e) of the Finance Act."
28. The issue that arose for consideration in Lemon Tree Hotel was whether forfeiture of the amount received by a hotel from a customer on cancellation of the booking would be leviable to service tax under Section 66E(e). The Tribunal held that the retention of the amount on cancellation would not attract service tax under Section 66E(e) and the relevant portion of the decisions is reproduced below :"
4.6 In case of Kingfisher airlines Ltd, tribunal has by majority held as follows:
"12. Section 65A of the Finance Act, 1994 also deals with the situation which is reproduced hereunder :
"65A. Classification of taxable services. - (1) For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the clause (105) of section 65;
(2) When for any reason, a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows: -
(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in 12 ST/87687/2019 clause (a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion is applicable;"
13. From the above provision, it is clear that when taxable service comprises of more than one services then such services shall be classifiable under the taxable head which gives its essential characteristic. In this case, we have seen that the question of excess baggage charges arises when passenger is transported by air, otherwise not. In that situation, the essential characteristic of the service of transportation of passenger by air. In these circumstances, we do agree with the contention of the learned counsel for the appellants that the excess baggage charges are nothing but an integral part of the service of transport of passenger by air.
26. Having considered the rival contentions, I find that the issue before the Tribunal is with respect to accompanied baggage of the passenger in the course of Air travel. I find that the carrying of baggage by the appellant Airlines is incidental to the service being 'transport of passengers by Air' and the same is classifiable under Section 65(105)(zzn). There is no separate contract in the facts of the case for transport of goods (excess baggage). More particularly, in the case of agreement of transport of passengers by Air, there is no element of transport of unaccompanied goods. Thus, agreeing with the learned Member (Judicial), I hold that the excess baggage charges collected by the appellant Airlines is integral part of the service provided for 'transport of passengers by Air'.
4.7 CBIC has vide Circular No 178/10/2022-GST dated 3- 08.2022 clarified as follows:
"4. In Service Tax law, 'Service' was defined as any activity carried out by a person for another for consideration. As discussed in service tax education guide, the concept 'activity for a consideration' involves an element of contractual relationship wherein the person doing an activity does so at the desire of the person for whom the activity is done in exchange for a consideration. An activity done without such a relationship i.e., without the express or implied contractual reciprocity of a consideration would not be an 'activity for 13 ST/87687/2019 consideration'. The element of contractual relationship, where one supplies goods or services at the desire or another, is an essential element of supply.
6.This goes to show that the service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement. A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration.
Cancellation charges
11. A supply contracted for, such as booking of hotel accommodation, an entertainment event or a journey, may be cancelled by a customer or may not proceed as intended due to his failure to show up for availing the same at the designated place and time. The supplier may allow cancelation of supply by the customer within a certain specified time period on payment of cancellation fee as per commercial terms of the contract. In case the customer does not show up for availing the service, the supplier may retain or forfeit part of the consideration or security deposit or earnest money paid by the customer for the intended supply.
11.1 It is a common business practice for suppliers of services such as hotel accommodation, tour and travel, transportation etc. to provide the facility of cancellation of the intended supplies within a certain time period on payment of cancellation fee. Cancellation fee can be considered as the charges for the costs involved in making arrangements for the intended supply and the costs involved in cancellation of the supply, such as in cancellation of reserved tickets by the Indian Railways.
11.2 Services such as transportation travel and tour constitute a bundle of services. The transportation service, for 14 ST/87687/2019 instance, starts with booking of the ticket for travel and lasts at least till exit of the passenger from the destination terminal. All services such as making available an online portal or convenient booking counters with basic facilities at the transportation terminal or in the city, to reserve the seats and issue tickets for reserved seats much in advance of the travel, giving preferred seats with or without extra cost, lounge and waiting room facilities at airports, railway stations and bus terminals, provision of basic necessities such as soap and other toiletries in the wash rooms, clean drinking water in the waiting area etc. form part and parcel of the transportation service; they constitute the various elements of passenger transportation service, a composite supply.. The facilitation service of allowing cancellation against payment of cancellation charges is also a natural part of this bundle. It is invariably supplied by all suppliers of passenger transportation service as naturally bundled and in conjunction with the principal supply of transportation in the ordinary course of business.
11.3 Therefore, facilitation supply of allowing cancellation of an intended supply against payment of cancellation fee or retention or forfeiture of a part or whole of the consideration or security deposit in such cases should be assessed as the principal supply. For example, cancellation charges of railway tickets for a class would attract GST at the same rate as applicable to the class of travel (i.e., 5% GST on first class or air-conditioned coach ticket and nil for other classes such as second sleeper class). Same is the case for air travel.
11.4 Accordingly, the amount forfeited in the case of non- refundable ticket for air travel or security deposit or earnest money forfeited in case of the customer failing to avail the travel, tour operator or hotel accommodation service or such other intended supplies should be assessed at the same rate as applicable to the service contract, say air transport or tour operator service, or other such services."
4.8 Admittedly appellant has paid service tax on the room retention charges collected by them on cancellation of the booking by availing the exemption/ abatement as per notification No 26/2012-ST treating them as "Short term accommodation 15 ST/87687/2019 services". In view of the decisions and discussions as above I do not find any merits in the impugned order.
5.1 Appeal is allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) tvu