Custom, Excise & Service Tax Tribunal
Tiruchirapalli Ce&St vs Sangu Chakra Hotels Pvt Limited on 19 December, 2023
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. III
Service Tax Appeal No. 41285 of 2014
(Arising out of Order-in-Original No. 06/2014-ST dated 20.02.2014 passed by Commissioner of Central
Excise and Service Tax, No. 1, Williams Road, Cantonment, Tiruchirappalli - 620 001)
Commissioner of GST and Central Excise ...Appellant
No. 1, Williams Road,
Cantonment,
Tiruchirappalli - 620 001.
Versus
M/s. Sangu Chakra Hotels Pvt. Ltd. ...Respondent
No. 24, Collector Office Road, Tiruchirappalli - 620 001.
APPEARANCE:
For the Appellant : Shri M. Ambe, Deputy Commissioner / A.R. For the Respondent : Shri S. Murugappan, Advocate CORAM:
HON'BLE MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL) HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) DATE OF HEARING : 03.10.2023 DATE OF DECISION : 19.12.2023 FINAL ORDER No. 41139 / 2023 Order :- [Per Mr. VASA SESHAGIRI RAO] Service Tax Appeal No. ST/41285/2014 has been filed by the Department by reviewing the Order-in-Original No. 06/2014-ST dated 20.02.2014 passed by the Commissioner of Central Excise & Service Tax, Tiruchirapalli dropping the demand of Service Tax of Rs.73,80,436/- under 2 ST/41285/2014 the category „Restaurant Service‟ for the period from 01.05.2011 to 31.12.2012 and also penalties proposed.
2.1 The relevant facts, leading to institution of the present appeal are that the Respondent, engaged in rendering Mandap Keeper Service, Cab Operator Service and Business Auxiliary Service are registered with Service Tax Department with Registration No. AADCM2094GST002. The officers of Internal Audit Section, Tiruchirappalli Commissionerate visited the premises of the Respondent and noticed that they were engaged in providing „Restaurant Service‟ from 01.05.2011 to 31.12.2012. Right from levy of Service Tax on „Restaurant Service‟ w.e.f. 01.05.2011, the Respondent were an airconditioned establishment and had licences to serve alcoholic beverages and also serve food or beverages or both, in their premises. Therefore, the Department was of the view that the respondent was liable for registration and payment of Service Tax on „Restaurant Services‟ provided in respect of food and beverages, including alcoholic beverages or both, in their premises.
2.2 Therefore a Show Cause Notice bearing No. 06/2013-ST dated 03.06.2013 was issued to the Respondent proposing to demand Service Tax of Rs.73,80,436/- on „Restaurant Services‟ for the period from 01.05.2011 to 31.12.2012 invoking proviso to Section 73(1) of the Finance Act, 1994, besides proposing to levy interest under Section 75 and penalties under Sections 76, 77(1)(a), 77(2) and 78 of the Finance Act, 1994.
2.3 After due process of law, the adjudicating authority vide Order-in-Original No. 06/2014-ST dated 20.02.2014 dropped further proceedings initiated under the Show Cause Notice, on the ground that the essential conditions stipulated under Section 65(105)(zzzzv) of the Finance Act, 1994 have 3 ST/41285/2014 not been met and they became eligible for exemption under Sl.No. 19 of Notification No. 25/2012-ST dated 20.06.2012.
3. Aggrieved by the above Order, the Department has filed this appeal before this forum.
4.1 It is expedient to examine the legal provisions relevant to this appeal. The Respondent was found to be providing "Restaurant Service" w.e.f. from 01.05.2011. The levy of Service Tax on 'Restaurant Service‟ came into effect from 01.05.2011 under Section 65(105)(zzzzv) of the Finance Act, 1994, as it stood before 01.07.2012, i.e., prior to being amended by the Finance Act, 2012 with effect from 01.07.2012, introducing Negative List based levy of tax on services.
4.2 Section 66 of the Finance Act, 1944, as it stood before 01.07.2012, provided for levy of Service Tax on the taxable services referred to in the sub-clauses of clause (105) of Section 65 of the Act. Sub-clause (zzzzv) of Section 65(105) of the Act, as it stood before 01.07.2012, read as follows:-
"Sec. 65(105)(zzzzv): "Taxable service" means any service provided or to be provided to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises."
4.3 It is thus seen that if a restaurant, by whatever name called, having air-conditioning in any part at any time of the financial year and having licence to serve alcoholic beverages, provides any service in relation to serving food or beverage in its premises, then such service would be liable to Service Tax under Section 65(105)(zzzzv) of the Finance Act, 4 ST/41285/2014 1994, as it stood prior to 01.07.2012. Notification No. 1/2006- S.T. dated 01.03.2006 as amended by Notification No. 34/2011- S.T. dated 25.04.2011 grants abatement in value to the extent of 70% of the gross amount charged for providing the restaurant service. In other words, Service Tax would be payable on 30% of the gross amount charged for providing the restaurant service. This Notification No. 1/2006- S.T. remained in force upto 30.06.2012 before being rescinded by Notification No. 34/2012-S.T. dated 20.06.2012 with effect from 01.07.2012.
4.4 After introduction of Negative List based levy of Service Tax with effect from 01.07.2012, Section 66B of the Finance Act, 1994 provides for levy of service on all services other than those services specified in the negative list, provided or agreed to be provided by one person to another. As per Section 65B(34) of the Act, 'negative list' means the services which are listed in Section 66D. Section 66D specifies 17 services, listed under clauses (a) to (q) of the Section, as comprising the negative list. The service provided by a restaurant in relation to serving food or beverage in its premises does not figure in the negative list under Section 66D.
4.5.1 Section 65B(44) of the Act defines 'service' as follows :-
"service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include -
(a) an activity which constitutes merely, -
(i) a transfer of title in goods......
(ii) such transfer, delivery or supply of any goods which is......
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer........5
ST/41285/2014
(c) fees taken in any Court or......"
4.5.2 Thus, as per the above definition, "service" includes a declared service. As per Section 65B(22), "declared service"
means any activity carried out by a person for another person for consideration and declared as such under Section 66E. Section 66E specifies nine activities, listed under clauses (a) to
(i) of the Section, as constituting declared services.
Clause (1) of Section 66E specifies the following activity as constituting a declared service:
"Section 66(E)(1): Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity."
4.6 Thus, it is seen that with effect from 01.07.2012, the term "service" includes a 'declared service. The 'declared services' specified in Section 66 (E) include the service portion in an activity wherein food or any other article of human consumption or any drink is supplied as part of the activity.
4.7 Under Notification No. 25/2012-S.T. dated 20.06.2012, which is effective from 01.07.2012, exemption from Service Tax is granted to the taxable services specified in the notification. The entry at Sl.No. 19 of the Notification specifies, "services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages." It is thus seen that the exemption under the above Notification is not applicable to services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess having air- conditioning or central air-heating in any part at any time of the year and having a licence to serve alcoholic beverages. The condition regarding 'licence to 6 ST/41285/2014 serve alcoholic beverages' has been omitted by the amendment made to the above Notification by Notification No. 3/2013-S.T. dated 01.03.2013 with effect from 01.04.2013. Consequently, with effect from 01.04.2013, Service Tax would be attracted even if only one condition is satisfied, i.e., if there is air-conditioning or central air-heating facility in any part of the establishment at any time during the year. However, the disputed tax period in this appeal is from 01.05.2011 to 31.12.2012.
4.8 With effect from 01.07.2012, Rule 2C was inserted in the Service Tax (Determination of Value) Rules, 2006. As per this Rule, the value of service portion in an activity wherein food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity at a restaurant, shall be 40% of the total amount charged for such supply.
4.9 From the provisions referred to above, it is seen that Service Tax would be leviable in the following circumstances:-
Period Circumstances From 01.05.2011 If a restaurant, by whatever name to 30.06.2012 called, having air-conditioning in any part at any time of the financial year and having licence to serve alcoholic beverages, provides any service in relation to serving food or beverage in its premises.- Section 65(105)(zzzzv) Value: 30% of the gross amount charged, i.e., after allowing abatement of 70% under Notification No. 1/2006-
ST dated 01.03.2006 as amended by
Notification No. 34/2011-S.T. dated
7
ST/41285/2014
25.04.2011.
From 01.07.2012 Declared service' covers service portion to 31.03.2013 in an activity wherein food or any other article of human consumption or any drink is supplied as part of the activity.- Section 66E(i).
Exemption from tax, granted under Notification No. 25/2012-ST (Sl.
No.19), is inapplicable to services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess having (1) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages.
Value: 40% of the total amount charged for such supply, in terms of Rule 2C of the Service Tax (Determination of Value) Rules, 2006.
From 01.04.2013 Same as for the period from onwards 01.07.2012 to 31.03.2013, except that the exemption under Notification No. 25/2012-ST is inapplicable to services provided by a restaurant, eating joint or mess having the facility of air-
conditioning or central air-heating.
4.10 In the present case, it was noticed that the Respondent have the permission to serve liquor in their premises and it has the facility of air-conditioning both in their Trichy and Thanjavur establishments. Thus, right from the time of levy of Service Tax on the said service, i.e., from 01.05.2011 itself, the Respondent is an air-conditioned establishment and have the licence to serve alcoholic beverages and also serve food or beverages, including 8 ST/41285/2014 alcoholic beverages or both, in its premises. Therefore, it appears that Service Tax is leviable on the above service from 01.05.2011 itself. However, the Respondent have not taken Service Tax Registration under the category of 'Restaurant Service‟ and have not paid Service Tax that appears to be payable on the services provided in respect of food or beverages, including alcoholic beverages or both, in their premises including restaurant and bar. The amount of service Tax that appears to be payable on the above service for the period from May 2011 to December 2012 works out to Rs.73,80,437/-, as shown in the Annexure to this notice.
5.1 Shri Ambe, Ld. Authorised Representative for the Department, advanced the submission that that the Service provided by a restaurant in relation to serving of food or beverages in its premises does not figure in the negative list. As the respondent have licence to serve liquor in the premises and have the facility of air-conditioning in their establishment where they serve food / beverages, it appeared that they were not eligible for exemption under Notification No. 25/2012-ST dated 20.06.2012 and hence Service Tax was payable. That the impugned order has drawn support from the clarifications issued in Circular No. 139/8/2011-TRU dated 10.05.2011 which is not applicable to the present case as the restaurant and the permit room were situated in the same hotel whereas the clarification in the circular ibid was with reference to two restaurants situated in a complex. The above view was supported by the clarification at Sl.No. 2 of the Circular wherein it was clarified that the food and beverages served at swimming pool or an open area are also liable for payment of Service Tax as the above areas become extensions of the restaurant.
5.2 It was further submitted that the respondent has satisfied both conditions namely having air-conditioning facility and licence to serve liquor in their premises and hence the service rendered by the Respondent was liable for payment of 9 ST/41285/2014 Service Tax. It was contended that no where it was contemplated in the definition of Section 65(105)(zzzzv) that serving of food or beverages including alcoholic beverages or both should take place in the restaurant itself. And it was sufficient if the serving took place in the premises of the restaurant, which includes bar, swimming pool or an open area attached to the restaurant as clarified in the Circular cited above.
5.3 It was contended that the Tamil Nadu Liquor (Licence) and Permit Rules prohibiting serving of food in the bar was not applicable in this case as the financials of the respondent have separately shown sale at bar and restaurant giving an indication that food was served in the bar also. It was further submitted that the bar and the restaurant were not two different entities but were two different places in the same establishment and that the bar is only an extension of the restaurant.
5.4 Finally, it was submitted that even assuming that restaurant is a separate entity and does not have a licence to serve liquor, the food and beverages served in the bar are liable for charge of Service Tax as they have air-conditioning facility also.
6.1 Per contra, Shri S. Murugappan, Ld. Advocate, representing the respondent while supporting the impugned order, contended that the rational presumption of the Appellant that the Circular dated 10.05.2011 envisages cases of restaurants in a complex like mall is not sustainable. It was submitted that while issuing the above clarification, the Board had clearly taken cognizance of the presence of more than one restaurant in a hotel involving two categories of restaurants viz. (i) restaurants having air-conditioned facility as well as licence to serve liquor and (ii) the restaurants having air- conditioned facility which do not have a licence to serve liquor.
10ST/41285/2014 As per the clarification, the category of restaurants at Sl.No.
(i) above are only liable to Service Tax whereas the latter category is outside the scope. It was submitted that the issue to be framed in the present case to be "whether the hotel which has got licence to serve liquor in „permit room‟ can be equated to, licence granted to restaurant in order to levy Service Tax. It was clear from the definition of Section 65(105)(zzzzv) of the Finance Act, 1994 that the restaurants which are not authorised to serve alcoholic beverages in the premises of a restaurant are kept outside the scope of Service Tax. It was pointed out that levy of Service Tax is only on the specified category of „Restaurants‟ which are air-conditioned and which are licensed to serve alcoholic beverages. The same concept could have continued in the negative services regime also as the essence of the above statutory provision is in-built in declared services under Section 66E read with Sl. 19 of the Notification No. 25/2012 dated 20.06.2012.
6.2 It was further contended that the attempt to levy Service Tax merely on the ground that there is a permit room in their hotel is against the concept of law. He has referred to the expression „the establishment‟ used in the definition of Section 65(105(zzzv)) of the Finance Act, 1994 is intended to qualify the term „restaurant‟ and not the hotel establishment as such. The harmonious reading of the complete definition would give the meaning that the restaurant having the air conditioning facility with licence to serve liquor is liable to Service Tax and not the „restaurant‟ located in the hotel establishment, which has got a permit room in a separate area distinct from the restaurant. It was further averred that the „permit rooms‟ are not liable to Service Tax, even if food and beverages are served there as they are not restaurants attracting Service Tax levy.
7. We have considered the submissions advanced by the Ld. Authorised Representative and the Ld. Advocate and carefully considered the submissions and evidences on record.
11ST/41285/2014
8. The main issues that arise for consideration in this appeal are :-
i. Whether the activity rendered by the Respondent qualifies for demand of Service Tax under „Restaurant Service‟ in terms of provisions of Section 65(105)(zzzzv) of the Finance Act, 1994, up till 30.06.2012?
ii. Whether the appellant is eligible for exemption under Notification No. 25/2012-ST dated 20.06.2012, which is effective from 01.07.2012 and also applicability of the clarification issued vide Circular No. 139/8/2011-TRU dated 10.05.2011?
9. We find from the appeal records that the Respondent runs the hotels in the name of „Hotel Sangam‟ in Trichy and Thanjavur. Hotel Sangam, Trichy has two separate restaurants viz. Chembian Multicuisine Restaurant and 24- Hour Coffee Shop, while Hotel Sangam, Thanjavur has one restaurant by name Cascade. The Hotels are Centrally Air Conditioned. The Hotel has a permit room for serving of alcoholic beverages separately demarcated but are not attached to the restaurant. Hotel Sangam, Trichy is running a licenced bar by name „Soma‟ Bar which has no connection whatsoever with the restaurant. Likewise, Hotel Sangam, Thanjavur has liquor bar located at different side of the Hotel premises. It is further seen that separate bills are being raised by the restaurants and by the bars of the Hotels at Thanjavur and Trichy.
10.1 We find that as per the clarification issued vide Board‟s Circular No. 139/8/2011-TRU dated 10.05.2011, the Service Tax is liable to be paid on restaurants (i) having the facility of air-conditioning in any part of the establishment and 12 ST/41285/2014
(ii) which have a licence to serve alcoholic beverages. The usage of „and‟ in the above clarification makes it amply clear that both the requirements are to be fulfilled to satisfy the criteria for attracting Service Tax levy on Restaurant Service. Therefore, we are of the view that for the period from 01.05.2011 to 16.03.2012, the restaurants located at the premises of Hotel Sangam, Trichy and Thanjavur do not fulfil the requirement of having a licence to serve alcoholic beverages in the premises of the restaurant, in order to bring the service of the restaurants under the ambit of Restaurant Services.
10.2 Central Board of Excise & Customs, New Delhi vide Circular No. 139/8/2011-TRU dated 10.05.2011 / F.No. 334/81/2011-TRU has clarified about the taxability of the services provided by Restaurants which is extracted below for ready reference:-
Sl.No. Queries Clarification
1. If there are more than Service Tax is leviable on the
one restaurants service provide by a
belonging to the same restaurant which satisfies two
entity in a complex, out conditions: (i) it should have
of which only one or the facility of air conditioning
more satisfy both the in any part of the
criteria relating to air- establishment and (ii) it
conditioning and licence should have license to serve
to serve liquor, will the alcoholic beverages. Within
other restaurant(s) be the same entity, if
also liable to pay Service there are more than one
Tax? restaurant, which are clearly
demarcated and separately
named, the ones which
satisfy both the criteria is
only liable to service tax.
2. ..... ......
3. .... .....
From the above clarification, it is clear that Service Tax is liable on the Restaurant Service if two essential conditions are required to be fulfilled viz., if it has the facility of air-conditioning in any part of the establishment and it should have licence to serve alcoholic beverages.
13ST/41285/2014 11.1 In terms of the Notification No. 12/2012-ST dated 17.03.2012 the Union of India exempted various taxable services from the whole of the service tax leviable under Section 66B of the Finance Act, 1994. In respect of Restaurant Service, the above Notification has provided exemption, subject to certain condition which read as follows:-
"19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air- heating in any part of the establishment, at any time during the year and which has a licence to serve alcoholic beverages."
The above Notification has been superseded by Notification No. 25/2012 dated 20.06.2012 but, it continued to exempt the Restaurant Service, if there is no service of alcoholic beverages and the restaurant which is not air-conditioned.
11.2 Thus, to qualify for the above exemption, a restaurant should satisfy the two essential conditions of having no air-conditioned facility and no serving of alcoholic beverages. Hence for the period from 01.04.2012 to 31.12.2012, the restaurants located at the premises of Hotel Sangam, Trichy and Thanjavur do not fulfil the criteria of having a licence to serve alcoholic beverages in the premises of the restaurant, in order to bring the services of the restaurants under the coverage of „Restaurant Services‟.
12.1 Further, the facts indicate that the appellant besides operating the above restaurants has also licence to serve liquor under the FL3 licence obtained from the State Excise Authorities in the name of „Hotel Sangam‟ for serving of alcoholic beverage only in the part of the hotel specifically demarcated it as the permit room. The FL3 licence issued clearly specifies the premises in the hotel where the alcoholic beverages are to be stored and to be served as per the statutory requirements under the Tamil Nadu Liquor (Licence 14 ST/41285/2014 and Permit) Rules, 1981. The licence granted under the FL3 licence gives the hotel permission to store liquor in specified place and to serve the same in the area demarcated as permit room which clearly specified boundaries as mentioned in the FL3 licence and this licence does not in any way relate to the premises of the restaurants. The Original adjudicating authority has also conducted verification though the officers of Hqrs. Anti-Evasion, Trichy of the premises of the appellant. From the report furnished by the Superintendent of Central Excise, Hqrs. Anti-Evasion, Trichy vide C.No. IV/06/231/2012-HAE dated 07.02.2014, it is seen that:-
i. In respect of Hotel Sangam, Trichy, there are two restaurants i.e. one 24 Hour Coffee House and another restaurant and one liquor bar. The liquor bar (Soma Bar) and the two Restaurants (24 Hour Coffee Shop and Chembian Restaurant) are located in the same Hotel premises. The site map of the Hotel Premises clearly shows that the restaurant is clearly demarcated and has no connection what-so-ever with the liquor bar.
ii. In respect of Hotel Sangam, Thanjavur, both liquor bar and the Restaurant (Cascade Restaurant) are located in the same Hotel premises. But the liquor bar is not part of the Restaurant situated in the Hotel. The liquor bar and Restaurant are located at different sides/locations of the Hotel premises. The Hotel has the facility of Centralised AC. The site map of the hotel premises also shows that the Restaurant is clearly demarcated from the liquor bar.
iii. On perusal of the FL-3 licence issued in respect of both the above said Hotels clearly shows that permission has been given to serve liquor only in the permit room and as such, the restaurants have no licence to serve liquor.
iv. It is further seen that separate bills are raised by the restaurants and by the bars of the Hotels.
15ST/41285/2014 12.2 As the restaurants though located in the premises of Hotel Sangam in Trichy and Thanjavur, they are clearly demarcated from the permit room and these restaurants are separately named and the service activities in the restaurants are not linked to the service activities in the permit room or bar. As the restaurants located in the premises of Hotel Sangam in Trichy and Thanjavur, do not fulfil the requirement of having a licence to serve alcoholic beverages, the services provided in the restaurant does not come under the ambit of „Restaurant Services‟. The basic premise of the Show Cause Notice for demanding Service Tax from the appellant is that the services from the restaurant are located within the premises of the hotel and the hotel has a licence to serve liquor, hence, the restaurant fulfills the requirements under the category of „Restaurant Services‟ is not legally correct and this inconsistent interpretation has to be discarded. The term establishment as figuring in the definition under Section 65(105)(zzzzv) has been referred to as the „Hotel‟ in whose premises the restaurant is located and not for the „Restaurant‟. The above reasoning is contradictory to these statutory provisions and the clarifications issued vide Board Circular (supra).
13. As such, the restaurants located in the appellant‟s premises both at Trichy and Thanjavur have not satisfied one of the conditions of serving alcoholic beverages and so the Service Tax liability cannot be fastened in respect of restaurant service on the appellant.
14. As held by the Hon‟ble Supreme Court in the case of Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire Industries [2008 (231) ELT 22 (SC)], the Department Circulars and instructions are binding on the Revenue authorities under the respective statutes and as such, in view of the express clarification issued vide Circular No. 139/8/2011-TRU dated 10.05.2011, the impugned order could not have been challenged by filing an appeal by the 16 ST/41285/2014 Department as in doing so, it goes against the Circular issued by the Board.
15. In view of the above, we are of the considered view that the contentions advanced on behalf of the Department are without substance as the Circulars / Notifications ibid do not run contrary to the provisions of the Act. We are ad idem with all the reasons assigned in the impugned order and there is no reason to differ with the Order-in-Original No. 06/2014- ST dated 20.02.2014 passed by Commissioner of Central Excise and Service Tax, Trichy. As the demand cannot sustain, there is no need to discuss about the invocation of extended period in this appeal.
16. In the result, the impugned order does not call for any interference and the Department‟s appeal stands dismissed.
(Order pronounced in open court on 19.12.2023) Sd/- Sd/-
(VASA SESHAGIRI RAO) (SULEKHA BEEVI C.S.) MEMBER (TECHNICAL) MEMBER (JUDICIAL) MK