2018 (4) TMI 774 - AT - Service Tax

Tribunal rules hotel staff deployment expenses not taxable under Finance Act

C.C.E., Delhi. Versus M/s. ITC Ltd.

The Tribunal upheld the impugned order and dismissed the Revenue's appeal, ruling that the expenses reimbursed by hotels to the respondent for managerial ... Classification of services - the respondent stationed various Managerial / Supervisory and technical staff at those hotels - reimbursement of salaries and perks of the managers deployed to associate/subsidiary hotels - whether the service taxable under the head Manpower Recruitment and Supply Agency Service? - Held that: - the respondent was established with the sole objective of providing the hospitality business of itself and through its associated companies. Since the actual expenses incurred by the respondent towards deployment of the managerial personal were reimbursed by the hotels on actual basis, without any markup, it cannot be said that such expenses should be considered a service fee, taxable under the category of “Man power Recruitment or Supply Agency” service. In the case of Fortune P arks Hotels Ltd. [2016 (12) TMI 605 - CESTAT NEW DELHI], which is one of the hotels, where the respondent deploys its staff members, the Tribunal has held that the salary paid to the employees and reimbursed by the hotels, without any markup, cannot be subjected to service tax under Section 67 of the Act, by treating the same as part of the 'gross amount' charged by service provider for services provided by him. Appeal dismissed - decided against Revenue. Issues:Interpretation of taxable services under the Finance Act, 1994 regarding reimbursement of salaries and perks by a service provider to hotels for managerial staff deployment.Analysis:The case involved a respondent registered with the Service Tax Department providing taxable services to hotels through the deployment of managerial and technical staff. The Department initiated proceedings against the respondent, classifying the services under 'Manpower Recruitment and Supply Agency' and seeking service tax demand and penalties. However, the impugned order dropped the proceedings, stating that the reimbursement of salaries and perks by the respondent to hotels did not attract taxability under the specified service category.The Revenue appealed the decision, arguing that the expenses incurred by the respondent should be considered a service fee taxable under the category of 'Manpower Recruitment or Supply Agency' service. The respondent, on the other hand, supported the impugned order's findings and referenced a Tribunal decision in a similar case to support their stance.Upon hearing both parties and examining the case records, it was established that the respondent's agreements with hotels were for maintaining operational standards and efficiency, with expenses recovered on an actual basis without any markup. The respondent was not engaged in the business of manpower recruitment or supply, but rather focused on providing hospitality services through associated companies. The Tribunal found that the expenses reimbursed by hotels to the respondent, without any markup, did not constitute a service fee taxable under the specified category.Referring to a previous Tribunal decision involving a similar scenario, where the salary paid and reimbursed without markup was not subjected to service tax, the Tribunal dismissed the Revenue's appeal, concluding that there were no merits in their arguments.In light of the above analysis, the Tribunal upheld the impugned order and dismissed the Revenue's appeal, emphasizing that the expenses reimbursed by hotels to the respondent for managerial staff deployment were not subject to service tax under the relevant provisions of the Finance Act, 1994.