Custom, Excise & Service Tax Tribunal
Asian Hotels Limited vs Service Tax - Delhi on 16 September, 2019
Author: Dilip Gupta
Bench: Dilip Gupta
1 ST/51480/14
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
SERVICE TAX APPEAL No. 51480 OF 2014-DB
(Arising out of Order-in-Original No. 77/AKM/Adj/2013 dated 31.10.2013 passed
by The Commissioner (Adjudication), Service Tax Commissionerate, New Delhi-
110002)
M/s Asian Hotels Ltd. ....... Appellant
Bhikaji Cama Palace, M.G. Marg,
South Delhi,
New Delhi-110066
VERSUS
Commissioner of Service Tax, New Delhi ........ Respondent
MG Marg, IP Estate, 17-B IAEA House
I P Estate,
Delhi-110002
APPEARANCE:
Shri B.L. Narasimhan & Shri Narender Singhvi, Advocate for the Appellant
Shri Vivek Pandey, Authorized Representative of the Respondent
CORAM : HON‟BLE MR.JUSTICE DILIP GUPTA, PRESIDENT
HON‟BLE MR. BIJAY KUMAR, MEMBER (TECHNICAL)
DATE OF HEARING: 21 June, 2019
DATE OF DECISION: 16 September, 2019
FINAL ORDER No. 51223/2019
JUSTICE DILIP GUPTA :
This appeal by M/s Asian Hotels Ltd.1 seeks to assail
the order dated 31 October, 2013 passed by the Commissioner
__________
1. the Appellant
2 ST/51480/14
(Adjudication), Service Tax, Commissionerate, New Delhi2 by which the
demand of Service Tax of Rs. 2,14,61,690/-, details of which are given
below, was confirmed :-
S. Description of Category of As a Relevant Demand of
No. the transaction service period Service Tax
confirmed confirmed in
Rs.
1 Miscellaneous Convention Service 01.10.02
revenue like Service provider to 5,95,354
photocopier etc. 31.03.04
2 Currency Business Service 01.04.03
conversion fee Auxiliary provider to 4,48,907
Service 31.03.05
3 Advertising Advertising Service 18.04.06
agency services Agency recipient to 34,269
Service 31.03.07
4 Design and Interior Service 18.04.06
consultancy Decorator recipient to 10,14,904
charges Service 31.03.07
5 Reservation Maintenance Service 18.04.06
expenses, Hyatt or Repair recipient to
Gold Passport, Service 31.03.07 63,69,613
Hyatt Chain
services
6 Subscription and Management Service 18.04.06
maintenance of or Repair recipient to 2,81,204
software Service 31.03.07
7 Fee paid to M/s Management Service 18.04.06
Hayatt Consultancy recipient to
International Service 31.03.07 1,01,26,404
Asia Pacific Ltd.
for operation of
the hotel
8 Miscellaneous Business Service 18.04.06
payments to M/s Auxiliary recipient to
Hayatt Service 31.03.07
International
Asia Pacific Ltd. 25,91,035
in connection
with operation of
the hotel
Total 2,14,61,690
2. The impugned order seeks to appropriate an amount of Rs.
63,61,691/- against the demand that was confirmed and so an amount
of Rs. 1,50,99,999/- remained pending for recovery. The order also
________________
2. the Commissioner
3 ST/51480/14
directs for payment of interest and penalty.
3. It needs to be noted that out of the demand of Rs.
5,31,92,155/- mentioned in the show cause notice, demand of Rs.
3,17,30,465/- was dropped by the Commissioner against which the
Department filed an Appeal before the Tribunal bearing No.
ST/51475/2014, which appeal was dismissed by order dated 26 April,
2019.
4. The Appellant is the owner of a hotel by the name and style
‗M/s Hyatt Regency, Delhi'3. The Department gathered information that
the Appellant was paying fee to M/s Hyatt International Asia Pacific4
under ‗Management Services Agreement' for using ‗Hyatt' brand name
and also for management consultancy. A show cause notice dated 23
April, 2008 was, accordingly, issued to the Appellant alleging short/non-
payment of Service Tax under the following heads:-
S. No. Category of Period Amount in Allegations in the
taxable service Rupees Show Cause Notice
under which tax
was demanded
Demand on income of the Appellant
1. „Convention centre
service‟
1.10.2002 These services are
Misc. Revenue to 5,95,354/- ancillary to convention
received from 31.03.2004 services provided by
courier, photocopy, the appellant.
lost key, secretarial
and other facilities
provided to guests
_____________________
3. Hyatt Delhi
4. Hyatt International
4 ST/51480/14
2 Business Auxiliary
Service
Other income shown
in the financial The Appellant paid
statements which service tax on a part
comprised of- of income under this
(a) Charges 1.07.2003 head w.e.f. 2005-06.
recovered from to 7,81,682/- Hence, the Appellant is
guests for cash 31.03.2007 liable to pay tax from
encashment through 1.7.2003 onwards.
credit card and Forex
encashment
(a) (b) Other Misc.
revenue from guests
like loss of key, bath
rob sales, etc.
(b) (c) Other amounts
(c)
3 „Credit Card, Debit
Card, Charge Card The fee collected for
or Other Payment allowing discount on
Card service‟ 1.05.2006 food and beverages
to 19,83,062/- consumed at Hotel is
Club At The Hyatt 31.03.2007 liable to tax under
(CATH)-Food & ‗credit card, debit
Beverages Discount card, charge card or
Card revenue other payment card
received from guests services'.
4 Beauty Treatment The Appellant had only
Services‟ deposited Rs. 34,039/-
as against liability of
Hair cutting and hair 16.06.2005 Rs. 37,492/-. Hence,
3,453/-
dyeing services onwards differential amount is
recoverable.
Demand on reverse charge basis on expenditure incurred by the Appellant
5 „Advertisement
agency service‟ The expenditure
booked under the
Various payments head ‗advertisement
made in foreign expenses' is
currency towards: 1.10.2002 57,60,387/- consideration for
(a) Hyatt chain services to ‗advertisement
(b) Other third party 31.03.2007 agency service'. The
service providers for Appellant as service
publishing/ flashing of receiver is liable
advertisement at under 2(1)(d)(iv)
international level
6 „Interior decorator The expenditure
service‟ booked under the
1.10.2002 head ‗design &
Amount paid in foreign to 21,95,647/- consultancy charges'
currency to overseas 31.03.2007 is consideration for
interior decorators ‗interior decorator
service'.
5 ST/51480/14
7 Business Auxiliary
service
Various payments Payments made on
made in foreign account of promotion
currency towards: and marketing of
(a) Hyatt Gold 1.7.2003 services provided by
Passport to 1,14,04,857/- the Appellant and
Program 31.3.2007 hence, liable to tax
(b) Hyatt Chain under ‗business
services auxiliary service'.
(c) Hyatt The Appellant is a
Reservation service receiver.
Services
(d) Other
booking/travel
agents
8. „Maintenance or Payments made for
repair service‟- maintenance of
software is liable
Amount paid in foreign 9.7.2004 under ‗maintenance
currency towards to 4,47,893/- or repair service' as
software subscription 31.03.2007 clarified in Board
and maintenance Circular dated
7.3.2006. The
Appellant is a service
receiver.
9. Management
consultancy service‟- Management fee is
Management fee paid consideration for
to Hyatt International 1.10.2002 ‗management
in terms of Sales & to 2,35,78,805/- consultancy services'.
Marketing and 31.3.2007 The Appellant is a
Management Service service receiver.
Agreement
10. „Business Auxiliary
service‟
Misc. payments made
in foreign currency
comprising of These are in the
following: nature of services
(a) Payroll related arranged by Hyatt
charges International for the
(b) Training charges operation of hotels as
(c) Salary of foreign per Section 4 of the
chefs 1.7.2003 Sales & Marketing
(d) Fee paid to to 64,41,015/- and Management
foreign 31.3.2007 Services Agreement.
musicians Hence, the Appellant
(e) Credit card is liable to pay
payments Service Tax under
(f) Software ‗business auxiliary
subscription service'.
charges
(g) Traveling,
boarding &
lodging of
employees
(h) Others
Total 5,31,92,155
6 ST/51480/14
5. The Appellant filed a detailed reply dated 15 September,
2008 to the aforesaid show cause notice and contested the demand on
merits as well as on limitation. The Commissioner, however, as noticed
above, confirmed the demand of Service Tax of Rs. 2,14,61,690/-, but
dropped the demand for Rs. 3,17,30,465/-. The demand has been
confirmed under 8 heads, as can be seen from the summary of the
impugned order contained in paragraph 1 of this Order.
6. In order to appreciate the submissions made by Shri B.L.
Narasimhan, learned Counsel for the Appellant and Shri Vivek Pandey,
learned Authorized Representative of the Department, it will be useful to
reproduce the relevant portions of the agreement dated 18 December,
1993 titled as ‗Sales and Marketing Management Services Agreement'
executed between the owner (M/s Asian Hotels Ltd.) and Hayatt
International Asia Pacific Ltd. (Hayatt International) and they are as
follow:-
―SALES & MARKETING AND MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT, dated and executed this 18th day of December,
1993, by and between ASIAN HOTELS LIMITED (the owner‖)
organized in India, and HYATT INTERNATIONAL -ASIA PACIFIC,
LIMITED (―Hyatt‖), a company organized in Hong Kong, and a wholly-
owned subsidiary of Hyatt International Corporation (―H.I.‖).
WHEREAS, Owner owns the existing 535 room hotel located at
Bhikaji Cama Place, M.G. Marg, New Delhi-110 066, India, and
presently operated under the name of ―Hyatt Regency Delhi‖ (the
―Hotel‖) and wishes to maintain the Hotel under standards
comparable to those prevailing in ―Hyatt Regency‖ hotels throughout
the world;
--------------------
WHEREAS, Owner agrees that, in order to achieve better sales and marketing within India and the international worldwide markets; and to achieve the technology transfer of professional international hotel management systems and operating-standards for hotels and the largest innovations in computerized property management systems for the Hyatt Regency Delhi, Owner would like to engage the services 7 ST/51480/14 of Hyatt to provide such sales and marketing and management services; and WHEREAS, Hyatt is willing to provide such sales and marketing and management services to the Hotel, and to allow the Hotel to use the name ―Hyatt Regency Delhi‖; and WHEREAS, Owner and Hyatt desire to enter into this agreement for such sales and marketing and management services to the Hotel by Hyatt, upon the terms and conditions hereinafter set forth; NOW THEREFORE, the parties hereto covenant and agree as follows:
----------------------
ARTICLE III OPERATION OF THE HOTEL Section 1. Standards of Operation. Hyatt, through the General Manager, as hereinafter defined, shall operate the Hotel under standards comparable to those prevailing in H.I. hotels and for all activities in connection, therewith which are customary and usual to such an operation, and shall conduct such operations in accordance with the laws of India and, insofar as feasible and in its opinion advisable, local character and traditions.
Section 2. Hyatt control of Operation. Subject to the terms of this agreement, Hyatt, through the General Manager, shall have complete control and discretion in the operation of the Hotel. Nothing herein shall constitute or be construed to be or to create a partnership of joint venture between Owner and Hyatt, and the right of Owner to receive financial returns based upon the operation of the Hotel shall not be deemed to give Owner any rights or obligations with respect to the operation or management of the Hotel. The control and discretion of Hyatt, through the General Manager, shall include the use of the Hotel for all customary purposes, terms of admittance, charges for rooms, entertainment and amusement, food and beverages, labour policies, wage rates and the hiring and discharging of employees, maintenance of the Hotel Operating Account (as hereinafter defined), and all phases of promotion and publicity relating to the Hotel.
Section 3. Lease and Concessions. Hyatt, through the General Manager, shall operate in the Hotel all facilities and provide all services and shall not lease or grant concessions in respect of such services or facilities.
Owner shall lease or grant concessions in respect of commercial spaces in the Hotel (except for the health (fitness) centre, including the beauty salon, flower shop and business centre), provided that the tenants or concessionaries are required to operate their business to a standard commensurate to the standard of the Hotel. The rentals or other payments received by Owner under each such lease or concession shall not be included in the Revenue of the Hotel.
8 ST/51480/14 Section 4. Management Services. Without limiting the generality of the foregoing, during the Operating Term Hyatt, through the General Manger, shall, in consideration of its fees and subject to reimbursement of its expenses as hereinafter provided, inter-alia,
(a) Ask for, demand, collect and give receipts for all charges, rents and other amounts due from guests, patrons, tenants, sub-tenants, concessionaries and other third parties providing services to guests of the Hotel and, when desirable or necessary, cause notices to be served on such guests, patrons, tenants, sub-tenants and concessionaries to quit and surrender space occupied or used by them;
(b) Arrange for association with one or more credit card systems in conformity with H.I. ‗s general policy in such regard;
(c) Establish the purchasing policies for the standards, quality, specifications and timely deliveries of all purchases and further establish, with the assistance of Owner, purchasing policy for the selection of suppliers and negotiate supply contracts to assure purchases on the best available terms;
(d) Arrange for the purchase of utilities, equipment maintenance, telephone and telex services, vermin extermination, security protection, garbage removal and other services necessary for the operation of the Hotel, and for the purchase of all food, beverages, operating supplies and expendables and such other services and merchandise necessary for the proper operation of the Hotel;
(e) Purchase, in accordance with the Annual Plan, the Furnishings and Equipments, Operating Equipment and all foreign imported items.
(f) Provide appropriate sales and marketing services including definition of polices, determination of annual and long- term objectives for occupancy, rates, revenues, clientele structure, sales terms and methods;
(g) Provide appropriate advertising and promotional services including definition of policies and preparation of advertising and promotional brochures (folders, leaflets, tariffs and fact sheets, guide books, maps, etc. to be distributed in H.I. hotels and sales offices;
(h) Cause its affiliates to furnish sales and marketing services, such as Chain Marketing services, centralized reservation services, the Hyatt Gold Passport Program (excluding and domestic Gold Passport program in India) (if H.I. or any of its affiliates introduces a new sales and marketing program for H.I. hotels worldwide, Hyatt shall inform Owner of such new program before its implementation at the Hotel);
9 ST/51480/14
(i) Establish and implement specialized training and motivational programs for employees, ―Training For Your Future‖ programs and any other training and motivational programs implemented in Hyatt International hotels;
(j) Conduct internal audits and management operations reviews;
(k) Arrange for the insurance coverage to be maintained by Hyatt as provided in Section 2 of Article VIII and comply with the terms of all applicable insurance policies;
(l) Institute, with the prior approval of Owner and in the name of Owner lawsuits or other legal actions in connection with the operation of the Hotel deemed necessary or advisable by Hyatt and/or the General Manager, and Owner shall have the right to participate in and approve any settlement or compromise thereof;
(m) Install and maintain the accounting books and records in accordance with the provisions of Section 1 of Article V and other information systems required for the efficient operation of the Hotel;
(n) Subject the accounting books and records and operations systems of the Hotel to review by internal auditors of H.I. or its affiliates; and
(o) Maintain and enhance the computer software for the hotel operations management system.
Section 5. Operating Bank Accounts(s). Owner shall, by resolution of its Board of Directors, open three bank accounts in the commercial bank designated by Owner and in the trade name of Hyatt Regency Delhi‖ (Operating Account ―A‖, Operating Account ―B‖ and a ―Foreign Currency Account‖) (hereinafter called the ―Hotel Operating Accounts‖). All funds received from the operations of the Hotel shall be deposited into Operating Account ―A‖ and all disbursements of the entire cost and expense of maintaining, conducting and supervising the operation of the Hotel shall be made from Operating Account ―B‖. All foreign currency receipts shall be deposited and all foreign currency remittances shall be made from the Foreign Currency Account. The Hotel Operating Accounts shall be operated by such employees of the Hotel who shall be nominated by, and whose signatures shall be authorized by, Hyatt.
------------------------
Section 7. General Manager‟s Right to Contract. In order to carry out his duties under this agreement, the General Manager shall have the right, as agent for owner, to incur expenses and to enter into contracts with third parties in the ordinary course of business of the Hotel and in accordance with the Annual Plan, during the Operating Term, which contracts shall include, without limitation, contracts for sales of rooms, food and beverages and other facilities of the Hotel, the purchase of food and beverages and Operating Supplies, employment of personnel, advertising and business 10 ST/51480/14 promotion, repairs and maintenance, administration, heat, light and power, insurance legal and accounting services, and other goods and services. Hyatt and/or the General Manager shall consult with Owner prior to entering into my contract for the purchase of goods and services (other than employment contracts) having a term in excess of one (1) year, and owner shall have the right to approve any contract for the purchase of goods and services having a term in excess of two (2) years. Any such contracts entered into by the General Manager, on behalf of Owner shall be honoured by Owner if they shall survive the expiration or earlier termination of this agreement.
Section 8. Contracts with Hyatt Affiliates. In its managements of the Hotel, and subject to the prior approval of owner which shall not be unreasonably withheld, Hyatt and/or the General Manager, may purchase goods, supplies, insurance and services from or through H.I. or any of its affiliates so long as the prices and terms thereof are competitive with the prices and terms of goods, supplies and services of equal quality available from third parties. Hyatt and/or the General Manager, shall have the right to utilize the Hotel and its facilities to train employees of other hotels operated by Hyatt or H.I. and its affiliates. The Hotel shall be caused as a result of such training, unless such expenses shall be offset by benefits accruing to the Hotel arising out of services performed by such trainees. Section 9. Agency Relationship. In the performance of their duties as manager of the Hotel and/or the General Manager shall act solely as agent of owner. All debts and liabilities to third persons incurred by Hyatt and/or the General Manager in the course of their operation and management of the Hotel shall be the debts and liabilities of Owner only and Hyatt and the General Manager shall not be liable for any such obligations by reason of their management, supervision, direction and operation of the Hotel for Owner, Hyatt and/or the General Manger may so inform third parties with whom they deal on behalf of Owner and may take any other reasonable steps to carry out the intent of this paragraph. Section 10. Hyatt‟s Right to Reimbursement. During the term of this agreement, Hyatt may elect to advance or to cause H.I. or any of its affiliates to advance it own funds in payment of any costs and expenses incurred for the benefits of the hotel operation that Hyatt and/or the General Manager shall have the right or the obligation to incur or cause to be incurred in accordance with the provisions of this agreement, (a) whether incurred (i) separately and distinctly from costs and expenses incurred on behalf of other hotels of Hyatt or H.I. or its affiliates (hereinafter collectively called the ―H.I. group‖) or (ii) in conjunction therewith (including, without limitation, insurance premiums, advertising, business promotion, training and internal auditing programs, social benefits of the H.I. group for which employees of the Hotel may be eligible, attendance of such employees at meetings and seminars conducted by members of the H.I. group and the Chain Marketing Services provided in accordance with Section 2 of Article VII, and (b) irrespective whether such funds shall be paid to any third party or to any member of the H.I. group of any other hotels Operated by any member of the H.I. group. If any member of the H.I. group or any hotel operated by any member of 11 ST/51480/14 the H.I. group shall advance its own funds as aforesaid, it shall be entitled to prompt reimbursement therefore by the Hotel. Any amount required to be reimbursed to Hyatt or H.I. or any of its affiliates in accordance with the provisions of this agreement shall be payable in United States dollars.
All foreign charges and expenses incurred on behalf of the Hotel shall be approved by Owner, which approval shall not be unreasonably withheld.
Section 11. Employees of the Hotel.
(a) Each employee of the Hotel shall be the employee of Owner and not of Hyatt, and Hyatt shall not be liable to such employees for their wages or compensation. Owner shall delegate to the General Manager the authority to employ, pay, supervise and discharge employees of the Hotel.
(b) Subject to prior consultations with Owner, Hyatt, through the General Manager, shall select and designate the Executive Committee of the Hotel. The General Manager, the Director of Human Resources and the respective Executive Committee members shall recruit, interview, and hire all key executives and employees of the Hotel and determine all salaries, wages, and social benefits.
(c) Subject to prior consultations with Owner, all expatriate personnel shall be selected and designated by Hyatt and such expatriate personnel shall be seconded to Owner. In addition to the per diem costs of such expatriate personnel, their, including their family, travel and relocation costs to and from Delhi, their accommodation and living costs in Delhi, home leave expenses and their incentive compensation, if any, shall be paid by the Hotel and charged to the operating expenses of the Hotel. The appointment of all expatriate personnel shall, if required, be subject to the approval of the Reserve Bank of India.
(d) The General Manager, with the assistance of the Director of Human Resources and/or the other Executive Committee members, shall (a) recruit, interview, and hire employees of the Hotel and pay all salaries, wages, taxes thereon as appropriate, and social benefits;
(b) negotiate, with the full cooperation, assistance and participation of Owner, with the Labour Union, the employees, collective bargaining agreement; (c) determine, in consultation with Owner, the range of the annual salary increase for all the employees of the Hotel, including the Executive Committee members and key executives; (d) determine, in consultation with Hyatt and Owner, annual salary increases and other benefits of ht Executive Committee members; (e) determine the annual salary increase and other benefits of other key executives;
12 ST/51480/14 ARTICLE IV MANAGEMENT FEES AND OWNER‟S PROFIT DISTRIBUTION Section 1. Hyatt‟s Fees. Subject to the provisions of subsection 1(C) of this Article, during the Operating Term Hyatt shall be entitled to receive:
A. Monthly as its sales and marketing fee an amount equal to three percent (3.0%) of the gross room revenue of the Hotel, and B. Quarterly, as its management service fee, seven percent (7.0%) of the Gross Operating Profit of the Hotel, as defined in Article V. C. In the event in any fiscal year, Hyatt's combined annual Sales and marketing fees and Management Service fee (―Combined Fees‖), per Subsections (A) and (B) above, shall exceed ten percent (10.0%) of the total annual foreign exchange earnings of the Hotel for such fiscal year, then Hyatt's Combined Fees shall be reduced by the difference between the Combined Fees and ten percent (10.0%) of the total annual foreign exchange earnings for such fiscal year.
Section 2. Payment of Fees. Hyatt's sales and marketing and management services fees shall be determined in the currency of India shall be payable in United States dollars, converted at the official selling rate of exchange, as quoted by the State Bank of India, prevailing on the date of payment, and shall be made within thirty (30) days after the end of each calendar month or fiscal quarter, as the case may be. In the event that payment of Hyatt's fees is not made within the respective specified periods, then such fees shall be converted at the official selling rate of exchange, as quoted by the State Bank of India, prevailing on such dates as such fees shall be determined.
Hyatt's sales and marketing and management services fees shall be subject to the deduction of income or withholding taxes which may be applicable to such fees, in accordance with the Indian taxation laws then in force and, if required, subject to the approval of the Reserve Bank of India and in accordance with the exchange control regulations then in force.
Section 3. Owner‟s Profit Distribution. Subject to the provisions hereinafter set forth, and subject always to the retention of working capital sufficient, in Hyatt's reasonable opinion, to assure the uninterrupted and efficient operation of the Hotel, Hyatt shall during the Operating Term pay to Owner at its principal office, or at such other place as Owner may, from time to time, designate, the Gross operating profit after deduction of Hyatt's fees provided for in section 1 of this Article (hereinafter referred to as ―owner's Profit Distribution‖) on a monthly basis. Subject always to the retention of sufficient working capital, owner's Profit Distribution for each calendar month shall be appropriated to owner within sixty (60) days following the end of such month.‖ 13 ST/51480/14
7. Each of the heads under which the demand has been confirmed shall be analyzed separately in the order the submissions were made by the learned counsel appearing for the Appellant. SERIAL NO. 7
FEE PAID TO HAYATT INTERNATIONAL FOR THE OPERATION OF THE HOTEL --- MANAGEMENT CONSULTANCY SERVICE
8. The findings recorded by the Commissioner under this head are contained in paragraph 31.3 of the order of the Commissioner and the relevant portion is as follows:-
―Now I perused the definition of Management Consultant Service. In terms of Section 65(65) of the Act ―management or business consultant‖ means any person who is engaged in providing any service, ―either directly or indirectly, in connection with the management of any organization or business in any manner‖ and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of management.‖ On perusal of contents of the Agreement held between the party and M/s HIAPL, Hong Kong regarding the ‗Sales & Marketing and Management Service Agreement' and meaning of the ‗Management or Business Consultant service' as provided in Section 65(65) of the Act, it is axiomatic that the payments in foreign currency on account of management fee to M/s HIAPL, Hong Kong are squarely covered under the definition of Management Consultancy services and are liable to be taxed. I do not find any force in the other various contentions of the party and the relied upon judgments are also not relevant to the present facts and circumstances of the case.‖
9. The impugned order has confirmed the demand of Service Tax on the amount paid by the Appellant to Hyatt International as fees under the category of ‗management consultant' as a service recipient for the period 18 April, 2006 to 31 March, 2007.
14 ST/51480/14
10. Learned Counsel for the Appellant pointed out that the Appellant had entered into an agreement with Hyatt International for entrusting Hyatt International with the operation and management of its hotel, for which the Appellant had agreed to pay a specified amount of fee to Hyatt International for such activities as defined in Article IV of the Agreement. Learned Counsel submitted that the fees is paid by the Appellant to Hyatt International under an agreement and Hyatt International carries out the operation and management of the hotel for the Appellant under the said agreement. The contention, therefore, is that since Hyatt International actually operates the Hotel, the service is not covered under ‗management consultant' service. In this connection reliance has been placed upon the decision of the Principal Bench of the Tribunal at Delhi in Basti Sugar Mills Company Ltd. vs Commissioner of Central Excise, Allahabad5 as confirmed by the Supreme Court in Commissioner vs Basti Sugar Mills Ltd.6 and the decision of the Tribunal at Mumbai in Indian Hotels Company Ltd. vs Commissioner of Service Tax, Mumbai7.
11. The learned Authorized Representative of the Department, however, supported the findings recorded by the Commissioner on this issue and contended that the service provided to the Appellant by Hyatt International would fall under the category of ―management consultant' service.
___________________________
5. 2007 (7) STR 431 (Tri-Del)
6. 2012 (25) STR J 154 (SC)
7. 2016 (41) STR 913 (Tri.-Mumbai) 15 ST/51480/14
12. In this connection, the learned Authorised Representative pointed out that :
(i) The agreement dated 18 December, 1993 of the Appellant executed with M/s Hyatt International Asia Pacific Ltd., Hong Kong, is a Management Agreement;
(ii) The services contemplated under the agreement are management services and even otherwise in common parlance, managing the affairs would be management service;
(iii) Section 65(105)(r) of the Finance Act, 19948 defines ―taxable service‖ for management consultant to mean any service provided or to be provided, to any person, by a management consultant in connection with the management of any organization or business, in any manner. It has been emphasized that this taxable service encapsulates three propositions, namely -
(a) The service should be provided by a
management consultant
(b) The service should be provided in connection
with the management of any organization or
business and
(c) The service can be provided in any manner
without any restriction;
____________
8. the Act
16 ST/51480/14
(iv) The definition of ‗management consultant' under
Section 65(65) of the Act contains two parts, namely, ―means‖ part and ―includes‖ part. In such a situation, the ―includes‖ part would expand the meaning as contained in the ―means‖ part by way of including various persons, categories, or things, which would not otherwise have been included in the ―means‖ part;
(v) Apart from management of any organization contained in the ―means‖ part of the definition, the definition also includes, in its ―includes‖ part, any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistic management, procurement and management of information technology resources or other similar areas of management;
(vi) Further, both parts cannot be read conjunctively.
What is included in the ―includes‖ part is relatable only to the subject defined and takes within its sweep persons, objects, or things which are not included in the ‗means' part. In this connection, reliance has been placed upon a judgment of the Supreme Court in Commissioner of Central Excise, Hyderabad vs Detergent India Ltd.9; and ___________________
9. 2015 (319) ELT 559 (SC) 17 ST/51480/14
(vii) The decisions of the Tribunal in Basti Sugar Mills or Indian Hotels relied upon by the Appellant are not applicable to the facts and circumstances of the present case.
13. The submissions advanced by the learned Counsel for the Appellant and the learned Authorised Representative of the Department on this issue have been considered.
14. In order to appreciate the contentions, it would be appropriate to reproduce the definition of ―management consultant‖. Prior to 01 June, 2007, on which date Section 65(65) of the Act was amended, ―management consultant‖ was defined in Section 65(65) of the Act as follows :
"65(65) ―management consultant" means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of management.‖
15. Section 65(65) of the Act was amended w.e.f. 01 June, 2007 and the amended definition of ―management or business consultant‖ as contained in Section 65(65) of the Act is as follows :
"65(65) ―management or business consultant" means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation or business in any manner and includes any person who renders any 18 ST/51480/14 advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of management‖.
16. In the present case, as the period in dispute is from 18 April, 2006 to 31 March, 2007, the definition of ‗management consultant', as it stood prior to 01 June, 2007 would be relevant. ‗Management consultant' has been defined to mean any person who is engaged in providing any service in connection with the management of any organisation in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of management.
17. To appreciate, whether the service provided by Hyatt International to the Appellant would fall under the category of ―management consultant‖, it would be necessary to examine the relevant terms of the agreement. These have been referred to in paragraph 6 of this Order. The relevant provisions are, however, highlighted and they are as follows :
(i) Hyatt International through the General Manager shall operate the hotel under standards comparable to those prevailing in Hyatt International hotels and 19 ST/51480/14 shall conduct such operations in accordance with the laws of India;
(ii) Hyatt International through the General Manager shall have complete control and discretion in the operation of the hotel and nothing in the agreement shall constitute or be construed to be or to create a partnership of joint venture between the owner and Hyatt International. The control and discretion of Hyatt International, through the General Manager, shall include the use of the hotel for all customary purposes, terms of admittance, charges for rooms, entertainment and amusement, food and beverages, labour policies, wage rates and the hiring and discharging of employees, maintenance of the Hotel Operating Account and all phases of promotion and publicity relating to the hotel;
(iii) Hyatt International, through the General Manager, shall operate in the hotel all facilities and provide all services and shall not lease or grant concessions in respect of such services or facilities;
(iv) During the operating term, Hyatt International through the General Manger shall, in consideration of its fees and subject to reimbursement of its expenses, provide a host of services mentioned therein;
20 ST/51480/14
(v) The General Manager of Hyatt International shall have a right to carry out his duties under the agreement which shall include contracts for sales of rooms, food and beverages and other facilities of the hotel; and
(vi) Hyatt International or the General Manager may purchase the goods, supplies, insurance and services from or through Hyatt International or any of its affiliates.
18. It is, therefore, clear that Hyatt International carries out the operation and management of the hotel for the Appellant under the agreement. It is not engaged in providing any service in connection with the management of the hotel. It is itself running the hotel. Hyatt International also does not render any advice, consultancy or technical assistance to the Appellant. It needs to be noted that actual running or managing an organization cannot be the same as providing any service in connection with the management of the organization.
19. Section 65(105) of the Act deals with ‗taxable service'. Prior to the amendment made on 01 June, 2007, section 65(105)(r) read as under :
"65(105)(r) ‗taxable service' means any service provided or to be provided to a client, by a management consultant in connection with the management of any organization in any manner.‖ 21 ST/51480/14
20. It is difficult to comprehend, on a plain reading of the agreement, that Hyatt International is providing any service to the Appellant as a ‗management consultant'.
21. In this connection, it would be appropriate to refer to a decision of the Mumbai Tribunal in Indian Hotels Co. Ltd. The Appellant, Indian Hotels Co. Ltd., had filed an appeal before the Tribunal against the order demanding Service Tax under the category of ‗management consultant' service. The Appellant was running a business of hotels in the name of ‗Indian Hotels Co. Ltd. M/s Lokhandwala Hotels Pvt. Ltd. was also running a hotel in the name of ‗Regent Hotel' but it was running at huge losses. The hotel business of ‗Regent Hotel' was acquired by the Appellant in terms of an agreement. A learned Member of the Tribunal, after analyzing the various terms of the agreement, observed that the Appellant was performing the activity of ‗management of hotel' and was not required to do any advisory service. Thus, the Appellant was not providing any ‗management consultant' service to Lokhandwala Hotels Pvt. Ltd. and accordingly, it was not liable to pay Service Tax under the category of ‗management consultant'. In coming to the aforesaid decision, the learned Member placed reliance upon an earlier decision of the Tribunal in Basti Sugar Mills Co. Ltd. The other Member constituting the Bench, however, did not agree with this view and held that the services rendered by Indian Hotels Co. Ltd. would be classified under ‗management consultant' service. The third Member, to whom the difference of opinion was referred to, observed, after perusing the clauses of the agreement, that the activity of Indian Hotels Co. Ltd. in operating the hotel cannot be called as a service 22 ST/51480/14 under the category of ‗management consultant' service as Lokhandwala Hotels Pvt. Ltd. was being operated in its entirety by Indian Hotels Co. Ltd. The relevant portion of the decision is reproduced below :
"53. If we look at the introductory part of the License Agreement between IHCL and LHL, we get the real picture of the nature of activity performed by IHCL., If says ―....LHL is the true and legal owner of the Hotel (as defined hereinafter) and the related assets situated at CTS Nos. B/899A Byramjee Jejeebhoy Road, Bandra, Mumbai. ....... The parties have agreed that for their mutual benefit and for the consideration mentioned in this Agreement, IHCL shall run, develop, conduct, operate manage, renovate, modernize and expand the Hotel and carry out all activities incidental and ancillary to the business of hoteliering or otherwise (the ―Operation of the Hotel‖) as appropriate upon the terms and conditions recorded herein ....‖.
The above portion of the Agreement makes it abundantly clear as to what the true and only actual purpose of the Agreement is. The Agreement states unambiguously that, for mutual benefit, IHCL shall run, develop, conduct, operate manage .... Carry out all activities of running the hotel. The ld. Counsel has rightly placed reliance on the judgments cited in para 6.2 while contending that they cannot render service to themselves and that sharing of expenses/profit cannot be treated as a service.
54. For all the reasons stated above, in my view, the activities of IHCL in operating the hotel cannot be called as a service rendered under the category of Management Consultancy service.‖ [emphasis supplied]
22. It will also be useful to refer to a decision of the Tribunal in Basti Sugar Mills Co. Ltd. The Appellant was engaged in the 23 ST/51480/14 manufacturer of sugar. Under an agreement dated 28 September, 2001 with Indo Gulf Industries Ltd., it took over the management of the sugar mill of Indo Gulf Industries Ltd. situated at Maizapur. The Department treated the said agreement as ‗management consultant' agreement and demanded Service Tax. The Tribunal, after pursuing the clauses of the agreement, found that the Appellant had actually been entrusted with the operation of the factory and that the clauses of the agreement enabled the Appellant to perform the operation of the factory smoothly.
The agreement was also not for any advice or consultancy. The relevant portion of the decision is reproduced below :
―2. The contention of the appellant is that the agreement was not a Consultancy Agreement but a Management Agreement and the revenue authorities are in error in treating the agreement as a Consultancy Agreement. It is also being pointed out that this Tribunal dealt with a similar case in its decision in the case of Rolls Royce Industries Power (I) Ltd. v. CCE, Vishakhapatnam as reported in 2006 (3) S.T.R. 292 (Tri.) = 2004 (171) E.L.T. 189 (Tri. - Del.) and held that Service Tax as consultant is not attracted to a case where, under a contract, the operation and management of an industrial unit is taken over by a party.
xxxxx xxxxx xxxxx
7. The above definition makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management function. In the present case, the appellant was in-charge of the operation of the factory and thus was performing the management function.
8. An ocean separates a manager from a management consultant, a performer from an advisor or a coach. That ocean exists in the present case also. We dealt with a similar case in Rolls Royce Industries Power (I) Ltd. (Supra) and held that where the agreement conferred operational autonomy and responsibility on the contracted party, the relationship is not one of consultancy. The ratio of that decision covers the present dispute also. There is no management consultancy in the facts of the present case and the demand is clearly beyond the scope of the statute.‖ [emphasis supplied] 24 ST/51480/14
23. The Civil Appeal filed by the Department [Commissioner vs Basti Sugar Mills Co. Ltd.] before the Supreme Court was dismissed on 20 November, 2007. The judgment is reproduced below :
―Admittedly, the revenue did not file any appeal against the earlier decision of the Tribunal in Rolls Royce Indus Power (I) Ltd. v. CCE, Vishakhapatnam [2006 (3) S.T.R. 292 (Tribunal) = 2004 (171) E.L.T. 189 (Tribunal)] and the same has attained finality, relying upon which the Tribunal has dismissed the present appeal.
In view of above, this appeal is dismissed but without any order as to costs.‖
24. The learned Authorized Representative of the Department, however, submitted that the service contemplated under the agreement is of ‗management consultant' and as it relates to managing the affairs of the hotel, it would be a taxable service.
25. According to the learned Representative, a ‗management consultant' under section 65(65) of the Act would mean a person engaged in providing any service, either directly or indirectly, in connection with the management of any organization, of any business, in any manner. The definition also includes a person who renders advice, consultancy or technical assistance. The definition has, therefore, two parts. The first is contained in the ―means part‖, and the second is contained in the ―includes part‖. The ―includes part‖ expands the meaning contained in ―means part‖ by including various categories or things not otherwise included in the ―means part‖. Thus, on a complete reading of the definition, the service rendered by Hyatt International to the Appellant would be a service provided by a ‗management consultant' which would be subjected to levy of Service Tax.
25 ST/51480/14
26. It is not possible to accept the contention of the learned Authorized Representative of the Department. What has to be examined is the definition of a ‗management consultant' under Section 65(65) of the Act. The ‗means' part provides that any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organization would be a ‗management consultant'. Thus, it is necessary that the person should be engaged in providing any service in connection with the management of any organization. Such a person would not be a person actually managing the affairs of the organization. In the ‗includes' part, a person who renders any advice, consultancy or technical assistance in relation to the areas of management would also be a ‗management consultant'. As noted above, Hyatt International cannot, in any manner, be said to be providing any advice, consultancy or technical assistance since it is itself running the hotel. The decision of the Supreme Court in Detergents India Ltd. will, therefore, not come to the aid of the Department. The Supreme Court pointed out that ‗means' and ‗includes' is a legislative device and the relevant portion of the judgment is reproduced below :
―23. We find it difficult to agree with some of the conclusions reached in the aforesaid paragraph. As has been stated by us above, "means" "and includes" is a legislative device by which the "includes" part brings by way of extension various persons, categories, or things which would not otherwise have been included in the "means" part. If this is so, obviously both parts cannot be read conjunctively. What is in the ―includes‖ part is relatable only to the subject that is to be defined and takes within its sweep persons, objects, or things which are not included in the first part. We have already pointed out that the reason for including holding and subsidiary companies in the ―includes‖ part is so that the authorities may look behind the 26 ST/51480/14 corporate veil. To say that the holding and subsidiary companies must in addition have a mutual interest in the business of each other is wholly incorrect. Further, the word ―and‖ which joins the two parts of the definition is not rendered meaningless. It is necessary because it precedes the word ―includes‖ and brings in to the definition clause persons, objects, or things that would not otherwise be included within the ―means‖ part.‖ [emphasis supplied]
27. Learned Authorized Representative of the Department also submitted that as the definition of ‗management consultant' uses ―directly‖ or ―indirectly‖, a very wide meaning has to be given and in this connection reliance was placed on the judgment of the Bombay High Court in Oil & Natural Gas Corporation Ltd. v/s Commissioner of Central Excise, Service Tax and Customs, Raigad10.
28. It is also not possible to accept this submission of the learned Authorized Representative of the Department. The use of the words ‗directly' or ‗indirectly' will not lead to a conclusion that a ‗management consultant' would also include a person who has not only been engaged for providing any service in connection with the management of the organization, but also a person who is actually managing the organization. The decision of the Bombay High Court in Oil & Natural Gas Corporation Ltd. holding that ‗directly' or ‗indirectly' has a wide import would, therefore, not come to the aid of the Department.
____________________
10. 2013 (32) S.T.R 31 (Bom.)
27 ST/51480/14
29. Learned Authorized Representative also placed reliance on the judgment of the Supreme Court in Renusagar Power Company Ltd. v/s General Electric Company and Anr11 to contend that expressions such as ―arising out of‖ or ―in respect of‖ have a wide amplitude as also the judgment of the Allahabad High Court in Indian Coffee Workers Co-operative Society Limited v/s C.C.E. & S.T., Allahabad12.
30. These judgments would not help the Respondent. A perusal of the definition of the ‗management consultant' in Section 65(65) of the Act would indicate that what is contained in the ‗includes' part is a person who renders any advice, consultancy or technical assistance in relation to certain areas of management. It is the advice, consultancy or technical assistance which has to be in relation to the areas of management. Hyatt International, as noticed above, is not providing any advice, consultancy or technical assistance to the Appellant since it is itself is managing the hotel and so it would not be necessary to examine the scope of ‗in relation to' in this case.
31. In view of the aforesaid discussion, it has to be held that Hyatt International is not providing any service of a ‗management consultant' to the Appellant. The confirmation of demand under the head, therefore, cannot be sustained.
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11. 1985 AIR 1156, 1985 SCR (1) 432
12. 2014 (34) S.T.R. 546 (All.) 28 ST/51480/14 SERIAL NO. 8 MISCELLANEOUS PAYMENT TO HYATT INTERNATIONAL --- BUSINESS AUXILIARY SERVICE
32. The findings recorded by the Commissioner under this head are contained in paragraph 32.4 of the Order and the relevant portion is as follows :
―32.4 On careful perusal of the terms and conditions of the Agreement held between the party and M/s HIAPL, Hong Kong under the heading ‗Management Services' of ―Sales & Marketing and Management Service Agreement‖, I find that all the aforesaid expenditures made in terms of Section 4 of the Sales & Marketing and Management Service Agreement are categorically towards management or supervision or development of prospective customer and public relation services, hence the same are appropriately covered under the definition of ―business auxiliary service‖ and the expenditure in foreign currency incurred on account of per diem charges, exhibition charges, food promotion charges, insurance coverage, training fees annual subscription fee, participation fee, retirement plan, band fee, chef salary, musician fee, training charges, credit cards, audit fee etc. are in the nature of services arranged by M/s Hyatt International Asia Pacific Ltd., Hong Kong, for the proper operation of the hotel as mentioned in the said clause and are liable to be taxed under Business Auxiliary Services.‖
33. The impugned order has confirmed the demand of Service Tax on the expenses reimbursed to Hyatt International under the category of ‗business auxiliary service' as a service recipient. The period is from 18 April, 2006 to 31 March, 2007.
34. Learned Counsel for the Appellant pointed out that the Appellant had agreed to reimburse Hyatt International of the expenses incurred by it in running the Hotel on actual basis as provided for in section 10 of Article III of the agreement. Learned 29 ST/51480/14 Counsel further submitted that the expenses reimbursed are not towards provision of any ‗business auxiliary service', but are part and parcel of the overall agreement for operation and management of the hotel. In any case, the impugned order does not justify the charges towards any specific activity specified in the definition of ‗business auxiliary service' under section 65(19) of the Act. In fact, no finding has been given as to the specific sub-clause under which the alleged demand has been confirmed. It has also been submitted that such reimbursements are made to Hyatt International on actual basis and do not form part of value of any taxable service. In this regard, reliance has been placed on decision of Delhi High Court in Intercontinental Consultants & Technocrats Private Limited vs Union of India13 as confirmed by the Supreme Court in Union of India vs Intercontinental Consultants & Technocrats Private Limited14.
35. The learned Authorized Representative of the Department has, however, supported the findings recorded by the Commissioner under this head.
36. It has to be examined, whether demand of Service Tax on the expenses reimbursed to Hyatt International under the category of ‗business auxiliary service' is justified or not. The period is from 18 April, 2006 to 31 March, 2007 and, therefore, the definition of ‗business auxiliary service' under section 65(19) of the Act, as it stood at the relevant time, is reproduced below :
________________________
13. 2013 (29) STR 9 (Del.)
14. 2018 (10) GSTL 401 (SC) 30 ST/51480/14 "Business Auxiliary Service" means any service in relation to, -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
(v) production or processing of goods for, or on behalf of the client;
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944)."
37. Section 10 of Article III of the agreement deals with the right of Hyatt International to seek reimbursement and has been reproduced in paragraph 6 of this Order. It provides for reimbursement on actual basis.
38. The submission of learned Counsel for the Appellant is that the amount received towards reimbursement cannot be treated as a consideration for provision of service in terms of Section 67 of the Act.
31 ST/51480/14
39. This section 67 deals with valuation of taxable services for charging service tax. Sub-section (1) of Section 67 provides that where service tax is chargeable on any taxable service with reference to its value, then such value shall, where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by the service provider. It is, therefore, clear that only such amount is subject to service tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax.
40. Section 67 of the Act was considered and explained by the Supreme Court in Intercontinental Consultants. The appellant therein was providing consulting engineering services. It received payment not only for the services provided by it but was also reimbursed for the expenses incurred by it on air travel, hotel stay, etc. It paid service tax on the amount received by it for services rendered to its clients but did not pay any service tax in respect of expenses incurred by it which were reimbursed by the clients. A show cause notice was issued to it to explain why service tax should not be charged on the gross value including reimbursable and out of pocket expenses. The provisions of Rule 5(1) of the Rules were resorted to for this purpose. A Writ Petition was filed challenging the vires of Rule 5 as being unconstitutional as well as ultra vires the provisions of Section 66 and 67 of the Act. The High Court of Delhi accepted the said contention and declared Rule 5 to 32 ST/51480/14 be ultra vires the provisions of Section 66 and 67 of the Act. The High Court noted that both the amended and unamended Section 67 authorised the determination of value of taxable services for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such services provided or to be provided by him in a case where consideration for such service is money. The High Court placed emphasis on the words "for such service" and took the view that the charge of service tax under Section 66 has to be on the value of taxable service i.e. the value of service rendered by the assessee and the quantification of the value of service can, therefore, never exceed the gross amount charged by the service provider for the service provided by him. On that analogy, the High Court opined that the scope of Rule 5 goes beyond the scope of Section 67 which was impermissible as rules could be framed only for carrying out the provisions of Chapter 5 of the Act. In taking this view, the High Court observed that the expenditure or cost incurred by the service provider for providing the taxable service can never be considered as the gross amount charged by the service provider "for such service‖ provided by him. The Supreme Court noticed the various reimbursable claims which were included in the gross value and in respect of certain Appeals, the value of diesel supplied free of cost by the service recipient was also considered. The Supreme Court noted that Rule 5 does bring within its sweep the expenses which are incurred while rendering the service and are reimbursed and, therefore, what was required to be decided was whether Section 67 of the Act permits subordinate legislation to be enacted as done by Rule 5. It needs to be noted 33 ST/51480/14 that prior to 19 April, 2006, in the absence of a Rule, the valuation was required to be done as per the provisions of Section 67 of the Act. The Supreme Court noticed that the charging Section 66 provides that there shall be levied service tax @ 12% of the value of taxable services referred to in the sub-clauses of Section 65 and collected in such manner as may be prescribed. Thus, the service tax is on the ―value of taxable services‖ and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the Supreme Court observed that the expression ―such‖ occurring in Section 67 of the Act assumes importance. It is in this context that the Supreme Court in paragraph 26 observed that the authority has to find what is the gross amount charged for providing ―such‖ taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing ―such taxable service‖. This according to the Supreme Court is the plain meaning attached to Section 67 either prior to its amendment on 1 May, 2006 or after this amendment and if this be so, then Rule 5 went much beyond the mandate of Section 67. The Supreme Court, therefore, held that the value of material which is supplied free by the service recipient cannot be treated as ―gross amount charged‖ as that is not a ―consideration‖ for rendering the service.
41. In this view of the matter, expenses which are reimbursed, cannot be subjected to levy of Service Tax under ‗business auxiliary service'. The confirmation of the demand under the head, therefore, cannot be sustained.
34 ST/51480/14 SERIAL NO. 6 SUBSCRIPTION AND MAINTENANCE OF SOFTWARE
--- MAINTENANCE OR REPAIR SERVICES
42. The findings recorded by the Commissioner under this head are contained in paragraph 30.2 of the Order and the relevant portion is as follows :
‖On perusal of the party's submissions, I do not find any force in the contention of the party that Computer software is not goods and maintenance of such software was not liable to service tax under ‗maintenance or repair service' during the relevant period. Because vide circular F.No. 256/1/2006-CX-4 dated 07.03..06 the Board has categorically clarified that Service tax on maintenance & repair of computer software is leviable w.e.f 09.07.04. Besides, this it has been specifically explained at Explanation (a) of Section 65(64) of the Act that, ―goods‖ includes computer software.‖
43. The impugned order has confirmed the demand of Service Tax against the Appellant on expenses paid towards maintenance of software under the category of ‗repair or maintenance services' as a service recipient for the period 18 August, 2006 to 31 March, 2007.
44. Learned Counsel for the Appellant submitted that maintenance of software was not covered under the said category prior to 01 June, 2007, on which date an Explanation to that effect was introduced and in this connection reliance has been placed on the following decisions :
35 ST/51480/14
(i) Kasturi & Sons Limited vs Union of India15
(ii) Ruchi Infotech Limited vs Commissioner of Central Excise, Indore16
(iii) Tata Consultancy Services Limited vs 17 Commissioner of Service Tax
(iv) Commissioner of Central Excise, Mumbai vs Staarship Technologies Limited18
45. The learned Authorised Representative of the Department submitted that the findings recorded by the Commissioner that the subscription and maintenance of software would fall under the ‗maintenance or repair services' is justified.
46. The period involved is from 18 August, 2006 to 31 March, 2007. The contention of the Appellant is that maintenance of software is not covered under ‗maintenance or repair services' prior to 01 June, 2007, as it is only from 01 June, 2007 that an Explanation was introduced in the definition that stipulated that ‗goods' would include computer software. The definition of ‗management, maintenance or repair' contained in Section 65(64) of the Act, prior to 01 June, 2007, is as follows :
"65(64) "management, maintenance or repair‖ means any service provided by--
(i) any person under a contract or an agreement; or
(ii) a manufacturer or any person authorised by him, in relation to,--
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15. 2011 (22) STR 129 (Mad.)
16. 2015 (37) STR 131 (Tri.-Del)
17. 2018-VIL-427-CESTAT-DEL-ST
18. 2018 (8) GSTL 446 (Tri.-Mum) 36 ST/51480/14
(a) management of properties, whether immovable or not;
(b) maintenance or repair of properties, whether immovable or not; or
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle.‖
47. It is w.e.f 01 June, 2007, that the following Explanation was added:
"Explanation -- For the removal of doubts, it is hereby declared that for the purposes of this clause, ―goods‖ includes computer software.‖
48. It would be appropriate at this stage to refer to the Circular dated 17 December, 2003 that was issued by the Board. The Circular examined, as to whether organizations engaged in design, development and maintenance of Software who enter into Annual Maintenance contract for maintenance of the software, are exempt from Service Tax or not. It was provided in the Circular that maintenance of software would not be chargeable to Service Tax under the category of ‗maintenance or repair'. The Circular dated 17 December, 2003 is reproduced below :
" CIRCULAR NO. 70/19/2003-ST, DATED 17-12-2003 An issue has been raised whether the organisations who are engaged in design, development and maintenance of Software and enter into Annual Maintenance contracts for maintenance of their software, are exempt from Service Tax or not.
2. ―Maintenance or repair‖ means any service provided by (i) any person under a maintenance contract or agreement or (ii) a manufacturer or any person authorised by him in relation to maintenance or repair or servicing of any goods or equipment. In the instant case repair is not of tangible goods but that of intangible program/software which is in installed condition and thus the maintenance and repair of software is not maintenance and repair 37 ST/51480/14 of ―goods‖. Further an exemption has been granted to maintenance or repair services in relation to computer, computer systems and computer peripherals vide Notification No. 20/2003-ST dated 21.8.2003. As such computer software would form a part of computer systems would be covered under this notification. Under the category of ―consulting engineer‖ vide Notification No. 4/99-ST dated 28.2.99 taxable service provided to any person by a consulting engineer in ―elation to computer software is exempted. The definition of ―Business Auxiliary Service‖ also specifically provides that; inter alia, maintaining of computer software is covered in the T service, which is excluded from the scope of business auxiliary service.
3. Taking the above into consideration, it is to clarify that maintenance of Software is not chargeable to Service Tax. "
49. However, this position was re-examined by the Board in 2005 in view of the judgment of the Supreme Court in Tata Consultancy Services vs State of Andhra Pradesh19 and it was provided that software being goods, any service in relation to maintenance, repair and service of software would be liable to Service Tax as it would be a service provided by any person in relation to management, maintenance or repair. The Circular dated 07 October, 2005 is reproduced below :
" CIRCULAR NO. 81/2/2005-ST, DATED 07-10-2005 Board has examined the leviability of service tax on maintenance or repair or servicing of software under section 65(105)(zzg) read with section 65 (64) of the Finance Act , 1994.
2. Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh (Civil Appeal no 2582 0f 1998) [2004 (178) ELT 22 (SC)] has observed that all the tests required to satisfy the definition of goods are possible in the case of software and in computer software the intellectual property has been incorporated on media for the purpose of transfer and software and media cannot be split up. Therefore, sale of computer software falls within the scope of sale of goods. Supreme Court has also observed that they are in agreement with the view that there is no distinction between branded and unbranded software.
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19. 2004 (178) ELT 22 (SC) 38 ST/51480/14
3. Branded software, also known as canned software, sold off the shelf, is transferred in a media and is sold as such and the Supreme Court has decided that such branded software falls within the definition of goods. In the case of unbranded / customized software, the supplier develops the software and thereafter transfers the software so developed in a media and it is taken to the customer's premises for loading in their system. Thus, in the case of unbranded / customized software also, the intellectual property namely software is incorporated in a media for use. Supreme Court has held that software in a media is goods.
4. Any service provided to a customer by any person in relation to maintenance or repair is leviable to service tax under section 65(105) (zzg) of the Finance act , 1994. ―Maintenance or repair‖ is defined under section 65(64) of the said Act. Accordingly, ―maintenance or repair‖ means any service provided in relation to maintenance or repair or servicing of any goods or equipment. 5 Software, being goods, any service in relation to maintenance or repair or servicing of software is leviable to service tax under section 65(105)(zzg) read with section 65 (64) of the Finance Act, 1994.
6. These instructions are issued taking into account the said decision of the Supreme Court, and in supersession of all earlier clarifications / circulars issued on the above subject. "
50. This Circular dated 07 October, 2005 was assailed in a Writ Petition filed before the Madras High Court by Kasturi & Sons Ltd. This Petition was filed for declaring the Circular dated 07 October, 2005 ultra vires to Section 83 of the Act. The High Court noticed that it is under the Finance Act, 2007 w.e.f 01 June, 2007 that an Explanation was added to the definition of ‗management, maintenance or repair' service in Section 65(64) of the Act by which ‗goods' were included in ‗Computer Software' and, therefore, any service relating to software would not be subject to levy of Service Tax prior to 01 June, 2007. The relevant paragraphs of the judgment of the Madras High Court are as follows :
39 ST/51480/14 "2. The petitioner which is engaged in the business of publishing newspapers and periodicals had entered into a contract on 31-10-
2000 with CCI Europe A/S Denmark for the supply of software for pagination system. That apart, an agreement for maintenance of software was also entered, by which the petitioner paid DKK 2,209,690 equivalent to Indian Rupees 1.66 crores (approximately).
(a) The second respondent issued a circular on 17-12-2003 to the effect that the software service would be outside the purview of service tax and it is also stipulated in Section 65(19) of the Finance Act, 1994 that it does not include Information Technology Services and as per the explanation to that Section, the maintenance of computer software is included in information technology service.
(b) After the judgment was rendered by the Supreme Court in Tata Consultancy Service v. State of Andhra Pradesh [(2005) 1 SCC 308 = 2004 (178) E.L.T. 22 (S.C.)], wherein it was held that canned software amounts to tangible property and when the same is sold it would be liable for sales tax, the second respondent issued the impugned circular dated 7-10-2005 to the effect that software amounts to ‗goods' and therefore, the maintenance of software will attract maintenance charges liable for service tax.
7. ............But the question for consideration is, till passing of the Finance Act, 2007 in the light of specific exemption of information technology from the purview of ‗business auxiliary service' under the respective Finance Acts, whether the impugned circular issued by the second respondent can have the effect of imposing the liability of service tax or otherwise and whether the circular issued by the second respondent can be read in supercession of the statutory provisions of the Finance Acts in the respective financial years.
8. Therefore, on fact, it is clear that till the advent of the Finance Act, 2007, the information technology which included maintenance of computer software, had been outside the purview of ‗business auxiliary service', especially under Section 65 and the term, ‗goods' in the Finance Act, 2007 has included ‗computer software' under section 65(105)(zzg). However, under the impugned circular the second respondent placed reliance on the judgment of the Supreme Court in Tata Consultancy Service v. State of Andhra Pradesh [(2005) 1 SCC 308] to conclude that software being goods, any service relating to maintenance, repairing and servicing of the same is also liable for service tax. The Supreme Court in that case decided about the term, „goods‟ in the light of Andhra Pradesh General Sales Tax Act..............
9. While deciding the same, there was no occasion to consider the implications of the Finance Act 2003 to 2006 in respect of the terms ‗information technology' and ‗maintenance of software'..........
40 ST/51480/14
22. In such view of the matter, the impugned circular is declared to have no application to the petitioner, as the same is opposed to the provisions of the Finance Act insofar as it relates to imposing of service tax on software relating to maintenance, repairing and servicing under the Finance Act, 1994 before the period of Finance Act, 2006. No costs. Connected miscellaneous petition is closed."
[emphasis supplied]
51. This is also the view taken by the Tribunal in Ruchi Infotech Limited, Tata Consultancy Services Limited, and Staarship Technologies Limited.
52. The impugned order, however, has taken into consideration the ‗Explanation' that provides that ‗goods' would include ‗Computer Software', even though this Explanation was added w.e.f 01 June, 2007 and the period in dispute is from 18 August, 2006 to 31 March, 2007.
53. It is, therefore, not possible to sustain the demand made by the Commissioner under this head.
SERIAL NO. 5
RESERVATION EXPENSES, HYATT GOLD PASSPORT, HYATT CHAIN SERVICES --- BUSINESS AUXILIARY SERVICE
54. The findings on this issue are contained in paragraph 29.1 and 29.3 of the order of the Commissioner and are reproduced below :
41 ST/51480/14 ―In the written reply to the SCN, regarding the nature of Hyatt Chain Services received from M/s Hyatt Chain Services Ltd.
(HCSL), the party contended that HSCL merely undertakes certain promotion activities for the Hyatt Chain of Hotels as a whole and thereafter passes on the cost of the same to various Hyatt hotels on actual basis without any mark up. The arrangement between the party and other Hyatt hotels was merely that of sharing of joint promotional expenses at global level. In any case, the relation between the party, other Hyatt hotels and HSCL was not that of service provider and clients. As regard to the nature of Hyatt Gold Passport Program, the party contended that ‗Hyatt Gold Passport Program' is a frequent guest program conducted by M/s Hyatt Corporation. A guest staying at any of the Hyatt chain of hotels and satisfying minimum requirements can become a member of the Hyatt Gold Passport Program. This program is meant for building guest loyalty towards Hyatt chain of hotel and for establishing continuous relationship between the guests and the chain. The members of this program are provided exclusive services, benefits, promotions, awards etc. at the Hyatt hotels. The program also entitles members to earn bonus points on ‗eligible charges' expended at the Hyatt hotels. These bonus points can, in turn, be redeemed by the members for availing services at any of the Hyatt hotels.
On perusal of the party's explanation regarding the nature of the services as elaborated in the written reply to the SCN and definition of ‗Business Auxiliary Services', I find that all such services are absolutely covered under the definition of ‗business auxiliary service' and hold that all such charges made in foreign currency are liable to service tax. I do not find any force in the various other contentions of the party and the relied upon judgments are also not relevant to the present facts and circumstances of the case.‖
55. The impugned order confirms the demand under ‗business auxiliary service' as a service recipient. The period involved is from 18 April, 2006 to 31 March, 2007.
56. Learned Counsel for the Appellant submitted that M/s Hyatt Chain Services Ltd. merely undertakes certain promotion activities for the Hyatt Chain of hotels as a whole and thereafter passes on the cost of the same to various Hyatt hotels on actual basis without any mark up. The arrangement between the Appellant and other Hyatt hotels is merely that of sharing of joint promotional 42 ST/51480/14 expenses at a global level. In any case, the relation between the Appellant, other Hyatt hotels and M/s Hyatt Chain Services Ltd. is not that of a service provider and client. Thus, the activities undertaken by M/s Hyatt Chain Services Ltd. are not covered under ‗business auxiliary service' and hence not subject to levy of Service Tax.
57. Learned Counsel for the Appellant also pointed out ‗Hyatt Gold Passport Program' is a frequent guest program conducted by M/s Hyatt Corporation. A guest staying at any of the Hyatt Chain of hotels and satisfying the minimum requirements can become a member of the Hyatt Gold Passport Program. This program is meant for building guest loyalty for Hyatt chain of hotels and for establishing continuous relationship between the guests and the chain. The members of this program are provided exclusive services, benefits, promotions, awards etc. at the Hyatt hotels. The program also entitles members to earn bonus points on ‗eligible charges' expended at the Hyatt hotels. These bonus points can, in turn, be redeemed by the members for availing services at any of the Hyatt hotels. The program is internationally conducted by M/s Hyatt Corporation, which maintains the information relating to the bonus points earned and redeemed by the members. As per the scheme, the cost of the bonus points awarded to the guests is borne by the hotel where such bonus points are earned. On the other hand, compensation is given to the hotel where such bonus points are redeemed by the guests. M/s Hyatt Corporation also acts as a clearing house for settlement of dues relating to bonus points between the Hyatt hotels.
43 ST/51480/14
58. Learned Counsel further submitted that the amount paid by the participating Hyatt hotels including the Appellant, as contribution towards bonus points earned by the guests while staying in their hotels, are in the nature of benefit/discounts provided to the guests. The said payments are not in the nature of consideration for any ‗business auxiliary service' rendered by Hyatt Corporation. The participating Hyatt hotels are jointly promoting their business by organizing the said Hyatt Gold Passport Program and offering bonus points to guests availing facilities in their hotels. As the member/guest is allowed to redeem the bonus points in any of the Hyatt hotels around the world, the concerned hotel wherein the bonus points are earned is required to make contribution towards redemption of such bonus point. This settlement between the hotel where the bonus points are earned and the hotel where the bonus points are redeemed is facilitated by Hyatt Corporation. Learned Counsel for the Appellant, therefore, contended that the Commissioner was not justified in confirming the demand under this head and in support of this contention, learned Counsel placed reliance on a decision of the Tribunal in M/s Historic Resort Hotels Pvt. Ltd. vs Commissioner of Central Excise, Jaipur- II20.
59. The learned Authorized Representative of the Department, however, refuted the contentions advanced by the learned Counsel for the Appellant and submitted that the Commissioner was justified in confirming the demand under ‗business auxiliary service'.
_____________________________
20. 2017-TIOL-3660-CESTAT-DEL 44 ST/51480/14
60. It is seen that M/s Hyatt Chain Services Ltd. undertakes certain promotion activities for the Hyatt Chain of hotels and thereafter passes on the cost to the hotels on actual basis. Thus, the arrangement is of sharing of joint promotional expenses at a global level. Even under the ‗Hyatt Gold Passport Program', the members of the program are provided exclusive services, benefits, and promotions at the Hyatt hotels. The participating hotels are jointly promoting their business by organizing the said program and offering bonus points to guests availing facilities in their hotels. The settlement between the hotels where the bonus points are earned and the hotel where the bonus points are redeemed is facilitated by Hyatt Corporation.
61. This issue was examined by the Tribunal in Historic Resort Hotels Pvt. Ltd. The Appellant therein and other group companies had an arrangement in writing for procuring services to help the Appellant and the group companies in sales, marketing and promotion of their business. The demand was initially satisfied by the Appellant but thereafter shared with the other group companies on proportionate basis. The Adjudicating Authority held that the amount paid by the group companies to the Appellant was a taxable consideration. This was not accepted by the Tribunal. It was found that the arrangement was such that all the group companies would benefit for such expenses which, though initially borne by the Appellant, were subsequently shared. Thus, there was no scope for imposition of tax liability on the Appellant under the category of ‗business auxiliary service'. The Tribunal also noted that the original 45 ST/51480/14 order did not identify the sub-clause of ‗business auxiliary service' under which the Service Tax was sought to be confirmed. The relevant portion of the decision of the Tribunal is reproduced below :
―4.............The facts of the case are that the appellant along with group companies involved in similar business had an arrangement in writing to procure services which will help the appellant and group companies in sales, marketing and promotion of their business. Such services are provided by third parties and the payment is made by the appellant. Thereafter, the appellant shared the expenditure with other group companies on proportionate basis. The Original Authority held that the appellant as well as the other group companies are independent legal entities. Merely because the group companies have shared the expenditure incurred by the appellant on proportionate basis with no profit, they cannot be excluded from service tax liability. He considered that the appellants did provide service of promotion sales, marketing and related activities of group companies. The Original Authority held that the amount paid by group companies to the appellant is a taxable consideration. We note that the Original Authority also recorded that these services were actually rendered by third parties to the appellant. Apparently, it would mean that the appellants received the service and acted as procurer of such service for or on behalf of the group companies. We find such inference is not factually as well as legally tenable. The appellant is not per se engaged in promoting sales or business of group companies. No evidence to that effect has been brought out. In fact, the arrangement is all group companies will benefit from a sales promotion and other related activities of third parties, for which expenses are to be borne by the appellant and thereafter to be shared with other group companies. In such arrangement, we find no scope for tax liability on the part of the appellant under the category of BAS. We also note that the original order did not identify under which sub-clause of the tax entry BAS, the service tax is sought to be confirmed.‖
62. The Tribunal in coming to aforesaid conclusion relied upon the judgment of the Supreme Court in M/s Gujarat State Fertilizers and Chemicals Ltd. & Anr. Vs Commissioner of Central Excise21 wherein it was held that sharing of expenditure for common facilities cannot be treated as service by one to another.
________________________
21. 2016-TIOL-198-SC-ST
46 ST/51480/14
63. In the present case, as seen above, the Commissioner after noticing the contention of the Appellant merely observed, without giving any reasons, that all the services were covered under the definition of ‗business auxiliary service'. This apart, no particular clause of the definition of ‗business auxiliary service' was referred to.
64. Thus, for all the reasons stated above, it is not possible to sustain the confirmation of demand under this head. SERIAL NO. 4
DESIGN AND CONSULTANCY CHARGES ---
INTERIOR DECORATOR SERVICE
65. The finding of the Commissioner under this head are contained in paragraph 28 of the order and is reproduced below :
"28............On perusal of the submissions of the party and the definition of the ‗Interior Decorator Services', I find that the expenditure incurred by the party in foreign currency on account of Design & Consultancy charges are covered under the definition of the said service and the expenditure is liable to service tax.‖
66. The Appellant does not dispute the liability to pay Service Tax under this head but the imposition of penalty is contested.
67. The learned Counsel for the Appellant pointed out that Section 66A of the Act was inserted by Finance Act, 2006 w.e.f 18 April, 2006. The relevant portion of the said Section is reproduced below :
47 ST/51480/14 ‖66A. (1) Where any service specified in clause (105) of section 65 is, -
(a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be the taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply:‖
68. The taxable service under the aforesaid Section 66A has to be treated as if the recipient had himself provided the service in India. The impugned order seeks to levy Service Tax upon the Appellant as a service recipient. There was a confusion regarding imposition of tax on reverse charge basis and the legal position was finally settled by the Bombay High Court in Indian National Shipping Owners Association vs Union of India22. This decision was subsequently affirmed by the Supreme Court in Union of India vs Indian National Shipping Owners Association23. The Board had also issued instructions on 26 September, 2011. Taking into consideration all the aforesaid facts, a Division Bench of the Tribunal in N.R. Management Consultants India (P) Ltd. vs Commissioner of Service Tax, New Delhi24 _____________________
22. 2009 (13) STR 235 (Bom).
23. 2010 (17) STR J57 (SC).
24. A.No. ST/53360 & 53904/2014 decided on 08 December, 2017 48 ST/51480/14 held that there would be no justification in invoking the extended period of limitation in such a situation and the relevant portion of the decision is reproduced below :
"11............Even otherwise, we note that the demand for extended period cannot be sustained in the facts and circumstances of the present case. Admittedly, the concept of reverse charge was a new legal principle for service tax. The same was subjected to numerous litigation and interpretation.
The legal position got firmed up only after the decision of Hon'ble Bombay High Court in Indian national Shipping Owners Association - 2009 (13) STR 235 Bombay, which was affirmed by Hon'ble Supreme Court - SC 2010 (17) STR J57. The legal position was confirmed and clarified by Board vide instruction dated 26.09.2011. Further, tax, if any, paid on reverse charge basis would have been eligible to the appellant-assessee as a credit for discharging further service tax liability. In such scenario, we find no justification to invoke the extended period for demand.‖
69. The same principle will apply for imposing penalty under Section 78 of the Act as has been held by the Tribunal in Sakthi Sugars Limited vs Commisioner of Central Excise, Salem25 and Skipper Electricals Limited vs. Commissioner of Central Excise, Jaipur-I26.
70. In Sakthi Sugars Limited the Tribunal held :
"8. The learned counsel has strongly argued on the ground of limitation and also on the penalties imposed. It is correct that there was much controversy as to the liability to pay service tax under reverse charge mechanism during the relevant period. Prior to introduction of Section 66A in Finance Act, only the Rules provided for such levy and the doubt was whether there can be levy of service tax merely by providing in the rules, without having a charging section in the Act. The issue was set to rest by the judgment rendered in the case of Indian National Shipowners Association (supra). The decision was rendered in the year 2009 and was __________________
25. 2017 (9) TMI 30
26. 2017 (9) TMI 91
49 ST/51480/14 maintained by Supreme Court. This along with the fact that appellants would be eligible to avail credit on the service tax paid on input services, which gives rise to a revenue neutral situation we are of the opinion that the penalties imposed are unwarranted. The penalties imposed under Section 76 and 78 in both appeals are set aside.‖
71. In Skipper Electricals Limited the Tribunal held :
"5. However, the appellants had forcefully contended that the whole demand is hit by limitation in terms of Section 73 (1). In this connection, we have pursued the show cause notice, original order and the impugned order. The show cause notice and the Original Authority justified the demand for extended period only on the ground that the appellant did not add Business Auxiliary Service in their registration and did not file ST-3 return in respect of services received from outside India. On this basis, the suppression of fact was alleged. In fact, the impugned order did not discuss at all the justification for issuing demand for extended period. Admittedly, we find that the issue relating to service tax liability on the recipient of service was a subject matter of large number of litigations. The concept of reverse charge on import of service was new and was disputed. The legal position got clarified only with the decision of Hon'ble Bombay High Court in the case of Indian National Shipowners Association (supra). In such situation, we find that there is no justification for invoking allegation of willful mis-statement, suppression of fact with intend to evade service tax etc. Accordingly, we hold that the demand is barred by limitation, as having been issued well beyond the normal period from the relevant date. Accordingly, the impugned order is set aside on the ground of limitation and the appeal is allowed.‖
72. Thus, the imposition of penalty under the impugned order under this head is not justified.
SERIAL NO. 3
ADVERTISING AGENCY SERVICES --- ADVERTISING AGENCY SERVICE
73. The relevant portion of the order of the Commissioner under this head is contained in paragraph 26.2 of the order and is as follows :
50 ST/51480/14 ―26.2 On perusal of the definition of the advertising agency, I observe that any services connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant in relation to advertisement, in any manner, are taxable. I further observe that in terms of Section 65(105)(e) of the Act, any advertisement services, in any manner, are taxable. Thus, I find that the expenditure incurred by the party in foreign currency is taxable amount in terms of Section 65(105)(e) of the Act and such services are covered under the definition of ―Advertising Agency‖ in terms of Section 65(3) of the Act under the reverse charge mechanism in terms of the provisions of Rule 2(1)(d)(iv) of the ST Rules read with Section 68(2) of the Act.‖
74. The period of dispute is from 18 April, 2006 upto 31 March, 2007 and tax has been levied as a service recipient. The appellant does not dispute the liability to pay Service Tax under this head. The imposition of penalty is, however, contested.
75. The submissions advanced by the learned Counsel for the Appellant for contesting the penalty under this head are the same as advanced for contesting the penalty under the earlier head ‗Design and Consultancy Charges'. For the reasons stated, while dealing with imposition of penalty under the said head, the imposition of penalty under this head cannot also be sustained. SERIAL NO. 2
CURRENCY CONVERSION FEE --- BUSINESS
AUXILIARY SERVICE
76. The findings of the Commissioner under this head are contained in paragraph 23.2 of the impugned order and are as follows :
51 ST/51480/14 "23.2 The party recovered a small percentage of the transaction amount as ‗surcharge' or ‗transaction charge' from their guests to compensate them towards the charges which the party paid to the credit card companies. Similarly the party charged a small percentage as ‗transaction fee' for currency conversions from the guests. The amount procured by the party for providing such activities/services is liable to Service Tax under the ‗business auxiliary service'.‖
77. The impugned order has confirmed demand of Service Tax on conversion charges of currency received from hotel guests under ‗business auxiliary services' as a service provider. The period is from 01 April, 2003 to 31 March, 2003.
78. Learned Counsel for the Appellant submitted that the currency conversion charges cannot be subjected to levy of Service Tax under the category of ‗business auxiliary services'. These charges are received from the hotel guests for conversion of currency and service is rendered by the Appellant independently and not on behalf of anybody or in the capacity of an agent. The Appellant also does not even know the purpose for which such conversion is required by the customer. These charges, thus, cannot be said to be towards ‗business auxiliary services' and thus the contention is that confirmation of demand in the impugned order is not justified. The learned Counsel also submitted that the impugned order also does not justify as to how much charges are towards any of the activities specified in definition of ‗business auxiliary services' under Section 65(19) of the Act. In this connection, learned Counsel placed reliance on the following decisions of the Tribunal :
52 ST/51480/14
(i) Marudhara Motors vs Commissioner of Central Excise, Jaipur-II27
(ii) Molight Shipping Services Limited vs Commissioner of Central Excise, Chennai28
(iii) CMA CGM Global (India) Private Limited vs Commissioner of Central Excise, Chennai29
(iv) Kundan Cars Private Limited vs Commissioner of Central Excise, Pune-I30
(v) Alliance Francaise De Delhi vs Commissioner of Service Tax, Delhi31
(vi) Yash Motors vs Commissioner of Central Excise, Jaipur-II32
79. The learned Authorized Representative of the Department, however, supported the confirmation of demand under this head.
80. It has to be determined whether currency conversion charges can be subjected to levy of Service Tax under the category of ‗business auxiliary services'. These charges are stated to have been received from the hotel guests towards conversion of currency and the service said to have been rendered by the Appellant is independent and not on behalf of anybody or in the capacity of an agent. In M/s Marudhara Motors, a Division Bench of the Tribunal examined whether document processing charges received from the buyer of the vehicle could be subjected to levy of Service Tax under ‗business auxiliary services'. The Tribunal found that service was being provided to a client _______________________________
27. Final Order No. ST/58225/2017 dated 01.12.2017
28. 2017-VIL-929-CESTAT-CHE-ST
29. 2016 (41) STR 292 (Tri.-Mum)
30. 2017-TIOL-2860-CESTAT-MUM
31. 2017 (52) STR 268 (Tri.-Del)
32. Final Order No. 52016/2018 dated 25.05.2018 in A.No. ST/54372/2014 53 ST/51480/14 for and on behalf of the financial institutions or banks. It was for providing documentation that charges were claimed from the customers and since there was no involvement of any third party on whose behalf service could be said to have been provided to the customers, Service Tax could not have been demanded under ‗business auxiliary services'. The same view was expressed by the Tribunal in Marudhara Motors, Molight Shipping Services Limited, CMA CGM Global (India) Private Limited, Kundan Cars Private Limited, Alliance Francaise De Delhi, and Yash Motors.
81. In this view of the matter, the Commissioner was not justified in confirming the demand under this head. SERIAL NO. 1
MISCELLANEOUS REVENUE - LIKE PHOTOCOPIES ETC. --- CONVENTION CENTRE SERVICE
82. The findings of the Commissioner on this issue are contained in paragraphs 22 and 22.2 of the order and are as follows :
―I observe that the party has admitted that under the Business Centre Services they are giving rooms on rent for private meetings on which they are discharging their service tax liability under Mandap Keeper service. It has been alleged in the show cause notice that the other services viz. Secretarial service, photocopier, fax etc. are all ancillary to the Convention, services being provided by the party and are liable to be included in the gross value for the purpose of payment of service tax in terms of Section 67 of the Act. Thus the issue before me for deciding is as to whether the other services viz. Secretarial service, photocopier, fax etc. are all ancillary to the Convention services or not and whether the same is taxable under Section 65(105)(ze) of the Finance Act, 1994 for the purpose of levy of Service Tax.
xxxxx xxxxx xxxxxx
54 ST/51480/14
In view of the CBEC Circular, I find that the additional amount of Rs. 90,01,132/- charged by the party for providing facilities by way of other services viz. Secretarial service, photocopier, fax etc. are also liable to be included in the value of taxable service and the involved amount of Service Tax to the tune of Rs. 5,95,354/- (inclusive of Education Cess) is liable to be demanded and recovered from the party under the proviso to Section 73(1) under the Convention Service.‖
83. The impugned order has confirmed the demand of Service Tax on the income from Business Centre on the ground that it is part and parcel of ‗convention' service as a service provider. The period is from 01 October, 2002 to 31 March, 2004.
84. Learned Counsel for the Appellant submitted that miscellaneous amount received by the Appellant from guests towards courier, photocopy, lost key, secretarial and other facilities do not have a connection with convention centre service and hence no Service Tax could be levied. Learned Counsel also submitted that the Appellant had discharged the Service Tax on the amount charged for letting convention/business centre.
85. In order to appreciate the contention of the learned Counsel for the Appellant, it would be appropriate to reproduce the definition of ‗convention' under Section 65(32) of the Act and it is as follows :
"65(32) ―convention‖ means a formal meeting or assembly which is not open to the general public, but does not include a meeting or assembly, the principal purpose of which is to provide any type of amusement, entertainment or recreation;‖ 55 ST/51480/14
86. The ‗Taxable Service' under Section 65(105)(zc) is :
"65(105)(zc) "means any service provided or to be provided to any person by any person in relation to holding of a convention, in any manner.‖
87. It is more than apparent that the aforesaid charges collected by the Appellant from the hotel guests do not in any manner whatsoever relate to holding of a convention. Convention, as noticed above, means a formal meeting or assembly which is not open to the general public. The levy of charges under this head, therefore, cannot be sustained.
88. Thus, for all the reasons stated above, the confirmation of demand under the aforesaid heads, except for the service at Serial Nos. 3 and 4, are liable to be set aside and are, accordingly, set aside. The levy of penalty under the heads at Serial No's. 3 and 4 are also set aside. The impugned order to the aforesaid extent is, therefore, set aside and the Appeal is, accordingly, also allowed to the extent indicated above.
(Pronounced in the Court on 16 September, 2019) (JUSTICE DILIP GUPTA) PRESIDENT (BIJAY KUMAR) MEMBER (TECHNICAL) Golay