Custom, Excise & Service Tax Tribunal
Mahindra Holidays And Resorts India Ltd vs Commissioner Of Gst&Amp;Cce (Chennai ... on 26 September, 2018
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IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal Nos. ST/00469/2011, ST/00382/2012 & ST/40146/2014
Sl. No. Appeal No. Appellant Respondent
1. ST/00469/2011 M/s. Mahindra The Commissioner of Holiday and Resorts LTU, Chennai India Ltd.
Arising out of Order-in-Original No. LTUC 161/2011 (C) dt. 18.05.2011 passed by The Commissioner, LTU, Chennai
2. ST/00382/2012 M/s. Mahindra The Commissioner of Holiday and Resorts LTU, Chennai India Ltd.
Arising out of Order-in-Original No. LTUC 111/2011 (C) dt. 27.03.2012 passed by The Commissioner, LTU, Chennai
3. ST/40146/2014 M/s. Mahindra The Commissioner of Holiday and Resorts LTU, Chennai India Ltd.
Arising out of Order-in-Original No. LTUC 371/2013 (C) dt. 22.10.2013 passed by The Commissioner, LTU, Chennai Appearance:-
Shri. S. Thirumalai & Shri. Harish Bindumadhavan, Advocates for the Appellant Shri. Arjun Raghavendra, DC (AR) & Shri. K. P. Muralidharan, AC (AR) for the Respondent CORAM:
Hon'ble Shri Madhu Mohan Damodhar, Member (Technical) Hon'ble Shri P Dinesha, Member (Judicial) Date of Hearing:18.06.2018 Date of Pronouncement: 26.09.2018 Final Order No. 42485-42487 / 2018 Per P. Dinesha :
The appellant is aggrieved by its classification under Club/Association under Section 65 (105)(zzze) read with Section 65(25)(aa) of the Finance 2 Act, 1994. The typical case of the appellant is that there will be an agreement with its members who would be availing 'time share' facilities at the appellant's resorts at various places and it is, according to the appellant, essentially in the nature of providing short term residential accommodation within the meaning of Section 65(105)(zzzzw) w.e.f. 01.05.2011. The appellant claims that it is also a hotel which carves them out of the definition of renting of immovable property and in this regard, they have relied on the decision of the Hon'ble High Court of Kerala in W.P. (C.) No. 20728 of 2015 (M); and by this, therefore, the appellant claims that it cannot be classified as a Club/Association. The other common issues involved in the above cases are:
I. Interest on instalments, II. Securitization income reflected in the P&L account, III. Rental income, IV. Exchange fees; and V. Revenue from telephone and fax.
2. Canvassing on the above issues, appellant further submitted that the above items would not qualify to be included under the Club or Association up to 01.05.2011.
3. Heard Shri. S. Thirumalai, Advocate along with Shri. Harish Bindumadhavan, Advocate for the appellants and Shri Arjun Raghavendra, DC (AR) and Shri. K. P. Muralidharan, AC (AR) for the Revenue.3
4.1 The Ld. Advocates for the appellants submit at the outset that the appellant has already paid service tax on all the amounts collected, i.e., gross amounts collected from its members or customers for the various services provided, which is as per the terms of agreement/contract entered into between the appellant and the service recipients. They contend that by virtue of in-built mechanism provided under the provisions of Section 67, the value of taxable service shall be the gross amount charged by the service provider for such service which when read harmoniously with Section 66 would make it abundantly clear that in the valuation of a taxable service, nothing more and nothing less than the consideration received could be brought to charge.
4.2 Without prejudice to the above, the Ld. Advocates for the appellants made further submissions, which are broadly summarized as under:
I. Interest on instalments :
(i) The appellant enters into agreements with prospective members.
Some may opt for instalment scheme while others opt to pay the entire subscription upfront without availing instalment facility.
(ii) Sample copies of such agreement are placed on record.
(iii) There is absolutely no compulsion from the appellants, which is available only at the option of a prospective member, and when 4 exercised after paying an initial/advance, the balance of the aggregate member's fees would be paid on instalments.
(iv) Other than the above, there is no distinction or differentiation between members opting for instalments or making up front payments as far as benefits or facilities provided by the appellants are concerned.
(v) The appellant charges a small interest on those members who opt for instalment scheme and the same is not taxable since there is no taxable entry for the so called financial charge collected.
(vi) In support of their above contentions, the Ld. Counsel rely on the following orders/judgments :
Commissioner of Service Tax, Chennai Vs. M/s. Amalgamations Pvt. Ltd. [2018 (3) T.M.I. 116 - CESTAT Chennai] Karur Vysya Bank [2015-TIOL-635-CESTAT-MAD] based on the judgement in Association of Leasing & Financial Service Companies [2010 (20) S.T.R. 417 (S.C.)] Thermax [2007 (8) S.T.R. 487 (Tri. - Mumbai)] Salzgitter Industries Bau Gmbh vs Commissioner of Income Tax [1990 (184) I.T.R. 7 Bom.] Pappu Sweets and Biscuits [2004 (178) E.L.T. 48 (S.C.)] Bhingar Urban Co-op Bank Ltd. Vs. Commissioner of Central Excise, Aurangabad [2016 (41) S.T.R. 673 (Tri. - Mumbai)] INSA [2009 (14) S.T.R. 289 (Bom.)] Intercontinental Consultants and Technocrats Pvt. Ltd. [2013 (29) S.T.R. 9 (Del.) for the period prior to 14-5-2015 (2018-VIL-11-SC-ST) II. Securitization Income :5
(i) The appellant contends that it is a notional income from securitization which is recorded in the Books of Accounts in the year of securitization of audits, as per the Accounting Standard - 9, issued by the Institute of Chartered Accountants of India.
(ii) The amount reflected in the appellant's book reflects only the difference between borrowing rate of interest and the rate of interest charged for the purpose of Equated Monthly Instalments (EMIs) for those members who have availed deferred payment facility,
(iii) Securitization income does not arise out of any independent transaction between the appellant and its bankers which is shown as in come from securitization per se.
(iv) The Ld. Counsel took us through the financials for the year 2009-10 to substantiate their above contentions, more particularly, to the Note No. 4 to the dated financials.
(v) The above item is not connected, in any way, as regards any provision of service to its member under Club/Association service.
(vi) The above item is the result of an independent arrangement between the appellant and its bankers, wherein there is no service provider or service receiver relationship.
(vii) On the point of cancelled membership, highlighted in the impugned order, the Ld. Counsel submit that when a member cancels membership, there would be no further receivables and 6 hence, it would get adjusted; there would be no flow consideration in such cases.
(viii) Hence, if the Commissioner's interpretation is accepted, the interest element then gets taxed which is not permissible since the same transaction suffers tax vice.
(ix) The interest differential, if any, is not in respect of the dates since not all the dates are securitized, which could spill over a number of years.
(x) Thus, the above arrangement has nothing to do with its arrangement with members and its members or any of the essentials/facilities provided to its members and, therefore, this cannot be brought under the category of Club/Association Service.
(xi) They also rely on the following judgments :
Greenwich Meridian Logistics [2016-TIOL-869-CESTAT-MUM] Phoenix International Freight Service Pvt. Ltd. [2016-TIOL-2353-CESTAT-
MUM] Reliance Infratel Ltd. [2015-TIOL-2160-CESTAT-MUM] Thermax Instrumentation Ltd. [2015-TIOL-2736-CESTAT-MUM]
(xii) The Ld. Counsels also submit that during the relevant period, service tax was applicable only in respect of cash receipts and was not applicable in respect of the accounting system maintained under the accrual system of accounting; the above amounts having accrued as interest on instalments that formed part of other income 7 shown in Schedule 10 of Annual Accounts would, therefore, become inexigible to service tax.
(xiii) There being no corresponding direct cash receipt due to a pure accounting entry for the purposes of disclosure in the balance sheet, could not be a basis for the demand of service tax,
(xiv) On this, the Ld. Counsel submit that if the above principle is accepted, then the matter may be reverted to the adjudicating authority for proper quantification. They rely on the following decisions/orders :
Moon Network Pvt. Ltd. Vs. Commissioner of Central Excise, Kanpur - 2011 (24) S.T.R. 723 (Tri. - Del.) Firm Foundations & Housing Pvt. Ltd. [2018-VIL-170-MAD-ST] III. Rental Income :
(i) In the nature of business and time share, the appellant does not collect room rentals from its members.
(ii) There is no evidence with the Revenue to even indicate that any such rentals were collected from any of the members. On the other hand such rentals are collected only in respect of non-members.
(iii) Without prejudice to the above, room rental was brought in as a separate entity under short term accommodation services and, therefore, it cannot be charged up to 01.05.2011.
IV. Exchange Services :
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(i) This relates to services rendered by RCI to the members of the appellant.
(ii) There is no separate agreement between RCI and the members of the appellant.
(iii) The appellant only facilitates the exchange for its members to avail the services provided by RCI.
(iv) The consideration received, therefore, not being in specific entry, is not liable for service tax.
V. Telephone and Fax :
(i) The facility of providing telephone and fax is not included in the membership fees or the annual subscription fees.
(ii) The same is collected separately based on actual usage and, therefore, is required to be classified under Telecommunication Services.
(iii) Service tax is paid to the Telecom Operators under the above category and the appellants merely collect usage charges from its members.
(iv) There has to be a charge under Section 65A(2a) and only then Section 65A(2b) applies and this facility is similar to the provision of food and beverages.
(v) Ld. Counsels also submit that the Revenue was aware of the above activities which were duly reflected in the appellant's P&L 9 account or balance sheet. In addition to this, all the details were submitted at various points of time to the audit parties who visited the appellant's office periodically; The Department having issued Show Cause Notice solely based on the balance sheet, there was no scope to allege suppression or intention to evade tax and, therefore, they submit that the extended period of limitation invoked by the adjudicating authority was improper.
(vi) In view of the above submission, the appellant should be extended the benefit of Section 80 to hold that penalties levied under Section 76 and 78 are incorrect.
(vii) In this regard, they rely on the following judgments :
MTR Foods Products [2002-TIOL-487-CESTAT-MAD] Sanjay Automobile Engineering Pvt. Ltd. [2016-TIOL-1314-CESTAT- MUM] Savira Industries [2015-TIOL-2225-CESTAT-MAD] Commissioner of Service Tax Vs. League Club Ltd. [2017-TIOL-4030- CESTAT-MAD] M.M.K. Jewellers [2009 (243) E.L.T. A90 (S.C.)]
5. Per contra, the Ld. Department Representatives submit as under :
(i) Section 65 (25a) which defines club or association, Section 65(105)(zzze) read with CBEC Circular in F. No. B1/6/2005 -
T.R.U. dated 27.07.2005 would make it clear that not only the subscriptions received towards membership fees, annual subscription fees, etc., but also that it would become taxable, 10 even 'any other amounts' received for the provision of facilities or advantages, etc., to its members in relation to a Club or Association.
(ii) The interest on instalment sales represented interest received on allowing payment of membership fees in instalments which is received over and above the normal membership fees.
(iii) The interest being in the nature of 'any other amount' received in relation to club or association service, therefore, is taxable.
(iv) The interest on loans alone are excluded from the purview of taxable service under Section 67 and not the interest of this nature.
(v) Membership fees cannot be equated with loan facility extended by a bank and therefore, the decisions relied on by the appellant are not relevant.
(vi) With regard to telephone and fax revenue, this is also in the nature of 'any other amount' received from its members in relation to facilities or advantages and therefore is taxable.
(vii) The appellant is only making available the telecommunication facilities provided by the Telecom Operators which is qualified as a facility or advantage provided to its members by the appellant.
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(viii) The appellant, having chosen to classify under respective heads to avail the benefit of abatements, which is otherwise not available to a club or association, and therefore the revenue generated under Telephone and Fax from its members is taxable.
(ix) With regard to room rentals, the appellant collects additional fees for accommodating additional guests of its members.
(x) Even with regard to accommodating members, they are given restricted accommodation in terms of number of days and if the numbers increase, then they would be charged rentals.
(xi) Complete details of room rentals were not furnished by the appellant and therefore there would be a possibility that the members might have paid even room rentals for overstaying or for accommodating their guests, etc.
(xii) The activity of the appellant cannot, therefore, be equated with a hotel for the purpose of renting of immovable property since the appellant exists only for the purpose of providing services to its members being occasional membership.
(xiii) With regard to income from securitization the appellant's balance sheet revealed the receipt from securitization in excess 12 of the consideration received over and above the principal amount of receivables.
(xiv) The excess consideration received is shown as provided on securitization, which is adjusted towards reversals in respect of cancelled memberships wrongly under income, was carried over to the P&L account.
(xv) In effect, the income from securitization reflects the additional amount received from members over and above what is actually due from them and this is nothing but additional income collected for denying the membership facility and therefore the same is a taxable entity.
(xvi) With regard to exchange fees, the Ld. DRs submit that this amount is collected from its members in view of their exchangeable holidays to stay in non-listed resorts on request of members.
(xvii) The above fee is collected from appellant's members for providing the facility of alternate accommodation in a club other than in any of the appellant's resorts.
(xviii) Clauses in the Membership Rules such as Clauses 4, 4.3, 12, etc., make it clear that such exchanges are subject to terms and conditions and that member is required to sign even for 13 RCI membership along with membership form in respect of the appellant's resorts.
(xix) Exchange fees are collected for providing exchanges with Club Mahindra affiliated holidays or RCI holidays and therefore the same is taxable.
(xx) On Revenue recognition, the Ld. DRs submit that the appellant has not declared any of the above receipts in their ST-3 returns under the income received from club or association service, the service provided by them to its members and, therefore, the appellant's submissions with regard to the following of Accounting Standards - 9, is not relevant. (xxi) On the issue of suppression, the Ld. DRs contend that the appellant did not furnish any documentary evidence in support of their submissions. The Schedules in the balance sheet merely showed the income from various sources, but the details of the nature of such income were not shown but which was detected only on the basis of intelligence received.
(xxii) Further, the appellant, having registered itself under club or association service, should have included the above items in their taxable value, which the appellant having not done, the same amounts to suppression and, therefore, proviso to Section 14 73 (1) was invoked, demanding service tax for the extended period of limitation.
6. We have heard both sides, considered the rival contentions, perused the documents placed on record and have gone through the various decisions referred to during the course of hearing. 7.1 We find that there is no difference between a member being upfront and a member availing instalment facility and there is no finding from the lower authority that the benefits of membership accruing to either of the aforesaid members vary. We thus find that the interest on instalments is only a financial arrangement for the deferred payment which is only to set-off any financial loss on account of deferred payment and that this kind of interest is not a taxable entity under the tax net. Hence, we find that the denial and the reason attributed for denying applicability of Notification No. 04/2006-ST is not sound and proper. We therefore find merit in the contentions of the Ld. Counsel that the exclusion as provided under the said Notification is applicable irrespective of the category. In this factual background, we find that this very Bench has considered a similar situation in the case of Karur Vysya Bank Ltd. Vs. Commissioner of Central Excise, Trichy [2015-TIOL-635-CESTAT-MAD] wherein this Bench has, following the decision of the Hon'ble Supreme Court in the case of Association of 15 Leasing & Financial Service Companies Vs. U.O.I. reported in 2010 (20) S.T.R. 417 (S.C.) ruled as under :
"8. The financial leasing services and hire purchase of vehicles/machineries squarely falls under the explanation of financial leasing services as defined under Section 65(12) of the Finance Act, 1994. But from the reading of the aforesaid provisions of law and judgment of the Apex Court, it can be held that the service tax is the tax on an activity carried out and consideration received for carrying out such activity is only taxable by the Act. Interest being a consideration for the liquidity forgone by the Bank due to lending of the fund, that is not brought within the purview of the Finance Act, 1994 for taxation in absence of any consolidated service charges included in such interest receipt and discernible. No evidence in this regard came to record.
9. In view of the above discussions of the position of law and fact finding, the appeal is allowed."
7.2 Our observations in the above paragraphs are almost similar to the findings in the case of Karur Vysya Bank Ltd. (supra) and therefore, we adopt the same finding to hold that interest on instalment is not includible as it cannot partake the character of consideration for the services provided and hence, we do not propose to go into the other arguments of the Ld. Counsel and allow this ground.
7.3 With regard to the contentions of the Ld. DR that the interest on instalment is in the nature of ‚any other amount‛ as defined in Section 65(25aa), we find ourselves not in agreement with the above contentions since ‚any other amount‛ is not an independent entry in the above Section. For the sake of convenience, Section 65 (25aa) is extracted hereinbelow :
65(25aa) "Club or Association" means any person or body of persons providing services, facilities or advantages, primarily to its members, for a subscription or any other amount, but does not include -16
(i) Any body established or constituted by or under any law for the time being in force; or
(ii) Any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or
(iii) Any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or
(iv) Any person or body of persons associated with press or media;'] [Emphasis added] 7.4 A perusal of the same makes it clear that the provision of services/facilities or advantages to members for a subscription or any other amount, should be read in ejusdem generis and hence, ‚any other amount‛ can only be of the same class of 'subscription'. A subscription is paid by all of the members, whereas any other amount not being paid by all but only by such members who opt for instalments and hence the logic or arguments of the Revenue cannot be accepted.
8.1 With regard to the securitization income, we are not able to subscribe to the findings of the lower authority or the arguments advanced by the Ld. DR. Accounting Standard makes it mandatory for an assessee to maintain its accounts in a particular manner. It is essentially to act as a balancing factor. It is only an entry made in the balance sheet and it is a settled position that a balance sheet entry could never become an income or an expenditure, as the case may be. Hence, viewed from this angle, an amount showed in the balance sheet could neither be an income nor a consideration nor a payment or the gross amount charged in terms of 17 Section 67(a) and (c) and hence, it is nothing but a financial adjustment in the nature of book entry.
8.2 Further, we find that when a member cancels membership, there is nothing for the appellant to claim as receivable and hence, the same gets adjusted by this notional amount since there is nothing on record to suggest that the appellant received any amount towards cancellation fees. Hence, we are of the considered view that the securitization income is not liable under service tax in the light of the facts and observations made hereinabove. For the same reasons, we set aside the impugned Order and the demand on this issue.
8.3 We also find support for the above findings from the decisions of the Mumbai Bench of the CESTAT in the case of Reliance Infratel Ltd. (supra) , Greenwich Meridian Logistics (supra), Phoenix International Freight Service Pvt. Ltd. (supra) and Thermax Instrumentation Ltd. (supra). 9.1 The appellant charges rental income, as admitted by them, only from the non-members and not from the members. However, on perusal of the impugned Order we find that the adjudicating authority/Commissioner (Appeals) records that the assessee-appellant has not submitted any document with regard to its claim that the rentals were collected only from non-members.
189.2 We also find that the adjudicating authority has observed that there could be a possibility of rentals being paid by members themselves if they overstay in terms of number of days for which also complete details were not available before the lower authority. It is therefore for the lower authority to give a finding on the above aspects and in this regard, we deem it proper to direct the appellant to furnish all such details that are relevant before the lower authority for the lower authority to arrive at a proper finding after appreciating such documents furnished by the appellant. We, therefore, set aside this issue to the file of adjudicating authority in the above terms.
10. With regard to the Exchange Services offered by the appellant for facilitating its members from availing services of RCI, we find that such facilitation is possible only in respect of members. In other words, the service of facilitation could be availed only by virtue of being a member and not if such person is an outsider. Hence, we find that this activity tantamounts to an activity of service provided to a member under mutuality concept and hence, not taxable, for which we draw support from the the judgments of the Hon'ble High Court of Jharkhand in the case of Ranchi Club Ltd. Vs. Chief Commr. of C. Ex. & S.T., Ranchi Zone reported in 2012 (26) S.T.R. 401 (Jhar.) and Hon'ble High Court of Gujarat in the case 19 of Sports Club of Gujarat Ltd. Vs. U.O.I. reported in 2013 (31) S.T.R. 645 (Guj.). The appeal on this score is therefore treated as allowed. 11.1 With regard to the provision of service of telephone and fax, admittedly the same is not included in the membership fees since it depends on the availment or otherwise of the above services. If the facility is not availed, then, there is no payment required to be made by a member. It is indeed common knowledge that most, if not all, clubs/resorts do not charge just the actual telephone/fax charges, but also there is inevitably a mark-up thereon. It therefore appears to reason that the appellant herein may also have collected such mark-ups, though nothing is forthcoming from the record. Though we hold that the revenue from telephone and fax could not be equated to 'any other amount', we are of the considered view that the appellant should prove with supporting documents to establish that it has not collected anything over and above the actuals charged by the operator for facilitating such telephone and fax services, before the lower authority. The lower authority shall also ascertain that there is no unjust enrichment.
11.2 In terms of the above, we are therefore remanding this issue also to the file of the lower authority to call for all relevant documents, including sample invoices, to ascertain the actual practice and facts. The lower authority should also consider the plea of the appellant that provision of 20 service relating to telephone and fax are akin to provision of service of food and beverages and examine the legality/merit of the claim in the light of our observations in the above paragraphs and pass a speaking order.
12. With regard to the penalties, we are of the considered view that the benefit of Section 80 of the Act could be extended for the reason that the appellant acted in a bona fide manner and there was reasonable cause for their failure to discharge service tax liability in the situations where it was otherwise required to. Further, Revenue has placed reliance on the balance sheet of the appellant which could only lead to an irresistible conclusion that no suppression or intention to evade payment of tax could be levelled. This being so, we find that there was reasonable cause for the failure to discharge tax liabilities and hence the imposition of penalties is unjustified and we set aside the same.
13. The above appeals are therefore partly allowed in the above terms.
(Pronounced in open court on 26.09.2018)
(P Dinesha) (Madhu Mohan Damodhar)
Member (Judicial) Member (Technical)
Sdd